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FHA loans are meant for the primary residences; this is a kind of mortgage that is insured by the Federal Housing Administration or FHA; hence the term FHA loans. Investors cannot purchase or refinance the FHA loans. General types of FHA loans are Repair Escrow FHA Home Loan, FHA 203k Loan and FHA Insurable Loan.
A loan can only be declared as FHA insured loan if it fulfills the criteria or the standards defined by the Federal Housing Administration. These standards or the criteria involve a lot of factors such as roofing, electrical wiring, plumbing and heating system. The properties purchased with FHA loans must have all these things in proper and working condition; some kind of cosmetic problems are allowed but electrical, plumbing, heating system and the roof of the house should be in good condition.
That was all about FHA insured loan; repair escrow FHA loan can be used for buying HUD properties which need repairing of up to ,000.

If the cost goes beyond ,000 you have to apply for FHA 203k loan. This loan is made for home development mainly; these loans are designed to bring a house or an area back to their previous, good condition.
All types of FHA loans are very popular because of the flexibilities they offer. Loan terms and conditions are not much strict and very much flexible – that is the reason a lot of people prefer to go with FHA loans. Some times FHA loans may have certain rules or specific clauses associated based on the area where you are based in. It is always good to do research about FHA loan laws in your area. After gathering all the information you can go for the right type of loan program that suits you most.
reverse mortgage is a bit complex topic; there are many people who say that they do not understand what reverse mortgage is. Many people have a wrong idea about reverse mortgage as well. It is significantly different from mortgage loans. Reverse mortgage is a loan against the equity on your home. The lenders offer you a monthly amount based on the equity and some other factors. Since the cash flows to the opposite way, the term ‘reverse’ is used here. Reverse mortgage is always profitable when you have a good equity usually; there are many other factors associated with it. One should consult an expert to know more about reverse mortgage.
The main advantage of reverse mortgage is, the homeowner gets quick cash when they need. And by doing this they do not lose their house as well. The homeowner can still live in the house after getting reverse mortgage application approved. However, everybody does not qualify for reverse mortgage. The applicant must be 62 years old to qualify for reverse mortgage. If the applicant is married, then the spouse should be 62 years old at least. The income of the person or the couple does not matter at all; but the applicant has to be the only owner of the property in order to become eligible for reverse mortgage.

For many, reverse mortgage may be mortgage loans for the desperate while for others it could be a trade for the home ownership. For yet others it could be free money received from the government or such other entitlement programs. But in reality, reverse mortgage is none of these.

What is Reverse Mortgage?
Broadly speaking reverse mortgage is just an equity home loan and is aimed at deferring the mortgage interests. It is not refinance as some people think but a way of deferring the repayments till the maturity of the loan.

HECM
HECM or Home Equity Conversion Mortgage is the most common type of reverse mortgage plan around that was created by the Federal Housing Administration way back in the year 1989.

Point of Difference
Difference of traditional mortgage loans and reverse mortgage is that in the former homeowners are required to make scheduled monthly installment payments. It could be anything from 10 to 30 years depending on the type of mortgage and requirements of the client. Such loans might have been obtained for buying another house or for any other purpose. On the other hand in case of reverse mortgage, the interest is not due till the mortgage is matured. Only requirement is that the homeowner still resides in the property and continues paying the property taxes and the insurance payments on the money borrowed by him or her.

Mortgagor Still Owns the Home Mortgages
When someone obtains a home equity loan in form of reverse mortgage, the benefit for such person is that despite mortgaging the owner continues to own the house mortgaged. Only difference from the time when the property was not mortgages is that a monthly statement will come indicating every time the status of the mortgage. However, no monthly payment is necessary.

Reverse Mortgage Eligibility
Eligibility criteria for reverse mortgage are as follows.

Mortgagor should be US citizen;
He or she should be permanent resident of the locality;
Age of the mortgagor should be 62 years or above; and
Has substantial equity in his or her home.
Basis of Sanction of Mortgage
Reverse mortgage is usually sanctioned on the basis of following factors.

Age of the home owner;
Current mortgage rates; and
Value of the home.
However, there is no necessity of credit score verification because there are no monthly payments in reverse mortgage. Mortgagor continues to stay in his or her home paying the usual property taxes and insurances.

The new changes to the Home Equity Conversion Mortgage (HECM) have caused some confusion to mature Americans and to many lenders. The changes made by Fannie Mae, FNMA, to the CMT-indexed HECMs came after significant margin increases over the past year. Mature Americans, age 62 and older, who are using the equity in their current home for a reverse mortgage, are receiving less money while getting higher interest rates and margins.

According to Fannie Mae Senior Vice President and single family risk officer, Michael A. Quinn, “Fannie Mae’s decision to discontinue to purchase CMT-indexed HECM’s is intended to help standardize and simplify HECM product offerings, build liquidity for the product, and encourage a market shift toward securitization.”

Under the CMT-indexed program mature Americans who were seeking to borrow against the equity in their current home were allowed to start with a higher rate than the current monthly adjustable options but at a lower rate than the fixed rate option.

This allowed the borrower to not have to take all of their equitable funds at the beginning of the loan period.

While the CMT-indexed program margins have been increasing the LIBOR or London Interbank Offered Rate has increased at a slower rate and has become the alternative product choice instead of the CMT product offering. Eliminating the CMT-indexed reverse mortgage

program does not detract from the other available options regarding these loans. Mature Americans are still able to use other adjustable reverse mortgage programs which will allow borrowers to still receive their payment options of a lump sum, monthly payments, a line of credit or a combination of all three payment types.

After August 31, 2009 the CMT-indexed loan program will no longer be available. Borrowers will still have fixed interest rate reverse mortgages as an alternative to adjustable interest rate reverse mortgages. Fixed rate HECMs allow mature Americans the ability to pay off an existing loan and need the lump sum cash payment for other needs.

The impact of the elimination of the CMT indexed HECM program is not yet fully understood by lenders or mature borrowers, therefore, the mature borrower should consult with a HUD approved HECM counselor, their trusted financial advisor or their family members to gain insight as to how the changes in these programs will impact their lives. Mature borrowers should understand the program requirements, ask questions and take their time when making a decision. Understanding the financial requirements and how the program works before speaking with a mortgage lender is very important.

World Consumer Rights Day Special-Finance: Reverse Mortgage: The sensible retirement plan

 

Reverse mortgages are loans taken out on home equity. They are designed specifically for seniors to use the value of their home to come up with cash for their post-retirement needs. Reverse mortgages differ from the traditional home equity loan in the sense that the borrower is not required to repay the loan until the last surviving borrower leaves the home. The borrower retains ownership of his home. For the elderly who have to fend off grasping relatives and land mafia to keep their property safe, reverse mortgage can be the ideal option

 

Lotika Sarkar, an ex-Law faculty head of theUniversityofDelhiand the wife of renowned journalist, Chanchal Sarkar, was swindled off her property inDelhiby a police officer who forcibly evicted her from her house.

The 80-year old Lotika Sarkar has had to take her case to the media to get the police to act on her complaint. Lotika Sarkar is not just another helpless senior citizen in the city. She has been a respected educationist and a law expert. Even so, she had come within a whisker of losing her home and old-age security.

Lotika Sarkar’s case exemplifies the plight of older people inIndia. Not just the under-privileged, even the well-educated and much-respected senior citizens are very vulnerable to financial fraud and physical harm. With many more such instances of people being evicted out of their properties coming to light, one just wonders why senior citizens who own property and may not have heirs, or want to will their property to anybody, are not choosing the ‘reverse mortgage’ option. To the elderly, whose only asset is their house, and who are cash-poor but house-rich, reverse mortgage is a popular option of ensuring a financially-secure retirement in many countries. Reverse mortgage is a way to have your house and money too.

 

What is Reverse Mortgage?

 

Reverse mortgage, as is commonly understood is a mortgage of a capital asset by a borrower against a loan from a bank or other lending institution, such loan not being returnable during the life-time of the borrower with the lending institution treating the loan amount and interest on sale of the mortgaged asset as repayable on death of borrower, unless redeemed by legal heirs. Such loan can, therefore, be availed by senior citizen persons.

 

Provisions of the notified Reverse Mortgage Scheme

 

Section 10 (43) has been inserted by the Finance Act, 2008 with effect from A.Y.2008-09 to exempt any loan received by an individual, whether in lump sum or in instalments in a transaction of reverse mortgage. But such exemption is available only if it conforms to the scheme notified by the Central government under section 47 (xvi). Such a loan amount whether received in lump sum or instalments is not income, which would have even otherwise been taxable. Similarly, exemption under section 47 (xvi) for transaction of a reverse mortgage from capital gains tax is equally redundant, because mortgage, by itself is not transferable for purposes of capital gains tax. These exemptions are apparently meant to indicate interest of the government in encouraging any benefit to senior citizens. Actually the scheme notified places undue restrictions for getting benefit of such illusory exemptions.

 

Restrictions under the notified scheme

 

Reverse Mortgage Scheme 2008 is notified by the Central government vide Notification dated 30-9-2008 which has come into effect from 1st April 2008 with the following conditions:

(1) Loan under the notification can only be from an approved lending institution which could be a National Housing Bank or a housing finance company registered with National Housing Bank or any scheduled bank.

(2) The mortgage asset has to be a residential house property withoutn encumbrances.

(3) The borrower has to be an individual above sixty years of age or any married couple with either the husband or the wife above sixty years of age.

(4) The loan is pursuance of the mortgage can be disbursed  either periodically or partly by way of lump sum and partly by periodic payments. But the lump sum part cannot exceed 50% of the loan sanctioned.

(5) The period of reverse mortgage cannot exceed twenty years from the date of reverse mortgage agreement approved by lending institutions.

(6) Reverse Mortgage Scheme, 2008, provides for either a lump sum payment not exceeding 50 per cent of the loan amount with a ceiling of Rs 15 lakh (or any amount notified by the Government) with the balance to be paid periodically or the entire amount to be disbursed periodically as may be decided mutually between the lending institution and the borrower. Periodic payment should not exceed Rs 50,000 a month or such other amount as may be notified by the Government. Operational guidelines also provide for the line of credit to be utilised in time of need as for improvement and insurance of mortgaged property, medical emergencies and other genuine needs, besides repayment of existing loan at the time of mortgage.

 

Procedure for the loan

 

An application for the loan has to be made in writing with the prescribed particulars satisfying the conditions therefore to the lending institution for mortgage of any residential house property without any encumbrance owned by the applicant. The lending institutions may charge a nominal amount as fees for processing the application. 

 

Reverse mortgage: not picking up in India

 

Reverse mortgages, introduced last year to provide senior citizens with a steady stream of income, is yet to find many takers. The reverse mortgage facility was billed as a major helping hand to old people without a steady stream of income. India has around 7.71 crore senior citizens, most of whom have to bear a lot of difficulties in their old age due to inadequate financial resources.

To be eligible for a reverse mortgage inIndia, the homeowner has to be 60 years or older. They have to then get the property evaluated and mortgage it to get a monthly cash flow for a specific number of years. Most reverse

mortgage loans are being offered at a rate of 10-11%. The property is evaluated every five years and the rate of interest and monthly instalment are subject to change accordingly.

Though the lending institution owns the house, the borrower can reside there until his/her demise. Thereafter, the legal heirs can opt to repay the bank the entire amount and retain the property. Alternatively, the bank sells it and after debiting its share, transfers the surplus to the legal heirs.

Even with its benefits, the scheme has not taken off inIndia. Experts and analysts say that the scheme has failed because of confusion relating to tax treatment. Tax planners, based on the notification put out by Central Board of Direct Taxes, or CBDT, the apex policy body that decides on direct taxes, argue that it is not yet clear as to whether the monthly payments accruing to the senior citizen after mortgaging the home should be treated as an income and hence taxed, or just be treated as a loan. At the same time, the banks are not sure how they should account for the accrued interest while giving out these loans. Banks also believe that there is a need for a complementary insurance product that will cover the borrower if they outlive the tenure of the loan.

 

Source: Investor Digest, Volume 10, Issue 12

A Brief Introduction to Refinancing

If you are thinking of retirement, you need to make sure that you provide for a steady source of cash that can cover your living as well as medical expenses. A steady source of income is also important if you need to pay off your existing debts. If you are at least 62 years or older and have at least 50% equity in your home a reverse mortgage can be a good option for your retirement.

A reverse mortgage is exactly what the title states, the reverse of a standard mortgage. With a standard mortgage, the borrower makes monthly payments to the lender in order to pay back the loan that the lender originally lent to the borrower for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, on the other hand, the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures it’s loan amount by using the house as collateral.

A reverse mortgage is a home loan that lets an elderly homeowner convert a portion of the equity in his or her home into a tax-free income. Reverse mortgages are a type of Home Equity Conversion (HEC) wherein the equity built up over years of home mortgage payments can be paid to the homeowner. In a HEC, the home is either mortgaged or sold to a financial institution or other buyer in exchange for a regular cash payment or line of credit.

What makes this type of loan attractive is the fact that neither income nor credit history is considered by lenders in determining who qualifies. There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower’s age, current interest rates and any lending limits that may be standard Bottom of Form 1for your geographic area. In general, the older the borrower and the more valuable the home, the larger the available loan amount is. You can choose how you want to receive your payments, either as a lump sum, monthly payments or as a line of credit. The best thing is that the proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses or to settle other debts.

It is advisable to remember that if you are a borrower with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not sufficient to pay off the existing mortgage, then you would need to access your savings or other sources to pay off the rest of existing mortgage amount. In this case, you won’t have access to any additional funds from the reverse mortgage. But it is generally observed that usually there is a small or no mortgage on the home and then the borrower is able to access nearly the full amount of the reverse mortgage to use at his or her discretion.

There are actually many options to consider and your lender should be able to provide you with all the necessary reverse mortgage tips. But before you consider reverse mortgage for seniors, it’s important for you to understand what your specific needs are and how you plan to use the proceeds.

A reverse mortgage is a blessing for the senior citizens who have some equity in their home. The lower limit of age to get these benefits may vary in different countries. This is an excellent option for those struggling to pay off medical bills or not having enough for monthly bills, and hence not able to lead a peaceful and relaxed post retirement life.

With a reverse loan you have various options to get money; it may be monthly, quarterly, annual or a lump sum. It is important that you discuss your options with the reverse mortgage lender you are working with. You may find that a certain method works better for you than others. For example you may decide to get all the money at once in a lump sum, if you have debts you need to pay off and that could be the best way to benefit from a reverse mortgage loan. If you want the money for medical expenses and other unexpected expenses that arise, you may wish to have a line of credit. This allows you to get access to the funds as and when you need them.

What if you are still paying a monthly payment on your home that is eating away at the cash flow you have available? With a reverse mortgage, you will be able to end those monthly payments. Then you will have more money for bills and living expenses than you had before. At the same time you continue to live in your own home.

You will find that reverse mortgage lenders have very few stipulations if any, about how the funds are spent. You may want to travel to places, you may need to do repairs to your home, or you may have ongoing health concerns that need quite an expensive treatment.

You will have some closing costs involved with a mortgage reverse but they will be minimal. There are some lenders out there that even roll them right into the loan so you don’t have to come up with any money at all. If you are really in a financial crunch then ask them about the possibility of them doing so for you with a reverse mortgage.

With a mortgage reverse you never have to worry about being forced to move out of your home. You will never face the dilemma of having to sell it and you will be able to get money for your living expenses as well. That peace of mind is certainly something that should make this type of loan worth looking into for you.

If the value of your home decreases, you won’t have to worry about that either. You won’t have to pay more than what the home is worth when it is sold in the future to pay off the loan. Instead, the program will write off that balance if there is any.

The benefits of a reverse mortgage can help with the long term financial goals of an elderly individual or a couple. In many instances people find that in our tough economy this is the only means that makes any sense to them in order to have their home and the money they need to live on.