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Types Of Energy Efficient Mortgage
The EEM which stands for Energy Efficient Mortgage is a financing to make the home into an energy efficient home. Thereby, the homeowner decreases the expense to own the home. There are three types of energy efficient mortgage.
The three types of energy efficient mortgage are Conventional, Federal Housing Administration, and Veteran Administration Energy Efficient Mortgages. In Conventional Energy Efficient Mortgages, the mortgage lenders who sell mortgage to Fannie Mae and Freddie Mac offer this type of mortgage.
The estimated energy savings for the home increases the buying power of the home buyer. The amount of estimated energy savings will be added on the income of the home buyer. Using the estimated energy savings and improvements, Fannie Mae also adjusts the value of the home.
In Federal Housing Administration Energy Efficient Mortgage, the mortgage lenders can add all the additional cost of energy efficient mortgage improvements on the approved mortgage loan. Provided, the additional cost is less than or equal $4000. Or, the additional cost is less than 5 percent the value of the home or up to maximum of $8000. There is no additional down payment required.
And, the home is site-built or manufactured home. A site-built home is basically constructed on the site or location. Using stock materials, the construction workers erect, frame, and finish on location. However, some materials may be fabricated off-site.
The manufactured home is built in the factory rather than on the site. Then, the manufactured home is taken to the site. The tractor trailers usually transfer the manufactured home thru public highways. The manufactured home is less expensive than site-built home. Oftentimes, the manufactured home is associated with rural areas and trailer parks.
In Veteran Administration Energy Efficient Mortgage, the qualified military personnel, reservists, or veterans can apply for the mortgage loan. The additional cost of energy efficient improvements is between $3000 and $6000. And, the home exists already.
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Energy Efficient Mortgage
The Energy Efficient Mortgage (EEM) allows the borrowers to include the cost to upgrade the home to an energy efficient home. Thereby, the borrower lives comfortably and affordably in a home that uses less energy. And, we do our part to save our environment, natural resources, wildlife, habitat, and planet.
Recently, the cost on home utilities surges very high. The borrowers or consumers look to find a way to pay less on home utilities. The energy efficient home puts extra cash into the pocket of the borrower as the borrower pays less on home utilities.
Buyers are able to live in a better and comfortable home, while the energy efficient homes compensate the cost of high monthly mortgage payment. The potential buyers who are concern to be environment friendly are growing steadily. In the future, the energy saving components of the home will increase the resale value of the home.
For the Seller, the energy efficient home can sell quicker. Due to the spikes in home energy, the demand for energy efficient homes will continue to grow. Thus, the buyer can live more affordably.
The home owners can also remodel the home to upgrade to energy efficient home. So, the home owner starts to enjoy the benefits of paying less on home utilities. Another, the energy saving components is way to increase the resale value of the home.
The HERS report on a home tells how energy efficient is the home. The HERS report is abbreviation of Home Energy Rating Systems Report. The home gets between 1 and 100 points, or 1 and 5 stars. The highest possible score is 100 points or 5 stars. It is worth to consider in buying, selling, and remodeling the home.
Basically, the HERS report contains information on overall rating, recommendations, cost, annual cost, and savings. Also, the report includes the life of energy saving components.
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Mortgage Cost Averaging
The mortgage cost averaging was taken from the principle of dollar cost averaging. It has proven to be more effective way to earn gains from investment than lump sum investing. The same principle can be applied to mortgage.
The borrowers start the panic attack as the mortgage interest rate start to rise. If the interest rate keeps rising, the mortgage payment may be unreachable for the borrower. The borrower takes a risk for foreclosure.
The home property is a huge investment. To focus on the house as an investment takes the pain out of mortgage. The greater the risk leads to greater rewards. Hence, the principle of mortgage cost averaging helps to condition our mind to succeed.
The interest rate of the mortgage is a cycle of seven to ten years. Every seven to ten years, the interest rate reaches the peak of high or low. So, the cost of mortgage varies thru the years.
Traditionally, the dollar cost averaging relates to investment of shares, stocks, and mutual funds. Since the home property is an investment, the principle of dollar cost averaging can be applied to mortgage. The price of the home comes in a huge price tag. Often, the borrower takes a mortgage to purchase a home.
The principle of dollar cost averaging work this way. The investor buys shares, stocks, or mutual fund in a set interval like monthly, or bi-weekly. The price of shares, stocks, or mutual funds may be high or low at some point. Thus, the cost of shares, stocks, or mutual funds averages. Thereby, the investment gains faster.
The first step is to calculate a mortgage. Using the mortgage calculators, you calculate the different mortgage payment for series of interest rate. See what mortgage payment is tolerable. The interest rate of the tolerable mortgage payment tells if you are paying high or low. For example, the interest rate of six percent on 400,000 principal is tolerable for me.
If the interest rate increases so high, the mortgage payment proves to be unbearable. There are available mortgage refinancing options. Talk to your mortgage lenders for more information.
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Advantages Of A Reverse Mortgage
Using reverse mortgage, any sixty two years old or over can convert the home equity into cash. The mortgage lenders give the cash by lump sum payment, several payments, credit line, or combination. Here are the common advantages of reverse mortgage.
Maintain the title and ownership
The borrower keeps the title and ownership of the home. The borrower is still the owner of the home. It is still the responsibility of the borrower to pay for the insurance, maintenance, repairs, and property tax.
Continue to live in the home
The borrower can live in the home as long as the borrower likes. In case the borrower decides to sell or move, the capital gain pays off the reverse mortgage first. The rest of capital gain is for the borrower to keep.
No Mortgage Monthly Payments
In a traditional mortgage, the borrower makes monthly mortgage payments. Unlike the traditional mortgage, the borrower defers the mortgage payment in reverse mortgage. The borrower skips the mortgage payment until the borrower dies, sells, or moves. So, the reverse mortgage is easier to get. The borrower does not need to qualify for monthly mortgage payment.
Tax-free cash
The amount from reverse mortgage is tax-free. Reverse mortgage may provide extra cash, but reverse mortgage is not really an income. The reverse mortgage is a loan in advance. The borrower will repay the loan after the borrower past away, moves permanently, or sells the home.
Non-recourse loans
The mortgage lenders can only ask for repayment as much as the value of the home. If the reverse mortgage exceeds the value of the home, the mortgage lenders can only seek from the proceeds of selling the home. The borrowers get to keep the other assets like cars, boats, investments, and insurance.
Freedom to use the extra money
The amount from reverse mortgage can be used for any expense. The borrower can use the money for home repair, home improvements, travel, and medical. However, the reverse mortgage from some government agency and non-profit organization are for single purpose only. For example, the borrower can only spend to repair the home. If you want freedom and flexibility, your best bet is Federally Insured Reverse Mortgage and Proprietary Reverse Mortgage.
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Reverse Mortgage FAQ
The mortgage is a very scary word. The borrowers need to commit to pay off the mortgage for many years. So, there is a lot of confusion on reverse mortgage. Here are some of the questions and answers.
What is a reverse mortgage?
The senior citizens who are over sixty one years old use the reverse mortgage to get a portion of the home equity. It is tax free, because it is more like loan advance. The borrower only repays when the borrower moves, dies, or sells the home property.
How is reverse mortgage different from traditional mortgage?
The borrower uses the home equity in reverse mortgage. Thereby, the home equity of the borrower decreases. The traditional mortgage is the exact opposite. The borrowers build home equity as the borrowers pay off the mortgage.
Traditionally, the borrower qualifies for the mortgage. The financial institution checks the credit history. If the borrower qualifies, the borrower pays monthly or bi-weekly mortgage payment. In reverse mortgage, the borrower defers mortgage payment as long as the borrower lives in the home.
How much can I claim from reverse mortgage?
The total amount to claim depends on age of borrower, value of home, and interest rate of mortgage. For example, the interest rate is nine percent. If the borrower is sixty five years old, the borrower can claim twenty six percent of the home equity. If the borrower is eighty five years old, the borrower can claim fifty six percent of the home equity.
Where can I use the amount from reverse mortgage?
There are three basic reverse mortgage types. It is single purpose reverse mortgage, home equity conversion mortgage, and propriety reverse mortgage. In single purpose reverse mortgage, the borrower can only use the amount for a specific purpose such as home improvements, and property taxes. In the other reverse mortgage types, the borrower can use the amount into any expenses.
The financial institution pays the reverse mortgage in the form of lump sum payment, periodic payment, credit line, or combination.
What are the requirements for reverse mortgage?
The borrower must be sixty two years or over, live in the home, took reverse mortgage counseling, or pay off most principal. The home qualifies if the home is principal residence, single family residence, one to four units, mobile home, or FHA condominiums. If the home is more than one unit, the borrower must live in one of four units.
What are the affect on my home property?
The borrower maintains the title and ownership of the home. That means the borrower still pays the maintenance, insurance, and property taxes. After the home is sold, the capital gains pay off the amount of reverse mortgage first. If there is any remaining amount, it goes to the heirs of the home property.
Does reverse mortgage affects Social Security and Medicare benefits?
The reverse mortgage is tax free amount. It is more like loan advance. However, the amount is liquid assets. It must maintain below the maximum allowable liquid assets to get the maximum benefit from Social Security and Medicare.
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Home Equity Conversion Mortgages
The Home Equity Conversion Mortgages (HECM) is a type of reverse mortgage which allows seniors to convert the portion of the home equity into cash. The homeowner can stay in the home while the homeowner uses the home equity. With the cash, the homeowner can use the cash into any expenses such as medical, home improvements, and home repairs.
This reverse mortgage type is one of the three basic reverse mortgage types. It is also known as Federally Insured Reverse Mortgage. Hence, Federal Housing Administration (FHA) backs the Home Equity Conversion Mortgages. The FHA works under the US Department of Housing and Urban Development (HUD).
The banks, credit union, mortgage companies, and savings and loan companies can provide the services. FHA must approve the financial institution before the financial institution can offer this type of reverse mortgage.
There are four requirements for homeowner to quality. First, the homeowner must be sixty two years old or over. Second, the home is a principal residence of the homeowner. Third, the homeowner received reverse mortgage counseling. Fourth, the homeowner owns the home. Or, the home is almost paid off.
The reverse mortgage counseling is a free counseling from HUD. The HUD wants the homeowner to know the consequences, and benefits before the homeowner uses the reverse mortgage. For a while, the homeowner pays for the reverse mortgage counseling. Now, the HUD instructed the financial institution to deal with homeowner that dealt with free reverse mortgage counseling only.
There are five requirements for the home to qualify. First, the home is a principal residence. Second, the home can be a single family residence. Third, the home can be one to four units as long as the homeowner occupies one unit. Fourth, the home is manufactured or mobile home. Fifth, the home is FHA condominiums.
The maximum claim amount of reverse mortgage depends on the age, home value, and interest rate. For example, the interest rate is nine percent. The homeowner who is sixty five years old can use twenty six percent of home equity. The homeowner who is seventy five years old can use thirty nine percent of the home equity. The home owner who is eighty five years old can use fifty six percent of the home equity.
The homeowner receives the home equity in the form of monthly payment, credit line, lump sum payment, or combination. The home secures the reverse mortgage. The homeowner do not repay as long as the homeowner lives in the home. The homeowner still owns the home. It is still the responsibility of the homeowner to pay the repairs, maintenance, property tax, and insurance.
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Reverse Mortgage Types
The reverse mortgage helps the seniors over sixty two years old to use the equity of the home to supplement an existing income. Reverse mortgage is loan advance to the home without repayment unless the owner moves, dies, or sells the home.
In the United Kingdom, reverse mortgage is more common as lifetime mortgage. Hence, the owner never needs to repay as long as the owner lives in the home. The reverse mortgage lenders distribute the cash as lump sum, regular payment, credit line, or combinations.
In the United States, the basic types of reverse mortgage are single purpose reverse mortgage, federally insured reverse mortgage, and proprietary reverse mortgage. There may be more types in different countries, but the main idea is very similar.
Single Purpose Reverse Mortgage
The government agencies and non profit organizations offer this type of reverse mortgage. It is generally low costs. Although the government agencies may be local or state, the mortgage is available in a few locations only. The purpose of reverse mortgage is specific such as home repair, home improvements, and property taxes. And, the owner earns low or moderate income.
Federally Insured Reverse Mortgage
The U.S. Department of Housing and Urban Development (HUD) backs this type of reverse mortgage. This type is more commonly known as Home Equity Conversion Mortgages (HECM). The upfront costs are high especially if the owner stays in short period of time. So, this reverse mortgage is costlier than Single Purpose Reverse Mortgage.
It is the opposite of Single Purpose Reverse Mortgage in which the reverse mortgage loan can be used in any purpose. And, the mortgage are widely available anywhere. There are also no income or medical requirements.
Proprietary Reverse Mortgage
The private companies backed or owned this type of reverse mortgage. It is generally the most expensive type of reverse mortgage. However, the owner may get more than other types of reverse mortgage. Generally, it works the same way as the Federally Insured Reverse Mortgage.
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Reverse Mortgage
The reverse mortgage turns the equity of the home into tax free cash. Reverse mortgage is more of a loan advance. While the borrower lives in the home, the borrower does not repay the loan.
Any senior who is sixty two years or older is eligible for the reverse mortgage. The home must have some kind of equity. And, the home is the primary residence of the borrower. Depending on the mortgage lenders, the mortgage lenders may require single unit, condo, or townhouse.
Reverse mortgage differs from home equity loan. The mortgage lenders pay the borrower the lump sum, regular periodic payment, line of credit, or combination. The line of credit allows the borrower to choose how and when to get payment. The repayment of loan only happens in reverse mortgage when borrower permanently moves, dies, or sells.
Let us compare with traditional mortgage to better understand reverse mortgage. Any type of mortgage creates debt. A debt is the difference between amount own and amount owe. Traditionally, the home equity increases and debt decreases. In reverse mortgage, the home equity decreases and debt increases.
At the time of repayment, the mortgage lenders use the home to repay the loan. The home pays off the principal, interest, and closing costs of reverse mortgage. Anything extra goes to the remaining relatives. In case of deficit, the mortgage lenders make up for the deficit.
Since the borrower retains the title of home on reverse mortgage, the borrower remains the owner of the home. The borrower is responsible for the maintenance, property tax, insurance, and utilities.
The mortgage interests in reverse mortgage are not mortgage interest tax deduction. However, the borrower can claim the mortgage interest on current first and second mortgage. Even though the borrower is still paying off the first and second mortgages, the mortgage lenders can allow the borrower to go on reverse mortgage.
The borrower can owe only on how much is the home. The mortgage lenders can only go after the house to pay off the mortgage. The assets and estate of the borrower are safe from the mortgage lenders. This is more commonly known as non-recourse loan.
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Advantage Of Lease Purchase
Lease to own is way to purchase a home thru a lease. The buyer lease the home until the buyer decides to purchase the home. Within the lease agreement, the buyer finally purchases the home.
The buyer can choose between lease purchase or lease options. The buyer will absolutely purchase the home with lease purchase, while the buyer may decide to purchase the home with lease option. Here are list of advantages to the buyer and seller of the home.
Purchase home with bad credit history
The financial institution uses the credit score to see the ability for the buyer to afford the mortgage repayment. Any score above 660 places the buyer on good credit history. Sometimes, the debt gets a little out of hand. And, the buyer goes under bad credit score.
Lease purchase allows the buyer to catch up with the credit score. The duration of lease agreement gives the buyer time to repair bad credit rating. Usually, the lease agreement spans between one and three year. So, the buyer has one to three years to repair bad credit rating.
Locks the home price
The seller and buyer agree on the price of home. When the buyer is ready to make the purchase of the home, the buyer applies for mortgage financing with the agreed price of the home. If the home increases in value, the buyers can resale the home at a higher price.
Equity starts to grow sooner
If the buyer waits to purchase a home, the home may increase in value. The value of the home may increase in such a way that the home is unaffordable to purchase the home. As the buyer locks the home price, the buyer gains home equity right away. By the time of purchase, the home must have increase in value. Thereby, the buyer gains home equity.
Try before the actual purchase
The buyer can give the home a try. The buyer can know any defects for the home while the buyer is on a lease. If the buyer is comfortable with the location, and home, the buyer may go ahead to purchase the home.
None or little mortgage closing costs
The lease includes the lease and premium. The premium is added at the time of purchase. And, the premium is used as credit to purchase the home. The premium may be large enough to pay off the down payment and closing costs to finance the mortgage.
Costs less to maintain
The seller pays for the maintenance of the property while the buyer pays the lease. The seller pays for property tax, insurance, and repairs. After the buyer actually purchases the home, the buyer starts to pay the property tax, insurance, and repairs.
Tax deduction
The seller still owns the home while the buyer still paying the lease. The seller can claim the mortgage interest. The mortgage interest tax deduction is useful way to reduce tax each year. A big portion of the mortgage payment is mortgage interest. The mortgage interest is at the biggest at the start of mortgage. The mortgage interest gets smaller over time.
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Lease Options
The lease options are another form of lease to own or rent to own. The buyer can buy his way to purchase the home. Within the agreed number of lease years, the buyer has the option to purchase the home with the agreed home price.
There are two options for the buyer. That is the lease option or lease purchase. The two options are very similar. The main difference between lease option and lease purchase is that the buyer will definitely purchase the home with lease purchase.
In lease option, the buyer may decline to purchase the home within the agreed number of lease years. Usually, the number of lease years range from one to three years. There are many unforeseen events that make the buyer to decline the purchase of home.
The buyer declines to purchase the home, when the home depreciates in value. That means the agreed home price is higher than the market value. The buyer may want to finance a home with the lower home price. So, the buyer might try to find another home in a lower home price.
The buyer also declines when the interest rate significantly increases. The mortgage payment significantly increases as the mortgage interest rate increases. The mortgage payment may be too high for the buyer to afford.
The buyer also declines when the home fits another type of homeowner. To buy a home are one of the biggest decision in our lifetime. The buyer worries to commit on a large purchase in which the home fits another type of homeowner. The best thing about lease option is the buyer can try before the buyer actually purchases the home.
The seller still owns the home while the buyer leases the home. Naturally, the seller can still use the mortgage interest tax deduction. A part portion of mortgage payment is the mortgage interest which is a substantial and beneficial for the seller.
A loan amortization schedule from loan amortization mortgage calculators shows the amount of interest on each mortgage payment. The mortgage payment can be broken down into principal, and interest.
The buyer finances the home price that is agreed upon on the agreement. The purchase price remains the same as the home depreciates or appreciates in value.
The lease includes the lease and premium. The premium will be credited to purchase the home. That means the equity grows at the start of lease. In the event of decline purchase, the buyer loses the all the paid premium.
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