Edina, Minnesota
Let's talk about the Twin Cities Real Estate Market. I will post helpful links and answer questions about real estate or mortgages. I live and work in Minnesota, so some of my ideas may focus specifically on Minnesota real estate or mortgage regulations applicable to our state.
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Apr. 15, 2008
GOVERNOR PAWLENTY ANNOUNCES ADDITIONAL ACTIONS TO ASSIST HOMEOWNERS FACING FORECLOSURE
~ Includes Foreclosure Counseling Workshops, funding for mediation, lender compact ~
Saint Paul –
"With additional help, the American dream of home ownership can be kept alive for more families facing foreclosure," Governor Pawlenty said. "Foreclosures continue to hit families and our state’s economy hard. We are hopeful that connecting more homeowners with counselors and providing a neutral third-party in some cases will help keep more homeowners in their homes, without negatively impacting the availability of credit in Minnesota."
Actions announced by Governor Pawlenty today include:
• Expanded Foreclosure Counseling Workshops to be held around the state
• Creation of the Minnesota Foreclosure Prevention Compact
• Mediation funding to assist homeowners when counseling is unsuccessful
• New Commerce Department assistance hotline for counselors
To provide Minnesota homeowners with additional tools to prevent foreclosure, Governor Tim Pawlenty today announced expanded foreclosure counseling workshops to be held around the state, creation of a compact with lenders to reduce foreclosures, and state funding for voluntary third-party mediation when counseling is unsuccessful.
Expanded Foreclosure Counseling Workshops to be held around the state
Governor Pawlenty announced a series of expanded mortgage Foreclosure Counseling Workshops around the state that bring lenders and borrowers together in one location. These workshops, sponsored by the Minnesota Home Ownership Center, will be greatly enhanced with additional lender participation. Lenders are being contacted directly by Department of Commerce to participate in these events.
Mortgage lenders and servicers will meet directly with homeowners to review their individual situation, and when possible, modify the terms of the loans in an effort to prevent foreclosure.
The first four expanded workshops will be held:
Tuesday, April 22, 4:30-8:30 p.m.
Minneapolis Urban League, 2100 Plymouth Avenue North, Minneapolis
Tuesday, May 13, 4:30-8:30 p.m.
Anoka County Technical College, 1355 West Highway 10, Anoka
Tuesday, May 20, 4:30-8:30 p.m.
Buffalo Discovery Center, 301 NE Second Avenue, Buffalo
Thursday, June 5, 4:30-8:30 p.m.
Eagan Community Center, 1501 Central Parkway, Eagan
Additional workshops in St. Cloud, Rochester and Duluth are being planned. More information is available at www.hocmn.org.
At Foreclosure Counseling Workshops, homeowners can ask questions and receive free and confidential advice from non-profit foreclosure counselors and mortgage lenders. The events are free and open to the public. There is no registration required and homeowners may stop by any time during the "open-house" style events.
Lenders and servicers asked to sign Minnesota Foreclosure Prevention Compact
Governor Pawlenty is asking lenders and servicers to sign a compact and agree to efforts to reduce foreclosures in Minnesota. The Department of Commerce has been meeting with lenders and servicers regarding the compact. Principles of the Minnesota Foreclosure Prevention Compact include:
• Work with mortgage foreclosure prevention counselors, and when necessary, participate in voluntary mediation.
• Participate in all Foreclosure Counseling Workshops in Minnesota.
• Engage in a substantial and large-scale loan modification effort for subprime mortgages and adjustable rate mortgage resets.
• Identify, evaluate and make good faith attempts to contact at-risk or defaulting borrowers as soon as possible.
• Modify loans to the extent permissible within existing fiduciary, contractual or other legal obligations and in accordance with prudent mortgage lending and servicing practices.
• Report progress to the Minnesota Department of Commerce.
Mediation funding to assist homeowners when counseling is unsuccessful
Because there are times when counseling cannot resolve issues surrounding a possible foreclosure, Governor Pawlenty has directed Minnesota Housing and the Department of Commerce to work with the Minnesota Homeownership Center and lenders to provide access to mediators when housing counselors and lenders believe it would be effective in keeping families in their homes.
Lenders and counselors have indicated that on occasion their efforts could benefit from the perspective of a neutral third party with mediation skills.
Mediators will be paid for by the state through grants from Minnesota Housing.
Earlier this month, Governor Pawlenty announced a $4.3 million federal grant, the second-largest such grant made to any state, to expand foreclosure prevention counseling in the state. With this funding, 37 additional counselors are being added to the statewide counseling network, for a total of 76 counselors.
Department of Commerce establishes Minnesota Foreclosure Hotline for counselors
At Governor Pawlenty’s direction, the Minnesota Department of Commerce has established a hotline for loan counselors if they experience problems contacting or negotiating with lenders. The department will then be able to contact the lender or servicers to ensure they are responding and acting in good faith.
The counselor hotline number is (651) 296-2569. This number should only be used by counselors and mediators, not individual homeowners.
Homeowners facing foreclosure are encouraged to call the Minnesota Foreclosure Hotline toll-free at
"The last thing your lender wants is for you to fall into foreclosure," said Minnesota Commerce Commissioner Glenn Wilson. "If you are behind on your mortgage and fear foreclosure, call your lender immediately for help or call the Minnesota Foreclosure Hotline."
Foreclosures typically occur due to unemployment or other loss of income. However, the increase in foreclosures beginning in 2006 is related to an increase in subprime loans and other non-traditional loans. Additional causes include flattening housing values, home equity cash-outs, and buyers assuming too much risk.
According to the nonprofit Housing Link, there were an estimated 20,573 foreclosures in Minnesota in 2007 – an 84% increase from 2006. Housing Link is projecting between 29,000 and 37,000 foreclosures in 2008. The figures are based on sheriffs’ sales of foreclosed properties.
1-866-462-6466 for information on counseling and other resources.
Pawlenty Administration’s ongoing efforts to curb foreclosures
Today’s announcement continues efforts by the Pawlenty Administration to address foreclosures and predatory lending practices in the state:
• Earlier this month, Governor Pawlenty announced a $4.3 million federal grant, the second-largest such grant made to any state, to expand foreclosure prevention counseling in the state. With this funding, 37 additional counselors are being added to the statewide counseling network, for a total of 76 counselors. It is estimated that this will result in 7,500 foreclosures being prevented this year.
• Also this month, Governor Pawlenty announced that Marquette Financial Companies provided a $500,000 grant to Minnesota Housing for foreclosure prevention deferred loans in the Twin Cities metropolitan area. These loans will be offered to homeowners who, with a modest amount of additional assistance, will be able to bring delinquent loans to current status over the long term.
• Minnesota mortgage laws were strengthened in 2007, significantly increasing the net worth requirements for mortgage originators operating as Minnesota corporations, requiring training for loan officers, and making mortgage fraud a specific crime in Minnesota. Minnesota law also now requires originators to verify a borrower’s ability to repay a loan and prohibits negatively amortizing loans, churning, subprime prepayment penalties, and partial payment quotes. These are among the toughest such laws in the nation.
• The Pawlenty Administration requested, and the legislature agreed, to add additional investigators at the Department of Commerce. The department assigned three additional investigators to respond to the increasing volume of cases and complexity of housing and lending fraud. For FY07 and the first half of FY08, the Minnesota Department of Commerce has taken 220 enforcement actions and imposed $678,850 in civil penalties in real estate or mortgage related cases.
• Minnesota’s ongoing commitment to foreclosure prevention includes a broad partnership that provides funding for a statewide network of counselors and state funding for foreclosure prevention loans of up to $5,500. Governor Pawlenty has proposed this year to increase the maximum size of these loans to $10,000 each. These efforts received an appropriation of $1.7 million in FY 2008-09.
• In 2007, Minnesota Housing made its largest single funding award ever of $11 million dollars to fund an effort in Minneapolis to acquire, rehabilitate, and re-market foreclosed and other vacant and boarded properties. A similar award of $500,000 was provided for a similar pilot program in Saint Paul.
• In 2007, the Minnesota Department of Commerce, with the support of the Minnesota Association of Realtors, transferred $500,000 to Minnesota Housing from the Real Estate Education, Research and Recovery Fund which is funded by real estate license fees. Minnesota Housing awarded the grants to the Minnesota Home Ownership Center and the Minneapolis Urban League for an early intervention foreclosure initiative for at-risk homeowners in targeted areas.
• In November 2007, Governor Pawlenty announced state funding for early intervention efforts and foreclosure prevention counseling. The Minnesota Housing award to the Greater Minnesota Housing Fund of $1 million was part of a response to a predicted 3-5 year situation. Another $800,000 in private, philanthropic and local funds were also committed to the effort. The funding doubled the number of
foreclosure prevention counselors from 18 to 37 statewide and effectively tripled the number of households that can be served.
The Minnesota Department of Commerce also reminds borrowers to beware of predatory lending practices. Homeowners who choose to refinance their mortgage should deal with a Minnesota licensed mortgage originator; check the department’s website at www.commerce.state.mn.us to
check the licensing status. Also, call the Minnesota Department of Commerce at (651) 296-2488 or 1-800-657-3602 to report suspected mortgage fraud. To contact a foreclosure prevention counselor, call the Home Ownership Center at (651) 659-9336 or (866) 462-6466. They will identify a counselor in a specific area of the state. The web site is www.hocmn.org
Mar. 28, 2008
I don't have a lot of information about this yet, because everything right now is preliminary. That being said, keep your eyes and ears open for a new proposal by the Bush Administration that would allow people with mortgages that exceed the value of their home to refinance. How the difference in value-ie negative equity would be handled is yet to be determined. I have talked to many home owners who are upside down. Rather than a short sale or foreclosure, they want to stay in their home. At the same time if they had an ARM, they may have a higher payment that can't be refinanced because of the loan to value. What if you could just refinance what it was worth? Wouldn't that be powerful! The biggest question would be how to deal with the evaporated equity. It will be interesting to see what can be created or if this will die as an idea that just can't be brought to the market.
Mar. 26, 2008
The Naked Truth About Real Estate Investing-The Reality Of Buying Rental Property Fully Exposed!
You have heard of Robert Kiyosaki, Donald Trump, and Carlton Sheets to name just a few of the late night TV real estate gurus. Each of these individuals have produced excellent products-books, tapes, and seminars that teach about investing in real estate. If you haven't bought their products-you should. These experts have all been successful buying and selling real estate throughout their own careers and have valuable information to share.
At the same time, not every best selling author is in the trenches on a daily basis helping others buy and sell property on a one-on-one basis. Successful investing in rental real estate demands that you adapt quickly to the current environment. Successful investors need to have their finger on the pulse of the marketplace at all times. Too often real estate investing has been made to look too easy and somewhat hands off. The truth is the exact opposite. People need to know that not everyone can succeed at buying and selling property. False expectations will almost always lead to failure. Investors need to hear an accurate and truthful summary of what is involved in owing rental property. It was the need for more truthful and realistic information that led to the creation of this new book.
The new book "Reality Based" Real Estate Investing by John Mazzara seeks to shortcut an investor's learning curve and provide a more realistic or "Reality Based" view on building wealth through real estate. John is a real estate broker associate with RE/MAX Associates Plus in Edina, Minnesota and owner of Venture Development-Minnesota's premier mortgage broker. John is an active real estate investor in the Twin Cities, MN. John was recently quoted in Investors Business Daily for his opinion about the current foreclosure and short sale situation as it pertains to existing homeowners. John's book brings 23 years of real life experiences from the trenches. He shares successes AND failures throughout the pages of this book. You will be entertained while you learn. The analysis of today's marketplace opportunities are specific to Minneapolis/St Paul and the Twin Cities metro area. The balance of the book is all about strategies and concepts that are without boundaries. This book will be of value to investors everywhere, regardless of where they live. After reading the book you will be able to determine whether or not you should become a real estate investor.
Unlike many books on the subject of investing in investment property, John doesn't tell you it's easy. In fact, he outlines the hard work and gives you a realistic summary of what to expect and what to watch out for. John shares what he perceives are the opportunities for investing in real estate TODAY. Topics covered in the book include: goal setting, tax strategies, holding period options, analysis of a property as an investment, correct property selection, geographic and demographic concerns, lease considerations, 1031 exchanging, insurance policies, options for taking title, appropriate mortgage financing, and the next steps necessary to make it all happen. In essence, you have a blueprint with reference material that can be use again and again over time.
The goal of owning real estate is to build long term wealth. We live in interesting times where our country and economy are at a crossroads. Think about the perfect storm for qualified buyers: price compression, fear, and tight mortgage loan financing. I encourage you to review this book as I believe it will prove to be a valuable resource. Let "Reality Based" Real Estate Investing serve as one of your guides on the journey towards financial independence through investing in real estate. Carpe diem!
Feb. 21, 2008
The report was just released today by the MAAR-Minneapolis Area Association Of Realtors. It is a very interesting report. It gives you a lot of data regarding what occurred within the Twin Cities metropolitan real estate market. It covers price data, median prices, unit and price sales data for each city and suburb surrounding the Twin Cities, and even price per sqft in each community. If you like data, this is YOUR report. It also shows the trend in pricing from 2001+ and the percentage change from from 2001 and 2006.
If you are a consumer, you will want to review this report when selecting an area. You can have access to the report via a download on my Minnesota Real estate site. On the lower left hand side you will see Reports/Press Releases. It is about the 5th or 6th item on the list.
On that same list, you will find the MAAR 125. This provides you with month over month and year over year data comparison. Most interesting to note is the percentage of list to sales price. You will find the range is 90-97% within most communities. The more desirable communities will hold closer to the 97% whereas the communities under more pressure will be lower. What does this mean? It means that sellers are NOT taking huge price reductions. Why is this important? YOU need to manage your expectations. I have met with some buyers recently who think that they can go in and bid whatever they want and the seller should accept it. The data doesn't lie. As a whole, sellers aren't taking huge hits in pricing. Obviously, price to offer acceptance is all about area and will be house specific. With that in mind, don't plan on stealing a house. Plan on buying a house that suits your needs. The sellers in this market are aware of the market and are pricing their home to sell.
Feb. 19, 2008
I have been selling homes since 1986 and financing them since 1995. Currently and over the years, I've acquired/managed/bought/sold rental properties. The current market presents a huge opportunity for qualifed investment property purchasers. In order to prosper instead of perishing, you need to be informed and educated.
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Last year I started to write a book about investment properties entitled "Reality Based" Real Estate Investing. I have always wanted to write a book and share my knowledge and experience. We've just released the book in PDF format. It is currently available for purchase via download at http://www.freeiq.com/realitybasedrealestateinvesting.
Also, It will be published at Amazon.com within the next few weeks as a 7x10 paperback. If you would like to be made aware about the upcoming paperback release, let me know. Our website specific to the book is http://www.RealityBasedRealEstateInvesting.com
Feb. 16, 2008
Vulture investing in foreclosures or short sales can turn out to be tremendously profitable IF you have a long enough holding period of time. Based on what I see in the market today, you should plan on at least a 4 year holding period. I feel that the market should have turned around within the next four years. Real estate investing has always been attractive to those looking to build wealth. In the past few year,with all the stories of people making tremendous amounts of money in real estate it's no wonder why so many are looking at real estate as an investment vehicle. In general, real estate may offer more security than the stock market. In addition, real estate provides great potential leveraged returns and tax benefits. Everybody can buy and sell stocks from their phone or computer these days. But real estate requires a time commitment and mastery of a learning curve to be successful.
Lack of capital can be one of the obstacles that many are faced with. Lack of money to acquire a piece of property prevents most people from buying. Although in reality this is usually not the biggest problem. Credit or job status have typically been bigger limiting factors. You might say "Hey, what do you mean that "no money", isn't the biggest obstacle. I would love to invest in real estate, but I just can't afford to!" The point is that hardly anyone who buys a piece of real estate has enough money in their account to pay for it with cash. That's where your banker comes in. Do you know anyone that owns their own home? I mean truly own it? Probably not unless they are retired. You know a lot of people that have a house to their name, but wait until they get behind on their monthly mortgage payments and you will soon find out who really owns their house. That's right, the bank. So if these people can use the bank's money to buy a house, why can't you? This is the principal of leverage.
Understanding and accepting that "money" is not the limiting factor will allow you to move forward. For example, just take a look at how many people are still renting a property instead of buying one. Now of course the relation between rent and housing prices varies from country to country and even from area to area. But wherever you go you will still find people renting, because in their mind "they don't have enough money to buy a house." In reality it would be much cheaper for them to buy! If only they would shift their paradigm. We have many programs that provide for 100% financing. Zero down in not just limited to veterans with VA loans.
Renting can be the right decision, but it might not be. When you rent, you are getting the pleasure of living with less responsibility, but you're not building any long term equity. Every dollar you spend on rent is a dollar you will never see again. Whereas if you own your own home, instead of paying rent you would be paying for your mortgage and getting appreciation. This assumes a normal real estate market. In the Twin Cities, Minnesota we are projected to grow in population by over the next 15 years. The influx in population will lead to greater demand and appreciation.
So if you've ever thought about getting started in real estate-either as an investor or first time home buyer-JUST DO IT. Take action now. Owning real estate is a great first step towards building your wealth. In the renting Vs owning analysis,in many cases, it just makes more sense financially to own your home. When real estate prices go up, so does the value of your property. Whereas the money you owe the bank, your mortgage, remains the same. In other words this helps you build your net worth. Compare this to people that are paying rent... Their net worth does nothing. However their landlord's net worth is doing very nicely in this scenario and he or she will probably love you for it. So if you get a warm fuzzy feeling about making somebody else rich at your own expense... Keep renting. If you would rather build your own equity... Buy your own house!
Think about people you know. Many who have been home owners have accumulated more money through appreciation of their property than by working a full time job for many years. As you may or may not know, real estate prices do not always go up, and certainly not in a straight line. The current market we are in has led some to analysis paralysis. The downtrending market has been a nightmare for many people. If for some reason you would have to sell your home in a down market, it can be a costly adventure. You wouldn't be the first to end up with a house worth considerably less than the existing mortgage balance. This is when people approach their bank with a short sale or foreclosure. The new mortgage debt forgiveness act was specifically developed for this reason. Historically, real estate prices rise, but in any cycle there are down periods. This why we say you should consider buying now. We are at the lower end of the market cycle. Patientience will be enable you to sit through these times and profit from the long term up-trend of rising values when they return.
Feb. 10, 2008
 Terrific Tips for Minnesota First Time Home Buyers and first time buyers everywhere
Are you currently thinking about buying your first house? Real estate is a fantastic investment. Don't let the media hype fool you: low interest rates combined with reduced home prices make this an excellent economic environment for first-time home buyers. Here are a few tips to help you along the way.
The first and most important thing to remember is to buy only as much house as you can afford. Just because a lot of young people in your area are buying gigantic homes with acres of property and four car garages doesn't necessarily mean they could afford their mortgages. All you have to do is look at the foreclosures situation to see examples of people who purchased more than they should have.
Adjustable rate mortgages, or ARMs, have been exceedingly popular in the last ten years. When the housing market was on fire a few years ago, banks were giving out loans to practically anyone, regardless of their income or credit.
ARMs made it possible for people to buy enormous homes even though they didn't make a lot of money because they start out with low payments and then balloon as time passes. This is a big contributing factor to the current housing crisis. More and more people who had adjustable rate mortgage loans are defaulting as their homes go into foreclosure. I tell you this not to discourage you from looking at ARMS, but to help you understand the risks. In fact, FHA offers a great ARM that have 1% annual caps and a lifetime cap of 5%. This will beat any conventional ARM offered.
Because the banks are feeling the crunch, credit standards are being raised. If you are uncertain of your credit score, it is wise to check online with a company like TransUnion or Experian to find out where you stand before you apply for a home loan. Clear up any financial loose ends and get your score looking the best it can before you start the home loan process. You'll get a better interest rate and have more leverage with lenders. It may even allow you to get 100% financing. Yes, we still can do 100% financing and you don't have to be a veteran.
As far as your down payment is concerned, you may want to come up with as much money as you possibly can. Why, you ask? PMI, or principal mortgage insurance, will add to your monthly payment until you've paid for twenty percent of your home. Even if you can't get that much money together, and most first time home buyers simply can't, try your best if you want to avoid PMI. As an added bonus, a nice down payment improves your chances of getting your loan in the first place.The good news is that your PMI might be deductible. You have to have an adjusted gross income of under 100K to deduct it all otherwise it will phase out when it reaches 110K.
You will pay half a percent to one and half percent of your loan value every year until it reaches approximately 75-80% of either the initial loan balance or of the market value. The rules are different for FHA and conventional loans and vary slightly. Generally,lenders won't tell you that you're eligible to get your PMI dropped from your payment. So, be sure to keep tabs on your remaining loan balance and contact your lender to get the PMI dropped. It will save you quite a bit of money in the long run.
Feb. 10, 2008
Take Advantage of Low 30-Year Fixed Rates
Are you looking to buy a home? You are actually at a great advantage now, despite all the horror stories on the news every night. The astounding number of foreclosures across the country has forced the government to find ways to stimulate the economy. One of the major benefits for buyers in the market today is the low 30-year fixed rate.
Recently, 30-year fixed rates dropped to the lowest level in the last four years. The average fixed mortgage rate in the final weeks of January 2008 was 5.48%, marginally above 2004's low of 5.40%. This marks the third consecutive week that 30-year fixed rates were below six percent.
In a battle to combat a recession, the Federal Reserve implemented key interest rate cuts. This has been one of the main factors in the drop, along with a further weakening of the economy. It is hoped such a large drop in rates will spur more people to buy homes, whether new or existing.
For current homeowners looking to refinance, the current low 30-year fixed rate is the perfect opportunity. With so many in foreclosure peril from adjustable rate mortgages, homeowners are looking to save money and lower payments.
The advantages of a 30-year fixed rate are obvious. While the payments initially may be more than an adjustable rate mortgage, the fixed nature of the mortgage will keep payments steady. When adjustable rates balloon, as they have recently, the fixed rate will remain the same. Also, the early payments of a 30-year fixed rate loan are primarily interest, which is tax deductible. Monthly financial planning is easier when you know what each payment will be.
One of the cons of a 30-year fixed rate is higher interest. With a 15-year mortgage, payments are much higher but interest is significantly lower. Also, without a down payment, mortgage insurance is usually required. This adds a small amount onto each payment until a percentage of the principle has been paid, usually twenty percent. After this the private mortgage insurance (PMI) is no longer required. If you have PMI in your mortgage payments, be sure to notify the lending institution when you have paid off that percentage of your property. Otherwise they may continue to charge you for it.
Though there are some slight drawbacks associated with a 30-year fixed rate mortgage, they are generally a homeowner's best bet. Some studies have shown homeowners saving money on adjustable rate mortgages, but these are rare cases. Especially with the current economic uncertainty, a 30-year fixed rate is a reliable constant.
Lending institutions have varying interest offers. Many Websites report on the current rates offered by large lenders. A good site has no direct connection or interests attached to any of these companies. Be mindful of any sites that offer advertising for any financial institutions.
With smart shopping, it's a great time to find a home with the current 30-year fixed mortgage rates. The housing situation will recover, and the rates will go up. So take advantage of this time to buy your dream home or refinance your existing property. Visit our mortgage broker website at http://www.ventureloanapp.com
Jan. 25, 2008
Loan Size on FHA Mortgage Loans Will Be Increased
Here's what we know so far: There will be an FHA modernization bill that passes this year. The proposed bill is bouncing back and forth between the House and Senate. Once thing is for sure, or as sure as we can be at this time, the FHA mortgage loan limit will rise to 125% of the median home price with a cap of $730K This will have a bigger affect on areas of the country that don't utilize FHA to a great extent at the moment-Areas such as the two coasts which have more expensive housing. FHA mortgages price better than conventional jumbo loans. This can make that big house more affordable.
In Minnesota, our average home is just over $200K. At the same time, this new FHA loan limit will help as it will bring in another financing option to consider. With regards to refinancing, this might prove to be extremely advantageous. FHA allows you to refinance up to 97% of a homes value. Unlike conventional loans, the mortgage insurance-called MIP( mortgage insurance premium) is not predicated on loan to value or credit scores. For this reason, I could see many people with conventional loans refinancing into an FHA loan in order to get a lower payment. This will also help on reverse mortgages. If the limit is increased, people can do larger FHA reverse mortgages in place of conventional reverse mortgages. So the big question under the new law is how big will the new FHA mortgages be allowed in Minnesota.
Some sticking points revolve around the down payment requirement with FHA. Will they allow a zero down product. Fannie Mae and Freddie Mac allow zero down with programs such as the Flex 100, My Community and Home Possible. FHA may create a similar program. The lower mortgage insurance with FHA will make a dramatic difference in the housing payment when all the other options are compared side by side.
There are a couple of other points of contention, such as down payment assistance and bonding requirement vs. net worth requirement for mortgage brokers that want to offer FHA loans. These points are being fine tuned. The future for FHA loans looks very bright indeed.
To find out more about FHA mortgages and the FHA Secure Mortgage program, visit our website http://www.ventureloanapp.com and specifically our FHA page http://www.ventureloanapp.com/FHA_20_LOANS.html
Jan. 23, 2008
With the market being a little slower, you might want to look at a new buyer that you may have never considered. Think about the senior homeowner as a potential buyer using a REVERSE MORTGAGE. First let's talk about what a reverse mortgage is and how they work.
For many seniors, home equity is roughly 30-40 percent of their net worth. They are house poor often times and don't have the available funds to make repairs. If you and your spouse are both at least 62 years of age and have significant equity in your home, a reverse mortgage can turn that equity into tax-free cash without forcing you to move or make a monthly payment. YOU DON'T NEED A JOB AND YOU DON'T NEED CREDIT! Age and equity are the only qualifying factors.
A reverse mortgage can be a worthwhile financial tool if used correctly. At the same time, you could make some serious mistakes with your financial future. For example, you don't want to take your equity and run down to the casino.
A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:
· A lump sum cash payment;
· A monthly cash payment;
· A line of credit (which tends to be the most popular option);
• Some combination of the above.
When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don't have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for. Unfortunately, heirs often discourage people from getting a reverse mortgage because they are afraid of losing their inheritance.
There are three basic types of reverse mortgages:
· Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;
· Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);
• Proprietary reverse mortgages are private loans that cover home values usually over $600,000.
Some loans are conventional loans, some are proprietary loans held by certain lenders and some are insured by FHA. The size of a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county. The amounts vary from $200,160 in rural areas to $362,790 in many major metropolitan areas. In Alaska, Guam, Hawaii and the U.S. Virgin Islands, the FHA mortgage limits can be adjusted up to 150 percent of the ceiling based on the area. If the FHA modernization Act is passed, it is possible that the FHA loan limit will be raised. This would be great, since it seems that FHA is the mortgage loan that generally gives more equity to the senior.
Reverse mortgages have traditionally been chosen by older Americans who can't cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home health care services, home improvements or to pay off their current mortgage or credit cards greater than their income can support. More recently, though, they've become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes. Evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.
You will have to consult with a financial planner before you're granted this loan - that's one of the requirements. You might consider a CERTIFIED FINANCIAL PLANNERTM professional to do this because reverse mortgages can be complex and risky. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500. There is required counseling to make sure that you are making the right decision for you.
Here are other things to consider-some of these are risks:
Cost: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000 and $18,000. The loans are based on anticipated home value appreciation of four percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.
You'll need to make sure you're not endangering your federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if your total liquid assets exceed allowable limits under federal guidelines, you might endanger your benefits. This is another critical reason to work with a financial planner on this decision.
Rates: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount you owe each month. Again, check the total annual loan cost.
Your mortgage can be called due and payable: The homeowner or estate always retains title to the home, but if you fail to pay your property taxes, adequately maintain your home, pay your insurance premiums, or change your primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.
Did you know that you can actually use a reverse mortage to buy a house? How do you do it? Let's take an example: maybe you sell you are a senior that sells their home and nets 300K. Next they can go buy a new home for about 500K, by putting down 300K, and financing the other 200K with a reverse mortgage. Maybe a senior would like to move from their older house of many years to a new condo or loft. This would be a great way to do it.
Talk to your kids as their ignorance of this product may cause them to give you bad advice. If your house is your major asset, getting involved in a reverse mortgage may not leave much to the next generation - if it appreciates, there may be some difference that the kids can have. That's why that in addition to discussing a reverse mortgage with a financial adviser, seniors need to talk with their family.
You can find out more information at our mortgage website or at the specific reverse mortgage page.
Jan. 20, 2008
What’s positive about being foreclosed upon or selling your home for less than you owe? Well, for most people, not much. Yes, you are relieved of an onerous mortgage loan and you are now free to find housing that is more affordable within your budget. But not everyone fully understands the lingering effects of a foreclosure as it pertains to the mortgage debt forgiveness. This applies to foreclosures, short sales and a deed in lieu of foreclosure.
Foreclosure can be one of the most devastating things a homeowner can face. At a minimum, they will end up with damaged credit. Until recently, the tax laws further penalized homeowners who were relieved of mortgage debt obligations with additional taxation. Homeowners owe taxes on the amount of the debt obligation from which they are relieved. For example, let’s look at a short sale. If a bank agreed to accept $200,000 as payment in full to satisfy a mortgage where the homeowner owed $250,000, the homeowner would owe taxes on $50,000. They were relieved of repaying $50,000 in mortgage debt. When you are relieved of debt, you are actually benefiting because you no longer have the obligation to pay it back. Hence you must pay tax on this “unrealized income” even if there was no direct corresponding benefit, such as equity proceeds from a sale. At the same time, how is the homeowner who just lost everything going to be able to pay tax on the differential of the satisfied mortgage obligation when they received no tangible proceeds from the sale?
As we have just seen, the amount of debt forgiveness is considered income. All debt forgiveness, not just mortgage debt, results in reportable taxable income. Many people who’ve walked away from their homes have found this out the hard way. Many found out at the end of the year when they opened their mail and found they’d received a 1099C. The 1099C is the IRS form that the creditor gives the debtor when they have forgiveness of debt.
Today we have a record number of foreclosures. When banks and lenders sell homes they’ve gotten back during the foreclosure process they are less concerned about the bottom line and more concerned about being rid of the collateral. This can result in spiraling downward values in areas or communities where foreclosures are high. Large numbers of foreclosures like we are currently experiencing are hurting our overall real estate market valuations.
One solution to the problem has been to encourage those homeowners in distress to work with the bank to sell the home while they continue to occupy the property. This may result in a short sale, whereby the bank agrees to accept less than is owed on the outstanding mortgage. Together, the bank and homeowner work to sell at the highest possible price given the conditions of the prevailing market. Working together allows the home to be maintained and occupied during the course of the sale. This generally is less costly to the lender and is one of the reasons why they entertain short sales.
In general, short sales are less “shocking” to the market values in comparison to a lender going through the foreclosure process and then reselling the property as an REO. This should be encouraged where possible.
Tax wise, homeowners still receive a 1099C. From a credit report perspective, the lender usually won’t report a foreclosure against the homeowner if they sell with a short sale. A short sale in that instance will be beneficial to the seller’s credit and may be helpful when the seller becomes a buyer and wants to obtain another mortgage in the future.
In Minnesota we have a unique situation regarding foreclosures. For owner occupied properties, we have a 6 month right of redemption from the date of the Sheriff’s sale. Because of the long redemption period, during which no payments are due, many in Minnesota are opting to be foreclosed upon instead so they can live in the home for free. You see this occurring most often where preservation of a one’s credit rating is no longer important to the homeowner.
To encourage lenders and homeowners to work together, the government has just created a new law. The law is H.R. 3648, entitled Mortgage Forgiveness Act of 2007 and was signed into law as of mid December 2007. Here’s what the law does: it waives taxes for debts forgiven from the beginning of 2007 to the end of 2009. This means no more 1099C, at least during this time frame.
Can you see the implications? This means that homeowners and lenders can work together to either sell or refinance the existing mortgage debt, without having to recognize the taxes due on the amount forgiven. It provides an incentive to protect your credit and work out an acceptable solution, such as a short sale. Income taxes are taken out of the equation since there isn’t anymore inherent tax liability from mortgage forgiveness.
This should slow down the foreclosure crisis and allow values to stabilize. This is a good law that should help ease the mortgage and real estate crisis we are facing today.
Dec. 22, 2007
Here are some videos you might like to watch regarding mortgages:
Wealth Building 101: Leverage
CLICK HERE
How Credit Works
CLICK HERE
Stop Foreclosure
CLICK HERE
No Payments For Life
CLICK HERE
Interest Only-is it right for me
CLICK HERE
Identity Theft Protection
CLICK HERE
Construction Loans
CLICK HERE
Fixed Rate Security
CLICK HERE
The Home-Buying Process
CLICK HERE
All About ARMs-Why Get One?
CLICK HERE
Dec. 10, 2007
I have just finished writing a book about real estate investing called "Reality Based" Real Estate Investing. It is based on my 23 years of buying and selling real estate. I KNOW you will find valuable information in this book. If you would like to learn more or order a copy-please visit http://www.RealityBasedRealEstateInvesting.com
Aug. 10, 2007
We recently sent out a press release that talks about the current mortgage market meltdown. The State of Minnesota may be making the current situation worse.
View it here:
http://www.prweb.com/releases/2007/08/prweb545749.htm
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