HUD Archives - Page 3 of 4 - Real Estate News and Commentary

July 4, 2008November 23, 2021

HUD’s mortgage for seniors

by Dan Krell
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Many people are blessed to live a long and healthy life. Unfortunately, the longer you live the higher the probability that you may run out of money in your old age. One solution for many senior homeowners is to tap into their home equity through a reverse mortgage. Although now a mainstream mortgage option, the reverse mortgage (sometimes known as an annuity mortgage) has had a rich and uncertain history.

According to the National Center for Home Equity Conversion (reverse.org), the first reverse mortgage was created in 1961. Over the years various forms of the annuity mortgage were developed and assessed through various studies conducted by savings and loans, non-profit organizations and the Federal government. The FHA reverse mortgage program was created in 1988 by President Reagan’s signing of the Housing and Community Development Act of 1987.

Although other sources for reverse mortgages existed in 1988, the FHA reverse mortgage program offered more benefits to borrowers and beneficiaries that most other programs did not. Presently, applying for the program is easy and has few qualifying restrictions. Additionally, when it’s time to repay the loan, if the loan balance exceeds the home value the FHA mortgage insurance will cover the shortage that is not met by your the selling of the home (which is not usually offered by other reverse mortgages). Repayment (by yourself or your estate) occurs when you no longer live in the home (for any reason).

While qualifying is easy, not everyone meets the underwriting criteria for a loan. Underwriting restrictions include a minimum age and home equity requirements. Applicants must be at least 62 years old as well as having the minimum equity requirements in the home you live in (meaning that your mortgage balance must be below a pre-determined percentage of the home’s value). Unlike traditional mortgages where you have to qualify for a monthly payment based on income and credit, the amount borrowed for a FHA reverse mortgage depends on your age, the amount of equity in your home (based on an appraisal), and prevailing program interest rates.

Unlike traditional mortgages that require a monthly payment, the FHA reverse mortgage does not require any payment at all while you reside in the home (although you must pay your real estate taxes, utilities and other home related items); and although you are not making payments on your FHA reverse mortgage, HUD will not foreclose.

The FHA reverse mortgage, also known as the Home Equity Conversion Mortgage (HECM), (offered through The Department of Housing and Urban Development; HUD.gov) is one of the most misunderstood mortgage programs available today. The equity conversion to annuity payments along with repayment responsibilities often gets mixed reviews due to the HECM’s affects on estates and other tax implications. Fortunately, HUD requires counseling for HECM applicants, to educate them of the implications of obtaining a HECM.

For more information about reverse mortgages, HUD recommends that you contact a HUD approved counseling service. Additionally, HUD will assist you in finding a HUD approved FHA reverse mortgage lender (this information is free of charge). HUD also recommends contacting the AARP (AARP.org) and the National Center for Home Equity Conversion (reverse.org) for more information on making an informed decision about obtaining a reverse mortgage.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of June 30, 2008. Copyright © 2008 Dan Krell.

October 19, 2007November 23, 2021

Before you buy- First time home buyer fundamentals

by Dan Krell © 2007
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Don’t let your first time home buying experience be overwhelming. Before you plan your Sunday trip to open houses, it’s important to review the fundamentals and make sure you are going into your home purchase fully aware of the responsibility you are about to take on, as well as prepare you for the process and pitfalls that may come your way.

The first item on the list is to determine how much you can afford. Affordability is determined by your financial state and interest rates. Your financial state includes factors such as your income, debt, savings, and expenses. Interest rates impact on your ability to purchase a home because your monthly payment is based on the rate you lock into; the higher the rate, the higher your payment.

Once you know how much you can afford, make a housing budget. Making a housing budget can help you understand your expenses, which included utilities, maintenance, and other expenses such as cable and internet. Additionally, take into account any interest rate adjustment (if you have an adjustable rate mortgage) and increasing real estate taxes. Many first time home buyers get into trouble because they underestimate their monthly housing expenses, as well as not accounting for rising mortgage payments and real estate taxes.

As a first time homebuyer, you will want to be aware of any special programs that are available to you. There are many local home buyer programs that offer special financing and/or closing assistance through the county, the Housing Opportunities Commission, as well as through banks and organizations.

Talking to a lender can help you understand your credit and how much you can afford. You should compare lenders for interest rates and fees. Lender fees vary significantly and by choosing the right lender, you can possibly save several thousand dollars at settlement.

Knowing your rights as a home buyer can help you prevent problems that may occur. As a homebuyer, you are affected by federal and local fair housing laws, RESPA (Real Estate Settlement Procedures Act), Equal Credit Opportunity Act, Fair Credit Reporting Act, and the Truth in Lending Act. Your real estate agent should be aware of these laws and can help you understand them. You can get more information about these laws at the HUD website, HUD.gov.

As a first time home buyer it is important to know that you have the right to choose your service providers, such as real estate agent, lender, title company, insurance company, etc. Additionally, you have rights specific to obtaining a loan and credit, such as the right to a good faith estimate of settlement charges and interest rate and other disclosures. A list of these rights can be found at the HUD website (www.hud.gov/offices/hsg/sfh/res/resborwr.cfm).

Your next step will be to choose a real estate agent. It is recommended to interview several agents before choosing as your agent will be your trusted guide through the home buying process. A good real estate agent will know and protect your rights, as well as know what home buyer programs are available to you.

Finally, HUD recommends that first time home buyers attend housing counseling to assist in learning these and other fundamentals. It is clear that doing your homework and choosing the right professionals to assist you can make the difference in your home buying experience.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of July 9, 2007. Copyright © 2007 Dan Krell.

August 21, 2007October 5, 2019

FHA Comes of age

by Dan Krell

Congress recently passed H.R. 1852, The Expanding American Homeownership Act of 2007. The act is a move forward for a seventy-three year old program federal program called the Federal Housing Administration, also known as the FHA. The recent legislation was devised in the spirit of the FHA and looks to assist millions to obtain home ownership.

The FHA mortgage program (administered through the department of Housing and Urban Development since 1965) was created in 1934 when about only ten percent of Americans owned their home. At a time when home buyers needed a fifty percent down payment to obtain a three year balloon mortgage, the FHA’s progressive mortgage programs provided a spark for the nation’s stagnant housing industry (HUD.gov).

Through the years, the FHA provided progressive programs to assist those in need. The FHA took part in financing military housing in the 1940’s. During the 1950’s and 1960’s, the FHA made funds available for adult, handicapped, and low income apartments. When rising inflation and energy costs threatened many apartment buildings in the 1970’s, the FHA made emergency funds available to assist in keeping these properties operational. In the 1980’s, when lenders pulled out of oil producing states because of falling home prices, the FHA offered mortgages to those who could not otherwise buy a home.

H.R. 1852 comes at a time when the mortgage industry is in crisis and home ownership is threatened for those who need financing alternatives. The bill expands the mortgage program to offer more financing options as well as increasing FHA mortgage originators.

Reforming the FHA mortgage program will expand the program and allow home buyers who do not qualify for a conforming loan (Fannie Mae or Freddie Mac) have access to alternatives to sub-prime lending. The FHA mortgage program will be expanded by increasing loan limits, eliminating the three percent down payment requirement, and implementing a risk based pricing system.

When home buyers do not qualify for a conforming loan, they turn to a sub-prime lender. Unfortunately, many sub-prime mortgages have high interest rates and other possible unfavorable terms. By increasing FHA loan limits in high cost areas these home buyers would possibly be able to obtain more favorable mortgage rates and terms through FHA.

Additionally, many first-time home buyers do not have the funds for a down payment or closing costs. These home buyers are typically driven to the sub-prime mortgage market as well. However, eliminating the FHA three percent down payment requirement will allow many more home buyers to obtain a FHA mortgage as well.

Many credit worthy home buyers who do not qualify for conforming mortgages due to mitigating circumstances are also forced to use sub-prime lending. Implementing risk based pricing may allow many of these home buyers to obtain a more favorable mortgage through FHA.

Presently many mortgage brokers do not originate FHA mortgages because of the restrictions and rigorous qualifications. However, increasing mortgage broker participation by reducing broker requirements and eliminating mandatory auditing would increase home buyer access to the FHA program.

The expansion of FHA programs may seem counterintuitive in a time when the industry is in turmoil. However, these reforms to a venerable housing program are welcome by many as well as being reminiscent to its legacy of commitment to home ownership.

April 6, 2007November 28, 2020

Know Your Rights as a Home Buyer and Make a Budget

Buying your first home is one of the most exciting things you can do; it also happens to be one of the most stressful things in your life as well. To help cope with this wonderful rite of passage, we try to prepare ourselves by doing research and getting advice from family and friends.

In theory, all residential real estate transactions are similar. However, the reality is that every transaction is subtly different with its own problems and issues. To help prepare you for your first purchase, here are some common tips to assist you in your purchase.

Make a budget. Making a housing budget and sticking to it is one of the most important steps in the process. Your housing budget is determined by your income, your debts, and your life style. Consulting with a lender can be helpful determine your housing budget. In creating your housing budget, don’t forget to include other housing related costs such as taxes, home owner’s insurance, utilities, and regular maintenance.

Know your rights. Knowing your home buyer rights can help you make the right choices during the process. If you follow this column, you have read how some real estate professionals are ignorant or unconcerned with real estate laws and ethics. Protect yourself by becoming aware of your rights protected by the Real Estate Settlement Procedures Act (RESPA), Fair Housing laws, and predatory lending laws. You can find more about these laws at HUD.gov.

Among your home buyer rights, you have the right to choose the Realtor, lender, insurance company, and title company you want to work with. Choosing a Realtor is subjective; after all, you are putting your trust in them to assist you in one of the largest purchases of your life. Don’t feel compelled to use a particular lender or title company because your Realtor recommends them or makes promises of discounts. Shop around, get quotes and compare services.

Do your homework. Thinking through such questions as where to live, what type of home to buy, how much to spend, what type of neighborhood amenities are important, will help you in your decisions. You should conduct some research on the communities and homes you are considering to purchase.

If you are uncertain about what is important to you in a home, viewing as many homes as possible can help you determine and narrow your preferences. As you shape your preferences, you will find that it is easier to shop for a home.

Know your expectations. Are your expectations realistic with regard to the home buying process, and how much home you can buy? When interviewing Realtors, discuss your expectations of them as well as what is expected from you in return. You should also discuss your expectations of what you can buy. It is common for first time home buyers to amend their expectations during the process. If you are relocating from outside the metro area, it is common to have sticker shock and change your expectation of the size of home you can buy.

As a home buyer, using a Realtor and lender can help you through the process. In the end, however, it is your choice and your home. Do your home work and be prepared.

November 18, 2006May 3, 2019

HUD is Kicking Back

When you bought your home recently did your Realtor or lender tell you that you had to use a specific lender or title company? Did the seller require you to use the mortgage and title companies of their choosing? If so, you may have been denied your right to choose the lender and title company to conduct the settlement for your home purchase just for a kickback.

To help home buyers become educated consumers about settlement services a law was passed in 1974 called the Real Estate Settlement Procedures Act also known as RESPA. RESPA has many caveats associated with it however there are several common provisions associated with a home buyer’s choice of settlement companies and lenders.

First, RESPA requires that home buyers receive disclosures that disclose costs related to settlement, as well as outlining lender servicing and escrow account procedures, and disclosing relationships between settlement professionals and other real estate professionals. This protects the home buyer by allowing them to know what they are to expect with regard to fees, affiliated business relationships, etc.

Second, RESPA is widely known for prohibiting giving or receiving anything of value, including money, for settlement service referrals, also known as kickbacks. RESPA also prohibits fee splitting and receiving compensation for services that were not provided. This is done because kick backs typically increase fees charged to the home buyer, sometimes excessively, so as to “take care” of the referring party.

Third, RESPA prohibits a home seller from requiring a home buyer to use a specific title company or lender.

Penalties for violating RESPA are stiff. Violations of RESPA include civil and criminal penalties. The penalties vary depending on the infraction. For example, if someone is found guilty in criminal court of giving or receiving a kickback, they may be subject to a $10,000 fine and a year in jail. The civil penalty for kickbacks is the repayment of three times the fee in question.

Although kickbacks are not as common today as they were in years past, they still exist. In response, the U. S. Department of Housing and Development (HUD) has taken a firm stance on kickbacks in the last several years. There have been many out of court settlements in the last few years, and there may be some serious criminal charges pending as investigations continue.

It is not uncommon for home buyers, especially first time home buyers, to ask their Realtor for lender and title company recommendations. After all, most people do not buy homes very often. As a practice, many Realtors provide a list of several names of lenders or title companies for the home buyer to interview. The list is usually comprised of professionals with whom the Realtor has worked with in the past and (hopefully) had a good experience. As a home buyer, you can always start with whomever you bank with. It makes sense that since you have already developed a banking relationship with your bank, why not start there?

If you find yourself in the situation where you are “forced” to use a specific lender or title company, or you think this may have occurred in the past, you can contact HUD (HUD.gov) or contact the state attorney general’s office of consumer protection for additional information.