Reverse mortgage scams you should watch out for

Reverse mortgages are aimed at senior citizens who are living on a fixed income source and need a supplement income source. The whole idea behind it is to allow the home owners who are over 62 to use the equity on their property as an extra income source.  Reverse mortgages are very expensive and quiet complicated, senior citizens are a target for fraudsters and scammers.

Here are a number of reverse mortgage scams that you should watch out for

Unfair advertisement

People send confusing letters with incorrect information to senior citizens concerning the reverse mortgages. Mostly, they contain overstated virtues on the reverse mortgages. They also do not disclose the risks of all expenses associated with reverse mortgages.  When taking out a reverse mortgage, there are considerable fees you will have to make payments on. Reverse mortgages can be quiet expensive and the direct advertisement does not cover this.

 Your spouse is not included in the mortgages

In some reverse mortgages plans, only the older spouse is named as the borrower. Most brokers will suggest this to make the mortgage approval process easier. age is a qualifying factor in reverse mortgage and if the spouse passes away, the surviving partner who is not on the mortgage will be required to complete the payment.

The flipping fraud

This real estate property fraud is very common among agents who are dealing with senior citizens. Mostly, they convince the seniors to apply for a reverse mortgage and help them with the whole process. After the mortgage is granted, they encourage you to purchase another property with the proceeds of the reverse mortgage.  The property is normally a flipped home which is worth less than what you should pay for.

Vendor or contractor fraud

It’s obvious that senior citizens will find it harder to get a roof over their head, conditioning, heat and coming up with money with the new home.  Corrupt lenders, lenders and contractors try to take advantage of them by getting them to apply for a reverse mortgage and using the money to pay for the expenses on their homes.  Reverse mortgages are only designed to give the seniors extra income stream. If the money is used for home repairs instead, the income stream will be lowered and there will be a reduction in the income stream.

High pressure sales

Real estate agents and other home sale representatives will offer help to senior citizens on the reverse mortgage application process so they can take advantage of them and confuse them. they will rush them into making decisions that will ruin their financial future.

Fraud y friends and relatives

Believe it or not, some family and friends will try to trick seniors in their circle just to take advantage of them and have some money for themselves. Financial advisors, caregivers, relatives and other people will try inheritance jumping just to get a share of the reverse mortgage money.  Relatives and caregivers will try to get the power of attorney from the seniors so they can have an ability to access the money.  Unethical financial advisors siphon off the money from the account, which leaves the seniors with financial issues.

Private mortgage – what you need to know

Private mortgages are loans made by businesses or individuals who are not traditionally mortgage lenders. If you are looking to ask for a loan or lending money for a home, private loans can work out great for you. But just like any other types of loans, things can go wrong financially.

Hard cash or private mortgage, which one is better?

Hard money lenders are more convenient for people who have a harder time getting approved for loans by traditional loan lenders. Hard money loans are often more expensive than other types of mortgages and they requires a low loan to value ratio.

Why should you go private?

It does not make sense when the world is full of other lenders. You could ask for the mortgage from large banks, online lenders and local credit unions why go for private lenders?

Here is why

Qualifications – most borrowers may not be able to qualify for a basic mortgage from larger banks and traditional lenders.                  They require a load or documentation and your finance has to be in line with the specifications of the bank.

Even when you qualify to make the loan repayments, the lenders will need to verify that you have specific criteria so you can complete the verification process.  For instance, it is harder for self employed people to get loans from traditional lenders.              

Keeping it in the family – it still counts as a private loan when it is kept between the family. It is a great financial decision for people who can manage this strategy. You can save on your cash by paying a lower interest rate or none for that matter and also prevent penalties and other kinds of fees imposed.

Understanding the risks of private mortgages

Any kind of loan can be a problem, even private loans.  Even when you start out the private mortgage with good intentions, some issues can come up. They include

The relationships – having an existing relationship between you and the lender can make the entire process difficult. For instance, if you borrow some money from a family member and purchase the home at a loss you will feel the extra stress but you still have to pay back the money. The lender is faced with the difficult task of enforcing agreements on the loan to reduce legal complications.

The lender risk tolerance- the lender give you the loan with an expectation to get repaid within a specific period of time. Evaluating your ability to make the payments is much harder for private lenders.

The value of the property- real estate property is very expensive and fluctuations in property values can total up to 5 figures. Lenders need to be comfortable with the condition of the property to lend you the mortgage loan.                                                                                                                                                       

Tax complications – the tax laws become more complicated when you are dealing with private mortgages. Moving the large sums of money can create multiple issues, you need advice from the local tax financial advisor before your proceed.

Mortgage laws to protect the borrowers

Purchasing a home is one of the largest investments you can make in your life. In the growing industry of real estate, it is quiet easy for someone to take advantage of you’re and walk away with substantial earnings leaving you at a loss. Fortunately for you and any other buyers, there are rules that are created to protect you from dishonest and irresponsible lenders. While there is no way to remove all the risks, you have better chances with the consumer protection laws.

The ability to repay

In the past, it was very easy to get a mortgage loan. Most lenders allowed borrowers to take up mortgage without verifying the income source, assets and financial status or if they will be able to repay the loan.  In most of those cases the borrowers defaulted on the loans because of minimal documentation.

Now, lenders must verify the ability to repay the loan by the borrower.  If the lender sees you meet their specific criteria, they can issue you with a qualified mortgage that offers them a legal protection if you cannot make the payments on the loan.

The key features of qualified loans include

Affordable monthly payments

Lenders ensure that the housing payments will not take up more than 40% of your income. Your debt to income ratio should ensure that you have money left over for monthly expenses.

Low risk loans

The qualified mortgages do not have any risky features. Some of the loans may look affordable at first glance but they cause problems. Some of the risky features include

Interest only loans- this means that you only make payments on the interest charges. This will prevent you from making any progress on the mortgage loans and you will not build any equity on your property. You will also need to pay a significant amount of money to sell the home after it loses the value.

Long term mortgages – qualified loans will not take more than 30 years like other basic mortgages.  30 year fixed rate mortgages are seen as affordable payments.

Negative amortization – basic home loans have a set payment schedule that works to reduce your debt over time. Some ARM loans allow the debt to increase while you are making smaller monthly payments.  The loans eventually convert to standard ones and cause a problematic increase in the balance

Clear disclosure

Lenders will scrutinize your finances as well as help you understand how the loan works. They provide you with a loan estimate after you application based on your monthly payments, the interest rate of the loan, tax and insurance estimates and the closing costs.  The loan estimates are in standardized formats to make shopping easier for you.

Sometimes, strict rules have a way of creating challenges for the borrower. Some rules make it harder for you to borrow.  Self employed people will face challenges when looking for a loan approval. To avoid the problems, you need to ask for trusted mortgage lenders from professionals and referrals from your friends and family.

How to Refinance a Rental Property

Refinancing rental property is very beneficial. As a property investor, there are several steps you can take to know if you qualify to refinance.

Why should you refinance the rental property?

To get a lower interest rate – one major reason why people refinance their property is to get a lower interest rate on their loans. It decreases the monthly mortgage payments and leaves you with more money in your pocket from your income. you can save the money and use it to invest in other properties.

You get better terms – by refinancing your home, you will be able to get another mortgage with better terms.  You are free to negotiate a mortgage with longer or shorter terms and less money depending on what you are looking for.

To take money out – one more benefit of refinancing is the ability to rake out equity on your home.  This money can be used to purchase another investment property.

Determining the value of your property

You can do it online

If you own any type of investment property that is hot in the market like single family homes, multi-family homes and condos, you can visits several home online where people are selling similar properties. This can help you determine the ballpark value of the property and it will not cost you a thing.

The broker price option is great if  you own investment property that is difficult to appraise and sell like larger multi-family homes and mixed properties, or you just need a professional opinion, you could contact a realtor who will help you request a broker price opinion. The BPO will give you information and analysis of the home for free.

The loan to value ratio

The bank will only loan you some money as a percentage of the underlying value of the property. The loan to value ratio, LTV, is a requirement in different banks and institutions.  for rental properties, most lenders require a loan to value ratio that is between 50 and 80% and some of them will require a slightly higher ratio.

Once you get the ballpark value of the property. You could compare that to the current mortgage so you can determine the general loan to value ratio of the property. You need to be within the lender’s range in order to refinance the mortgage.

 Choosing the right lender

This means reaching out to multiple brokers and lending institutions to request a quote. You have to ensure you get a quote from your lender because you have a higher chance of getting better terms than when you strike a deal with a completely new lender.  You can also requests the quotes from online brokers, brick and motor lenders and private online lenders.

Applying for the loan

You need your tax records, identification card, property deeds, mortgage and bank statements rent receipts and the property deed to start the application process.  Once you submit the application the lender will review and verify the documents and appraise the property. if they accept the application, you can close the loan in 2 to three months.

How to get preapproved for a mortgage loan

You need a preapproval loan to make your life easier when you are looking to borrow money for a car, home or credit card. A pre-approval letter lets you know exactly how much you can spend and also puts you in a better position to negotiate; you will understand the cost of the loan before you end up getting something that you would otherwise never afford.

How do you get a pre-approval loan, here are some 4 simple steps to help you

Manage your credit card

The credit card is very crucial when you want to take out a mortgage. Lenders will review your credit card before they approve your loan to make sure you can clear the loan payments on time.

Learning about the credit card is important; it helps you understand how the credit card works and what lenders are looking for when they give you a loan and how a low score can affect the loan application.

Check the credit reports to see what they contain and make sure there are no errors or late payments on the report. Make sure you view the reports from each of the bureaus.

Fix all the errors on your credit report. The consequences of the errors and mistakes on your credit cards are severe; they can results to significantly higher mortgage rates of even a denial in your loan application.

Get ready

Lenders ask for information about your income and finances so they can evaluate your loan application. Gather all your financial information before so you can get to know your finances

You need to prove to the lender you have sufficient income to take on a loan. The lenders calculate the debt to income ratio, which is the amount of money earns compared to the monthly loan payments.

Your debt to income ratio needs to be at least 35 percent if your want the mortgage application to be approved.  You will need t submit copies of your finances to get a preapproval letter from the lender. All the information you provide should be accurate 

Pick a great lender

Once you are done with the first two steps, you should start shopping for a lender. You probably need only one pre-approval letter but you also need to compare different loan costs before you settle for one lender.

Keep in mind that you are not obligated to use the lender that preapproved you but you should continue the preapproval letter with the lender who offers you the best terms.

Get quotes from different types of lender; enquire from local credit unions, credit card loans, banks, personal loans, online and p2p lenders.

Get a pre-approval and pre-qualification letter – lenders want to work for people who are pre-qualified for the loan. This means that their documentation prove they can clear the loan payments in time. a pre-qualification letter lets you know how much you qualify for so  you can make house shopping easy.

After you talk to different lenders and make a final choice, you could apply for the loan.  The only way to do this is make the application and wait for the response.