For the majority of people buying a home today getting a mortgage is an important part of the home buying process. Today there are many options on how to go about financing your new property. NBAA has put this page together to help you understand the mortgage process and answer some of your frequently asked questions.
Financing a Home Rehab: HUD’s 203 (k)
First, what is a HUD 203(k) loan? It is loan program for the rehabilitation or repair of single family properties. What type of property is eligible? The property must be a one to four family property that is at least one year old and a condominium might qualify.
Generally, a bank or mortgage company will not make loan on a property unless the condition and value of the property is adequate to support the purchase amount. If the property needs significant repairs or rehabilitation the lender wants the rehab work completed before a long term mortgage is approved. The HUD 203 (K) loan provisions permit a borrower to finance the acquisition and repairs/rehab with a single long term or adjustable rate mortgage. The available mortgage amount is based on the value of the property including the cost of the repairs to be completed.
The specific provisions that apply to a 203(k) loan are very detailed and lengthy. Anyone interested in a property that might qualify should have a discussion with a lending agency or their buyer’s agent as early as possible during the property search.
Obtaining A Reverse Mortgage
Who qualifies for a Reverse Mortgage? To obtain a Reverse Mortgage a homeowner(s) must be at least 62 years old, the home must be a primary residence and the homeowner must have sufficient equity in the home. A Reverse Mortgage is a unique way for qualified homeowners to convert part of the equity in their homes into tax free income without selling the home, giving up title or taking on a new monthly payment. The amount of money you can receive is based on your age, the appraised value of your home, current interest rates and any applicable lending limits. There are costs and fees similar to those when you close a regular mortgage. These may include an origination fee, an appraisal, title insurance, recording and other fees depending on local and state laws. Some of these fees may be financed as part of your loan.
If you qualify there are no restrictions on how you use the money obtained through the Reverse Mortgage. You can use the money to supplement your monthly income, or pay off your existing mortgage or other debts, to cover ongoing expense or to purchase a variety things such as an automobile. You can choose to receive the proceeds of your Reverse Mortgage in a number of ways, such as one lump sum, monthly payments for a number of years or until you no longer live in the house, or a credit line to draw on as needed, or as a combination of various options. There is no obligation to repay a Reverse Mortgage as long as you live in the house. Repayment occurs when you sell or permanently leave your home.
Payments from a Reverse Mortgage are considered to be a loan, not income, so they are not subject to income taxes and will not affect your Social Security benefits.
Since a Reverse Mortgage touches not only your income, but your asset base, a will or trust, personal relationships and more, it is advisable to review your finances with your financial or legal advisor or estate planner before making any application. You should also consult with a company that specializes in Reverse Mortgages. In fact, to ensure that a Reverse Mortgage is appropriate in your situation, before a loan is granted a homeowner is required to receive free counseling from an independent , third party counseling agency.