A reverse mortgage has been a popular choice for lots of people, during the recession. It has saved homeowners from having to sell their house during financial hardship. Some of the stories in the media and from friends might lead you to believe that there are only upsides to a reversed mortgage. Lenders don’t usually tell you all of the pitfalls because they can make a lot of profit on it. You should be aware that a reversed mortgage is not the best solution for everyone.
What is a reverse mortgage?A reverse mortgage is a way to take the equity out of your home and turn it into cash. Equity is the difference between the market value of the house and the remaining mortgage amount. Basically, it’s the money you have left after selling your house and paying off the mortgage lender.
The reverse mortgage can give you access to this equity without selling your house. It’s aimed at people that are 62 years of age or older and has no limitations to what the money is spend on. It’s called a reverse mortgage because you don’t have to make monthly payments to your mortgage lender but he will actually be paying you.
There are three ways in which you can receive the money. It can be released either as a one-off payment, a line of credit that can be accessed when you need it, or by monthly installments. Most reverse mortgages allow you to take out about 60% to 80% of the value of your house.
Benefits of a reverse mortgageThe biggest benefit of a reverse mortgage is that you will have fast access to a large sum of money. You don’t even need to have a steady income to be able to apply. It’s not until you sell your house that you have to worry about paying back.
A lot of people who find themselves in a financial crisis have no other option than to sell their house and start all over. The big benefit of a reverse mortgage is that this nightmare scenario can be avoided.
Downsides of a reverse mortgageThe reverse mortgage won’t exempt you from paying property taxes, homeowners insurance or homeowners association dues. You’ll also have to finance the interest and closing costs. All of these costs have to be factored in when making the decision whether or not to go for a reverse mortgage.
It’s also good to note that you won’t be building up any equity in your home anymore. Instead of making payments that get you closer to owning the house every month, you’re building up a debt.
Should I get a reverse mortgage?This is a question that depends largely on your specific personal situation. Getting a reverse mortgage is definitely not a step you’ll want to take without thorough calculation. You’ll have to ask yourself first if there are absolutely no other options available than to tap into the equity of your home. This equity is considered by many as a means to fund retirement or to leave to loved ones and might not be something you want to give up.
You can change your financial situation in a drastic way just by changing your lifestyle drastically. Until you’ve turned every penny around and are living as minimalistic as possible, you should start to look at drastic options like a reverse mortgage.
There are also federal assistance programs available that aren’t profit-based. We highly recommend you to talk to an independent financial professional that can take all of your personal details into account.
Photo Credits: House Sign – Reverse Mortgage/ Photo by American Advisors Group via AAG.com / CC BY
We’re not gonna lie: Taking care of home maintenance tasks isn’t going to be any easier in January than it was during the holiday bustle of December. You’ve buttoned up the house against the cold, and you’re in the dead of winter without even a glimpse of spring in sight.
Still, homes must be maintained, even in January. Why? It’s always easier and cheaper to maintain a house than to repair it—sometimes to the tune of thousands of dollars.
Since we’re all about saving you time and money, we’ve created a handy checklist of home maintenance tasks that need to be completed this month—plus tips for how to do them faster and easier, or with the help of a pro. So take a deep breath and dive into those chores. The good news? Many are inside chores, so you have no “It’s too cold!” excuses.
Shortcut: Instead of pitching holiday cards or tucking them away never to be seen again, recycle them into gift tags for next year. Find a pretty part of the card that has no writing on the back, cut it into a small square, and punch a hole in the corner.
Call in the pros: If you’ve ever considered a cleaning crew, now’s the time. Figure on paying $200 to $300 for a one-time cleaning. Ask friends who have a regular cleaning person to share the name for a one-off.
2. Protect the pipesTask: Prevent exposed pipes from freezing as temperatures drop. A frozen pipe can crack or burst, flooding your home. If you’re planning a winter vacation, don’t forget to wrap pipes with heat tape you can control with a thermostat. And if you haven’t turned off water to outdoor spigots yet, consider yourself lucky—if they haven’t yet burst, shut off water valves and open spigots to drain existing water.
Shortcut: To thaw a frozen pipe, wrap it with a heating pad or turn a hairdryer on it.
Call in the pros: If a pipe bursts, shut off the main water valve to your home and call a plumber, which will run you anywhere from $45 to $150 an hour. If everything’s drenched, a water remediation or restoration company can perform cleanup —cart away damaged material, replace ceilings and walls, paint, and reinstall plumbing fixtures—for $23 a square foot.
3. Check for storm damageTask: After winter storms, inspect your home’s roof, siding, gutters, and yard for wind, snow, or ice damage.
Shortcut: Instead of climbing on the roof to look for missing shingles, use binoculars to search for damage. Better yet, buy a drone that can fly over your house and spot damaged areas.
Call in the pros: A little storm damage can become a big problem if you don’t make immediate repairs. A roofing company can inspect and replace a few shingles for $95 to $127; a handyman can reattach hanging gutters for $171 to $492; and an arborist can remove cracked tree limbs and prune trees for $375 to $525.
4. Seek and destroy hidden dirtTask: Clean those filthy places that people don’t see but you know are there. They include the range hood and grilles, refrigerator coils, tops of ceiling fans, dusty light fixtures and bulbs (make sure lights are off before dusting), and HVAC vents.
Shortcut: Let your dishwasher clean metal parts such as vent grilles and range hood filters. You can pop dirty sponges and dishrags in the dishwasher, too.
Call in the pros: This deep cleaning is above and beyond the tasks that cleaning crews normally perform. If you want a crew to do this type of cleaning, negotiate the surcharge up front.
5. Give hardware some love
A lot of hands probably touched that door handle, so go head and wipe it down.wakila/iStock
Task: Shine and tighten doorknobs and hinges; tighten loose cabinet pulls and nobs; and level cabinet doors.
Shortcut: To clean metal hardware, wash with soapy water, then shine with a microfiber cloth dipped in vinegar or lemon juice. Brass polish will remove tarnish from solid brass hardware. Not sure it’s brass? If a magnet sticks, it’s most likely metal, not solid brass.
Call in the pros: If you’re going to take off hinges and locks, hire a handyman (those doors are heavy). Prices vary widely, and some handyman services charge $125 an hour for skilled jobs. Cleaning hardware is more tedious than skillful, so don’t pay more than $30 to $60an hour.
6. Do a deep declutterTask: Banish piles, clean out closets and drawers, and tackle the basement if you can stand it. Channel your inner Marie Kondo: If you haven’t touched something in a year or don’t love it, then you should toss, donate, or recycle it.
Shortcut: If you can’t face a total house declutter, do little bits over a few days. Pick one room or a corner of the room to organize. Or, every time you walk into a room, put/throw one thing away.
Call in the pros: Professional organizers take no prisoners when decluttering your home and setting up systems to keep things nice and tidy. But this tough love doesn’t come cheap. A professional organizer costs $30 to $80 an hour, and the average room takes 8 to 12 hours to organize.
7. Think greenTask: If you can’t deal with the January gloom, you can always look ahead to spring. Grab those seed, bulb, and bare-root plant catalogs, and start planning your flower and vegetable gardens. If you’re starting seeds inside, plant them about six weeks before the last frost in your area.
Shortcut: You’d be amazed by how much produce you can grow in raised-bed or container gardens. There’s no hoeing, raking, or digging. Create your own weed-free soil by mixing one-third vermiculite, one-third peat moss, and one-third varied compost.
Call in the pros: What, and miss all the fun? A professional landscape designer, who designs gardens and suggest plants, costs $50 to $100 an hour. Some garden centers will give you free design advice if you buy plants there. Also, seed catalogs often have free garden plans.
From qualifying for a mortgage to closing on my new home.Owning a home is supposed to be part of the American Dream, but the buying process can seem more like a nightmare at times. As my husband and I prepared to buy our first home last year, I was shocked by how little I knew about it and how few definitive answers I could find online. As I bumbled through the process, learning on the fly, I developed a new understanding of the saying, “You don’t know what you don’t know.”
Setting Up for Success Before You Begin
Before I started the process, I researched meticulously — or I tried to, at least. I looked into traditional and Federal Housing Authority (FHA)–backed mortgages, finding out the down payment amount and minimum credit score we’d need for each program.
My husband and I made sure our credit scores were above 580, the minimum for the FHA program that we hoped to use. We paid down credit cards in order to make our debt-to-income ratio more appealing to lenders. As soon as we met the minimum requirements, we made an appointment with the bank — and we were sorely disappointed.
First, we learned that many individual banks have their own requirements on top of the regulations that the FHA put in place. In our case, the federal program required a score of 580, but the bank and mortgage agency that we spoke with required minimum scores of 600 and 620, which can be a significant difference when you’re working hard to repair credit.
We also learned that underwriters want to see that your deposit and closing costs have been in your account for at least two months, to track where the funds have come from and to confirm your ongoing financial stability. This was a hindrance to an impatient buyer like me.
The Home or the Mortgage: Which Came First?
When we began meeting with real estate agents, they always asked if we had approached a lender. When we met with lenders, their first question was always whether we had a property in mind. This left us totally confused.
So what’s the right plan? “Potential homebuyers should always meet with a lender before they start their home search,” says Peter Jennings, a lender with Merrimack Mortgage in New Hampshire who has worked in the industry for more than 30 years. This helps you decide which mortgage program is best for you. Mortgages are originated either by mortgage brokers or traditional banks. Because the industry is so heavily regulated, it doesn’t really matter who you choose for your mortgage — the qualifications will be largely the same, Jennings says. However, small banks are likely to offer fewer mortgage options, while larger lenders usually offer more.
When you’re ready to buy a home, you can strengthen your offer with either a pre-qualification or a pre-approval letter from your lender. A pre-qualification, where a loan officer reviews the applicant to make sure that they meet the minimum requirements, is the most common, Jennings says. If your income and credit qualifications are well above the minimum range and your employment history is steady, many lenders will feel comfortable providing a pre-qualification letter. “In the industry it’s known as a slam-dunk borrower,” Jennings says.
However, if your application is on the cusp of qualifying because of credit or income issues, you may choose pre-approval. “The file is actually formally approved subject to the borrower finding a home,” Jennings says. “I do these on occasion when I don’t feel comfortable signing off on a pre-qualification letter.” Although a pre-approval takes longer up front, it can actually cut time between your offer being accepted and closing, because much of the review is already done.
Read More: How to Save for a House and Tackle Your Debt
Finding an Agent
Once you know that you qualify for a mortgage, it’s time to start shopping. At first my husband and I searched on our own, reaching out to listing agents on properties we were interested in. But once we realized that a buyer’s agent is actually paid for by the seller when a home is sold, without any out-of-pocket expenses to the buyer, we got an agent immediately.
Not realizing that there is no out-of-pocket expense for a buyer’s agent is common, says Liz Murphy, an agent with Berkshire, Hathaway, Fox and Roach Realtors in Jenkintown, Pennsylvania. “Usually the conversation goes faster once the buyer realizes they don’t pay the buyer’s agent,” she says. “The home-buying process is so daunting, and then you’re thinking, ‘I have to pay this person too.’”
Real estate agents streamline the process by finding properties that may not be listed online and helping buyers navigate regulations and laws. When our buying process was interrupted by unexpected hiccups, including an issue with the home’s title, our agent explained to us exactly what was happening and advised us on what to do.
Emotional support is no small part of a buyer’s agent’s job, Murphy says. “You want someone who can work with you through the ups and downs, and carry you emotionally through the process.”
Read More: How Much Should I Spend on a House?
Making an Offer
Once you find a home you like, your agent should help you to put together an offer that will be formalized in the purchase and sales agreement, a binding contract between you and the seller.
Consider how aggressive you want to be in negotiations and how competitive the market is (after all, until your offer has been accepted, the seller can take other offers). If you’re hoping to conserve cash, then consider making a stipulation that the seller contribute to closing costs — the amount varies depending on the type of mortgage and down payment amount, but can range from 3 to 9 percent of the sale price.
Also decide whether you want your offer to be subject to the home passing inspection, and what type of inspection. A traditional home inspection covers any flaws in the property so that you know exactly what you’re getting into. You can also include a pest inspection, radon testing, and a bunch of other options.
I was prepared for an endless back-and-forth with the seller (maybe I watch too much TV), but our negotiation was short. We made an offer, the seller countered, and our agent advised us to come back with our “best and final” offer to let the seller know that we were done negotiating. They accepted.
Read More: A Glossary of Basic Mortgage Terms: From Escrow to Title
Meanwhile, at the Mortgage Office
Next comes the waiting. Typically it takes about 35 days from when your offer is accepted to when you can close on the house, although it could be longer, according to Neena Vlamis, president and co-founder of A&N Mortgage Services in Chicago. The wait can seem arbitrary and feel frustrating, but things are happening the whole time behind the scenes.
After your offer is accepted, the application enters the Attorney Review Period, Vlamis says. This is when the buyer does due diligence by getting an inspection and making any requests for repairs or closing cost credits. “This is the time to make sure this is the property you thought it was,” Vlamis adds.
After that, it’s time for the buyer to take a back seat and let the mortgage agent do their job. “Validation is the No. 1 process that’s happening during that time period,” says Vlamis. “It’s very important.” During the time that your application is in review, the lender is making sure that all the documentation you’ve provided, from tax returns to pay stubs, is truthful and accurate.
Because the mortgage industry is so heavily regulated, the bank takes many steps to make sure that the information it has received from the buyer is correct. The bank sends the tax transcripts to the IRS to make sure that they match what the IRS has on file. It also confirms employment information and pay before sending the application to underwriting, where everything is confirmed again, in greater detail.
This is also when the lender will appraise the house to make sure that the value of the property matches or exceeds the sales price. If you go with a federally backed FHA mortgage, the appraisal must be done by an FHA-certified appraiser.
During this time, you probably have more money in your account than you’ve ever had, but it’s extremely important not to make any financial changes during the time that your application is in review. Credit and employment are confirmed again at the end of the application process just before the financial commitment is made, and it’s crucial that there are no major changes, which could delay the process or jeopardize your chances of being approved. “Don’t switch banks, make big purchases, or change jobs,” Vlamis says. If you do, you could compromise your debt-to-income ratio, which lenders use to determine the likelihood that you’ll be able to make on-time payments. (During this time, my husband and I mostly stuck to the necessities — paying bills and shopping for groceries.)
Preparing to Close
Once everything has been approved by the bank, buyers will receive a financial commitment letter. “That is saying that you have the ‘all clear’ for your financing,” Vlamis says. “Everyone, start packing.”
However, the waiting often continues — with about a week between the financial commitment dates and your closing. “That time allows the preparation of your closing package, you to do final walk-through, cashier’s checks to to be ordered, or a wire organized for closing costs, the deed to be prepared, etc,” says Vlamis.
When it finally is time to close, you’ll likely be able to breathe easy. You will sign a massive stack of papers, exchange checks and keys, and be on your way as a new homeowner.