October 21, 2008 at 9:53 am · Filed under Affordable Housing, Condos, Equity Key, Equity Sharing, Foreclosure Help, Pensacola, Residential, Reverse Mortgage, Seasonal Rentals, The Mortgage Market, Vacation Properties
Even if you do not qualify for a reverse mortgage, there are other options.
A Reverse Mortgage can be a useful tool in helping seniors to maintain their independence and stay in their homes as long as possible after retirement. But, a reverse mortgage is not without limitations. People with a high value home may be shocked at how little they can qualify for in a reverse mortgage because of the loan limits with FHA.
To fill this void in the market, a relatively new product called equity sharing has been designed to help those that don’t qualify for a reverse mortgage. Even if you do qualify for a reverse mortgage, equity sharing can be an alternative that is not a mortgage and does not accrue interest.
With equity sharing, the property owner (age 65 to 85) agrees to share the future appreciation of the property with the financial institution in exchange for cash today. The home owner is allowed to keep 100% of the equity based on current appraised value. Then, going forward, the home owner will split the appreciation 50/50 with the financial institution. As compared to a reverse mortgage, equity sharing does not have an interest rate accruing, it is not recorded as a mortgage on the property, and it can be used on properties other than the owner’s primary residence.
Example 1:
A home owner in California has a primary residence that is worth $1.2 million with a current mortgage balance of $500,000. Because the maximum allowable reverse mortgage is $417,000, this home owner would not qualify. But, with equity sharing, he could get up to $180,000 in cash (15% of the current appraised value) without a loan or a monthly payment, and without the need to payoff the current mortgage balance (assuming the current mortgage is not a reverse mortgage or a negative amortization loan).
Example 2:
A home owner in Tennessee has a beach house in Florida. He wants to get a reverse mortgage on the beach house, but doesn’t qualify because it is not his primary residence. The house is worth $750,000 with a current mortgage balance of $300,000. He would qualify for $112,500 in exchange for a 50% stake in future appreciation. Ten years from now the home owner sells the house for $1.2 million. The difference in equity is $450,000 since agreement was made. The equity partner takes $225,000 (half of the appreciation) plus an 8% surcharge to cover transfer costs and Realtor fees, leaving the owner with net proceeds of $879,000, plus the $112,500 already received at the time of the agreement.
While it does create opportunities, equity sharing is not without its disadvantages. Depending on how rapidly you think the home will appreciate, the costs could significantly outweigh the costs of a reverse mortgage or other interest bearing alternative. That being said, it is one of the more realistic alternatives to reverse mortgages available today.
If you would like to find out more about a reverse mortgage or an equity sharing program, send me an e-mail at steve@steverussellonline.com with your name, phone number, date of birth, state where the porperty is located, and the value and mortgage balance on the property. Or, call me toll free at 888-257-8383 for a free consultation.
Pensacola Mortgage
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October 21, 2008 at 9:10 am · Filed under Affordable Housing, Gulf Coast Housing, Pensacola, Residential, The Mortgage Market
World’s largest bond fund increases stake in mortgage backed securities.
Mortgage bonds moved higher yesterday on the news that Pimco, the world’s largest bond fund, has increased it’s stake in mortgage backed securities to an all time high. This led investors to believe that the risk is worth the price in mortgage bonds, and prices soared.
As a home buyer, this means that rates got a lot more aggressive yesterday, and if you are actively seeking a home, it might be a good time to lock your rate. The drastic increase in rates last week have been almost completely erased, and on a technical level, mortgage bonds have moved back above the 25, 50, 100 and 200 day moving averages. Pushing through those levels of resistance is a positive sign long term for mortgage rates.
For the latest rates, check www.SteveRussellOnline.com.
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October 14, 2008 at 9:39 am · Filed under Affordable Housing, Credit Crisis, Gulf Coast Housing, Pensacola, Residential, The Mortgage Market
After the stock market’s worst week in history, it closed yesterday with the highest gain in history.
What a roller coaster ride for investors. After a record for the largest 1 week decline ever last week, investors came back with a vengence yesterday to close the DOW up 936 points. That makes yesterday the largest single day point gain in history, and the 5th largest perecntage gain ever. Activity like this begs the question of whether we have found the bottom in the equity markets or not.
No one will know where the bottom is until we have already passed it, but the level of volatility and panic in the sell offs last week suggest that we are either there now, or at least we are close. Since this blog focuses primarily on real estate and mortgages, how will this affect housing?
There is no direct connection between the stock market in general and the real estate market. But, they are all slices of the same economic pie. The typical bear market lasts 13 months with a resulting decline of 30% to 40% in the stock market. Right now we are in the middle of the 12th month of market decline from its highs in October 2007, and the total point decline is around 41%. Based on this information alone (and there are many more factors at play), it would signal that we are at the bottom, or at least close to it.
The bigger problem in the real estate market is inventory vs. willing buyers. Because foreclosures are still coming on the market in record numbers, we will have to remove some inventory before sellers can really make up any ground. But, for buyers, this is the best buying opportunity that has existed in decades. Locally (in North Florida), home prices are back to 2003 levels, and the deals available to buyers are jaw dropping now. Nationaly, the numbers vary by area, but there are tremendous buying opportunities across the country.
Lending standards have tightened, but there is still mortgage financing available (contrary to the inpression that you might get from the news). For more information on the financing options available to you, go to www.SteveRussellOnline.com, or call me at 888-257-8383.
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