Choosing the Ideal Mortgage Products Based on Generational Differences

As you grow older, your mortgage needs change. But what types of mortgage products are available for buyers in different age groups and financial situations?

It may come as no surprise that the mortgage needs of a 70 year-old home buyer is different than those of a first-time home buyer in their 20s. According to an article last month by Marcie Geffner at MSN, the fact is that mortgage loan needs are different based on your age and where are you are at in your financial life.

Mortgage Loans for First-Time Buyers
There are many people who are fresh out of college and in a financial position to purchase their first home. According to Jim Pomposelli, a mortgage banker with Federal Savings Bank in Chicago, there are many people in their 20s who have been responsible with their finances and, as a result, they have great credit that qualifies them for purchasing a home. But with student loans hanging over their heads and very little cash in the bank, they have trouble coming up with a down payment.

For these younger buyers, there are two types of mortgage loans that are better than others. The first type is a low down payment conventional mortgage loan. With these mortgage loans, the typical 20 percent down payment is reduced to a 5 percent down payment which helps a first-time home buyer afford the loan. The second type of mortgage product that is attractive for young buyers is one that is insured by the government, such as a VA loan or FHA loan. These loans offer financial help to those who want to purchase a home but have very little savings to put towards the purchase of the home.  For more info on these types of loans see the article here. 

Products for the 30s and 40s Generation
For people who are in their 30s and 40s and already own their home, there are different mortgage products that are attractive to them. If they are not underwater on a current mortgage loans, a two-loan package may be the ideal financial move. This package is for homeowners who want to refinance their current mortgage or simply move to another home. With a two-loan package, the homeowner typically takes out a first mortgage on their current home at a low rate while also getting a home equity line of credit for financing their next home or for refinancing their current home. Generally, these homeowners have accumulated some assets and they are able to handle a higher amount of debt than the homeowners in the younger buying group.

If the homeowner in this age group is underwater on their mortgage, many of them have the option of taking advantage of the federal government’s HARP, or Home Affordable Refinance Program. The newest installment of this program designed to help troubled homeowners includes the provision of an unlimited cap on the mortgage borrower’s loan-to-value ratio.   More information on this and other mortgage assistance programs is found here 

Seniors and Retirees
There is a trend among homeowners who are approaching or already in their early retirement years to refinance their long-term mortgages into a shorter term mortgage, mainly a 15-year fixed mortgage. They are using the money that they are saving on their payments each month to put add to their retirement accounts. There are also many homeowners in this age group that are looking for inexpensive “fixer uppers” at a low price so they have something to do since they are no longer in the workforce.

Whatever mortgage is right for you, find the best rates in your area by clicking here. 

Reverse Mortgages: There is no such thing as "Free Money"

Sure, a reverse mortgage can fund your Caribbean cruises, and is generally tax-free and will not affect your social security or Medicare benefits, but reverse mortgages are not for everyone. Originally created to help seniors stay in their homes by converting equity in their homes to a sort of disposable income, reverse mortgages can end up being nightmares for seniors who cannot keep up with the terms and conditions associated with these types of loans.

Although reverse mortgages have been around since the 1960s, its growth was slow until the late 1980s when the Federal Housing Authority Insurance Program was signed into law and the first government-insured reverse mortgage was given.1 So, we’ve all heard of mortgages, but what exactly are reverse mortgages and how do they work?

As you pay off your mortgage to the bank each month, the equity you own in your home gets larger and the amount you owe decreases. A reverse mortgage is a type of loan available to seniors in which the homeowner can borrow against the value of his or her home and no repayment is required until the borrower dies or the home is sold or refinanced. Hence, as opposed to you paying the bank each month, the bank pays you instead. However, like a regular mortgage, you’re still required to pay real estate taxes and homeowner’s insurance.

Now let’s look at the types of reverse mortgages out there2:

Federally Insured Home Equity Conversion Mortgages (HECM): These are the most popular reverse mortgages out there and the first regulated programs on the market. Since 1989, the federal government, through the Federal Housing Administration (FHA) has insured HECMs.

Jumbo Reverse Mortgages: Also known as Proprietary Reverse Mortgages, were created to serve the unmet needs of the HECM market, specifically for those with higher property values. Although not federally insured, Jumbo reverse mortgages come with similar consumer protections and benefits.

So we all know there’s no such thing as a free lunch or “free money” in our case. Eventually the loan will have to be paid off, but when?

Scenario 1: When the borrower(s) have passed away.

Scenario 2: When borrower(s) have not lived in the home for 12 consecutive months.

Scenario 3: Borrower(s) decide to sell or refinance their homes.

The reverse mortgage will then become due if any of the 3 scenarios occur. The amount due will include the money borrowed, interest, and closing costs. Usually the loan is repaid through sale of the home or some other asset if a borrower’s heir wants to keep the home. As the reverse mortgage is a non-recourse loan, the amount a borrower’s heir ends up repaying will not exceed the value of the home at the time it’s sold.

Nonetheless reverse mortgages are costing some seniors their homes. A recent NY Times article by Jessica Silver – Greenberg noted, “Some lenders are aggressively pitching loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance. Others are wooing seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks.” Hence, some seniors are being forced out of their own homes due to their spouses passing away and their names not being on the deed, or various other reasons regarding the terms and conditions of the reverse mortgage that may have been misleadingly explained to them by brokers.

The articles also noted that despite the fact that reverse mortgages have declined in recent years, the default rate for these types of mortgages is at a record high of 9.4 percent, up 2 percent from a decade ago. Seniors often cannot repay the huge debt needed to save their homes and are forced out with nowhere to go.

Overall, reverse mortgages were created to help seniors stay in their homes and enjoy life, and yes, in some cases they do serve their purpose. However, there are cases where they may end up taking homes away and leaving some homeless. Reverse mortgages aren’t for everyone and it is important to be cautious and think ahead before getting one. 

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As Foreclosures Dwindle, Some States Still Feeling the Massive Pinch

While a decrease in the number of foreclosures in some states makes the housing figures look promising, there are some states where the number of foreclosures is about to spike.

There is some evidence that the housing industry may be on the mend. One of the big signs that we may be in a recovery phase is that the number of foreclosure filings has been dwindling. According to an article on CNBC, the number of foreclosures that were reported in the third quarter of 2012 was 531,576. Those numbers include the households that received a notice of default, bank repossessions, scheduled auctions and actual filing for foreclosure. That’s five percent fewer than the second quarter of this year and it’s an entire 13 percent fewer than the same time period last year. That’s a great sign that there is a rebound occurring in the housing market.

Unfortunately, those numbers may be somewhat deceiving. While foreclosures are down overall, those numbers do not take into account the foreclosures that are about to occur in several states. According to Daren Blomquist, the VP of RealtyTrac, “the other shoe is…being carefully lowered to the floor and…making little noise in the housing market.” But that’s about to change.

When it comes to foreclosures, the states fall into two basic categories – some states require a judge in order to proceed with the foreclosure proceedings and other states do not require a judge. In the states where a judge is not required for finalizing a foreclosure, the process gets pushed through quickly and with little delay. Those states include Michigan, California, and Arizona, among others. The states where a judge is required for a foreclosure include Ohio, Illinois, Florida, and New York. The exact figures for the number of foreclosures in these states are still somewhat sketchy, but it is not looking promising.

In 14 of the 26 of the judicial states, there was a spike in foreclosures this year when combined with last year’s figures. In fact, New Jersey experienced a whopping 130 percent increase in foreclosures this year compared to 2011. In New York, there was a 53 percent increase. Pennsylvania had a 35 percent increase. With the number of foreclosed properties increasing in these states, it’s going to be difficult for home prices to increase.

In some non-judicial states, the numbers are more positive. California, for instance, was one of the hardest hit states in terms of foreclosures. The number of foreclosures in The Golden State is still high, but they are down by about 45 percent when compared to the number from four years ago. Arizona is another state where foreclosures have dropped. The dwindling number of foreclosures in these states is making it difficult for investors to buy properties because the prices on the inventory is beginning to increase. In California alone, the number of homes that are priced on the lower end of the spectrum has plummeted by 40 percent, leaving first-time homebuyers in the state with yet another obstacle to overcome when trying to purchase a home. Combine that with the investors who are buying homes with cash and then turning around to rent those homes out and that brings down the number of homes available significantly as well.

While there is some promising news in the housing market, is it enough to call it a rebound? The next 12 months or so will help determine if tha is true or not.

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