Part 4 is the final in the series: “Is your home “Aging-In-Place” ready?” Please comment if you have any questions and comments and please enjoy the blog.
Part 4 – Credit, credit and more credit
When we started this case study, I’ve talk about staying in your home as a viable solution. Design solutions, neighborhoods settings, etc… plays a vital part in the decision to stay. However, financial institutions have tightened the credit requirements for everyone and made property values decline. Let’s talk about the types of financing that is currently out there and how we can get access to it.
FHA, personal financing and reverse mortgage.
In order to get the loan so we can get the project started, we have start with what the client should have. The client should have at least 20% saved in their personal finances to used for a down payment for the loan. Look at this stat:
According to the Census Bureau, only 11.6 percent of Americans moved to a new residence between spring 2010 and spring 2011; the next lowest number was 11.9 percent in 2008. With home prices depressed and credit tight, Americans are less able to sell their existing homes at a profit or secure financing for a new home. That’s one of the reasons the client needs 20% down. The banks are not loaning monies like they use to. Now let’s look at the traditional financing…
An FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. Most of us used this track to get refinancing so we can do remodeling or additions so we can stay in their home. Secondary financing, the Federal National Mortgage Association, commonly known as Fannie Mae, it is a government-sponsored enterprise. The corporation’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities,allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market.Lastly, newer types of loan, FHA 203k loan are growing in popularity. A 203k loans allow the buyer to roll in the costs of repair of single family detached properties, condominiums, town homes or small apartment facilities into the mortgage loan. The bank takes the “as is” market value of the property and adds the costs of repairs to the loan. Upon closing, the repair work is completed and the buyer can take possession of the property. The minimum amount of repairs required to utilize a 203k loan is $5,000 and the maximum is $35,000. This portion of the loan is added on to the primary note. In order to streamlining costly repairs for a property, a 203k loan can be used for modernization of an existing home. This is useful for homeowners who want to update a kitchen or bathroom in a home that they purchase. These loans can also be used for room additions or other home expansion projects.
Like it was stated above, because of the credit crisis, the client needs to have at least 20% down payment and a good to above average credit score to get financing that you can live with so you can enjoy your remodel home. You can secure financing from family members or co-workers, etc…
A remortgage is a form of equity release (or lifetime mortgage) that is currently available. It is a loan available to seniors aged 62 or older, under a Federal program administered by HUD. It enables eligible homeowners to access a portion of their equity. The homeowners can draw the mortgage principal in a lump sum, by receiving monthly payments over a specified term or over their (joint) lifetimes, as a revolving line of credit, or some combination thereof. The homeowners’ obligation to repay the loan is deferred until owner (or survivor of two) dies, the home is sold, they cease to live in the property, or they breach the provisions of the mortgage (such as failure to maintain the property in good repair, pay property taxes, and keep the property insured against fire etc). The owner can be out of the home for up to 364 consecutive days (i.e., into aged care). Title to the property remains in the name of the homeowners, to be disposed of as they wish, encumbered only by the amount owing under the mortgage.
I hope this series on getting your home “Aging-In-Place” ready will give you something to think about before you decided on a course of action that will benefit you and your client. Like in life, these blogs are not “one size fits all”. Each case study should be different so please use this study as a reference tool. If you have any questions or comments, please post them.