The days when a financial advisor counseled a homeowner to keep a $50,000 home equity line of credit (Heloc) open as a financial cushion, are over. As the economy, and subsequently the housing market, have declined lenders are making it much more difficult for homeowners to qualify. Rest assured if you do, you will pay much more interest than you would have even just a year ago. In most states, the following is what you will be expected to document for most lenders to qualify you for a Heloc:

• A credit score of at least 720
• A stable income that can be documented
• Proof that you have more than 20% equity in your home
• A healthy combined debt-to-income ratio

The following things are now generally required to qualify for a traditional first mortgage:

• The monthly payment (including interest, tax, insurance and common fees) must be 31% or less of your gross monthly income
• Proof of a healthy combined debt-to income ratio (this includes credit card payments and car loans). If this monthly debt is over 38% of your monthly income, you will not be eligible. 

Here are some more important things that anyone considering a Reverse Mortgage should know:

• FHA Reverse Mortgage loan limit is $625,500
• Eligible property types include single family residences, condos and town homes, one to four unit properties and newly constructed homes that can provide proof of completion and a Certificate of Occupancy.
• Participants are required to complete a HUD Counseling Session
• Participants must show a fully executed Sales/Purchase Contract
• Participants must provide documentation of cash to close (source of funds and current balance)
• FHA prohibits Discount Points, Interest Rate Buy Downs, Closing Cost assistance and Builder incentives
• Subordinate, bridge and personal loans are not allowed. Either are cash advances from credit cards or Seller Financing.
• Insurance that is required: twelve months of Hazard insurance premiums and twelve months of Flood insurance is required, both payable at closing.

For additional information about Reverse Mortgages see the Reverse Mortgage website.

Did you know that in our country someone turn age 50 every 76 seconds? We are living in a rapidly ageing population, so thank goodness the Department of Housing and Urban Development insures the Reverse Mortgage. It was created to assist seniors live out their golden years in comfort without fear of losing their homes.

Seniors aged 62 and older who qualify for the Reverse Mortgage may either buy or refinance an existing home. Participants may choose between receiving non-taxable monthly income, a lump sum payment or making no payments at all. Insurance, real property taxes and association fees must be paid and users must certify each year that they are the principal residents of the home.

The home may be sold or refinanced at any time. Heirs will be given the option to refinance or sell the home. If the home is sold, the Reverse Mortgage balance will be paid off first and the remaining balance will be distributed however the late owners have designated.

Reverse Mortgages are available to anyone who is over 62 years of age, owns their home and uses it as their primary residence. It is a very good option if you need cash and want to stay in your home for as long as possible.

 In a nutshell, Reverse Mortgages work by allowing borrowers to swap the equity in their homes for cash, while still owning and living in the house. Currently, the only place to secure this type of financing is through the Federal Housing Administration’s Home-Equity Conversion Mortgage program, or HECM. The HECM loan limit is currently $625,500, and there are many things that will determine how much a borrower will qualify for. Some of these things are the age of the borrower, current interest rates and the property’s value.

If you do qualify, you have several choices on how to receive your money. You can be paid a lump sum up front, opt for a monthly cash payment, or choose a combination of the two. The only downside to Reverse Mortgages are the fees. They are high, ranging from $7,000 to $20,000. You will also have to pay an origination fee and an insurance premium. On the upside, this insurance does guarantee that your total debt can never be more than the home’s value.

For more information and a list of brokers go to ReverseMortgage.org.

Since home prices have continued to fall, Freddie Mac has determined that they are at a heightened risk of many more mortgage defaults and claims.  They report that there may be even more of a housing price decrease in 2009. In light of this news they have increased several fees and added new ones. One of their new fees is a 0.75% fee of the loan amount on certain condominium mortgages when the loan equals more than 75% of the estimated condominium value. Their increases include fees on the following types of mortgages:

• Loans that let borrowers pay interest in the primary years and defer principal payments
• Refinance loans that allow the borrower to cash out some of their home equity
• Loans with certain combinations of low credit scores and down payments
• Condominium mortgages

The National Association of Realtors and the National Association of Home Builders have protested these increases, as they claim that these additional costs are discouraging potential home buyers and people considering refinancing their loans.