Can’t wait two years to get a reverse mortgage?
Now you don’t have to.
People as young as 60 can get these looking-glass loans that send monthly payments to you, instead of the reverse.
This new breed of reverse mortgages was just one of the highlights from the virtual National Association of Mortgage Brokers annual convention, which I recently attended. We’re talking smart speakers, breakout sessions and an impressive exhibitor’s hall.
Here are some highlights from my reporter’s notebook.
The non-FHA reverse mortgage: Typically, a reverse mortgage is a Federal Housing Administration-insured loan that gives borrowers a lump sum of money, a line of credit or a monthly check. Unlike a traditional home loan, a reverse mortgage gets repaid at the end rather than in monthly payments and isn’t due until the borrower sells, moves or dies. You can use it to buy a home as well, without getting cash back.
But there are limits to who can get these loans. You must be 62 or older, live in a house or an FHA-certified condo association and pay expensive up-front FHA mortgage insurance. The maximum loan amount is $765,000 for Los Angeles and Orange counties and $442,750 in the Inland Empire.
At the convention, however, I learned of a non-FHA reverse mortgage program available to borrowers as young as 60. The loan uses actuary tables to calculate maximum loan amounts. You can get this loan without mortgage insurance and any condo complex might just do.
On top of all that the loan amounts start at $100,000 and go all the way to $4 million. Not bad!
Low-interest jumbos: A jumbo mortgage is a loan for amounts greater than those approved for resale to government-backed agencies like Fannie Mae, Freddie Mac, FHA and the Veterans Affairs Department. Fannie and Freddie limits, for example, are $765,000 in Los Angeles and Orange counties and $510,400 in the Inland Empire.
What’s out there tends to be kind of high in terms of mortgage rates.
So, how about a jumbo 30-year fixed-rate for under 3% with points?
It’s out there now.
Fix and flips: For anybody interested in fix and flips, property rehabs or adding accessory dwelling units, how about a combo loan allowing for purchase money mortgages or refinances that cover the cost of repairs and improvements?
You can finance with as little as 15% down and finance as much as 100% of the improvements so long as the loan doesn’t exceed 75% of the after-repair value.
For example, you put 20% down, or $100,000 to buy a $500,000 property. Your improvements costs are $200,000, but the after-repair value will land $100,000 higher than that, or $800,000. So, you can get a maximum loan amount of $600,000 (75% of the $800,000 after improvement value).
The loan isn’t cheap. The rate is around 8.99%, with about 4 points in cost. But if you don’t have the equity or the cash to cover the improvements, it’s a way to get things done, and quickly too. You can close in seven to 10 days.
There’s no prepayment penalty so you can get a much cheaper takeout mortgage as soon as the work is done without a gotcha charge.
Higher mortgage rates: The record low mortgage rates of this past summer could start moving higher by next summer, said former FHA Commissioner and retired Mortgage Bankers CEO Dave Stevens, the convention’s keynote speaker. Stevens believes that could happen if the economy recovers and there’s a COVID-19 vaccine in place.
Stevens said these factors could lead to rising rates: The Federal Reserve stops buying mortgage-backed securities, there are new demands for increased federal COVID-19 debt financing, Fannie and Freddie get recapitalized, and the government conservatorship for those two mortgage giants ends.
If their conservatorship ends, Fan and Fred won’t have an explicit government guarantee, making it harder for them to raise money around the world for mortgage lending.
The housing market: What is supporting the housing market these days?
Favorable demographics, home equity, low inventory, high stock prices, low interest rates and homeownership demand being reinforced by the pandemic, said Freddie Mac senior economist Ajita Atreya.
What about risks?
Home prices rising faster than incomes, Atreya said, a pullback in demand, a slower-than-expected economic recovery (which is bad for the stock market) and a new wave of temporary and permanent job losses.
Gravy train to end: 2020 was a banner year for mortgage brokers.
But many of the conference speakers said the gravy train of record low mortgage rates is going to end. That means it’s back to the battles of competing to win over mortgage borrowers.
Jeff Lazerson - Mortgage Columnist since 2011