Q & A with Dottie Herman

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Q1 - My wife and I live in New Jersey and have been in our current house for 25 years. We are both semi-retired; however, I still work part-time.   We have a 30 year, 5.5% mortgage for $160,000.  We are presently paying more than the monthly amount required to try and finish the loan. Recently we have seen interest rates get much lower and we are wondering if we should get a shorter term loan at a lower percent or just continue to pay more monthly. Any advice is greatly appreciated. 
 
A - The first questions I would ask are: how much is the remaining balance and how many years are left on your mortgage.  If it is less than 5 years, the cost of refinancing to a lower rate may outweigh the savings.  With that said, you should look into a refinance given the current rates environment.  Loans below the confirming limits of $417,000 are currently around 4.5%. You should speak with a mortgage professional who can analyze your situation and give you specific information. If the numbers work, you can refinance into a lower rate and keep the term the same while lowering your interest rate. If you can take a 10 year loan the rates for that term are currently 4%. Because you are currently paying more each month than required, you may find the new payment to be the same or lower.  So again, call your lender and have them work up the numbers for you so you can make a decision.  Good Luck!

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Q2 - My daughter and son-in-law are currently living in a rental and paying 1,950 a month. They would love to buy a house as the interest rates are so low, however, my son in law makes 50,000 a year, and my daughter in law doesn't work.  My son in law makes extra money with overtime, which is not included in the amount he makes .Is there a way they can buy a house with the FHA 3 percent down, and if he doesn't make enough salary can one of us co-sign their loan?  
 
A - The FHA does allow 3.5% down payments so this is an option for them. The fact they have a history of paying a rent of $1950 is a helpful qualifying factor. Interestingly they would not be qualified for that much of a mortgage payment without the overtime income.. Based on the income and no using the overtime, the maximum mortgage payment they could qualify for is approximate $1700 including taxes and insurance.  Depending on the market area where they want to live and the home prices this may work.  Assuming tax and insurance are $700 they would be able to obtain a mortgage for between $190,000 AND 215,000 depending on the loan program. It is certainly worth looking into as rates are at historically lows.

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Q3 - My parents are trying to decide whether to sell their home or get a reverse mortgage. They are 73 and 76 years old and the up-keep is just becoming too much money. What are some of the pros and cons?  
 
A - They are many things to consider with a reverse mortgage.  The ARRP website has great information as a place to start learning more. There are several distribution options to choose from when you get a reverse mortgage. Some of the pros are that you can have a fixed and reliable cash flow each month that cannot end until you pass, your home is yours to live in or sell until you pass, and most reverse mortgage are insured by the FHA a government agency. The cons are that these loans can be expensive in terms of closing costs and the home equity that you have used will not be available as part of your estate.  Again there are many things to consider so I recommend researching the information and speaking with more than one lender.  Also check with your attorney or accountant as they often have experience with these loans..

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Q4 - A friend and I want to buy a home in Florida together for about 40,000. This would be an investment and a home for us to fix up and rent out. Would a bank even give me a mortgage for such a low amount? Would they roll in the closings costs into the loan?  
 
A - Banks will not discriminate on loan amount but may set a minimum loan amount that they will lend to anyone.  So you should be able to find the loan.  Banks will only finance around 70% of the value for the purchase of an investment property so you must have enough cash for 30% of the purchase price and closing costs.  Given the market condition, investing in Florida is a long term investment so do your homework and get yourselves pre-approved with a mortgage lender before proceeding.  That way you will know exactly what you can afford.  Good luck!!

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com.

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