Simmons & Schiavo Blog

Fannie Mae will continue to back larger mortgages

Fannie Mae and Freddie Mac, the quasi-government entities that insure or repurchase a high percentage of mortgages in the U.S., will continue to back mortgages as large as $417,000 – and as large as $625,500 in some high-value areas.

That’s the word from the new director of the Federal Housing Finance Agency, which oversees the two mortgage giants.

This is good news for buyers who want to take out larger mortgages. Mortgages of more than Fannie and Freddie’s maximum amounts are usually considered “jumbo” loans, and borrowers typically have to meet much higher standards and face many more restrictions.

The agency had planned last year to reduce the largest Fannie and Freddie-backed loans to $400,000 (and $600,000 in the most expensive locales), but it now says that continuing to insure larger loans will help the country’s housing recovery.

What will happen to your online accounts if you pass away?

As more and more people live their lives online, the question of what happens to online assets and records after someone dies is becoming more important – and confusing.

Consider all the things that you might “own” on the Internet – thousands of photos and e-mails, Facebook and other social media accounts, music libraries, blogs, genealogy records, domain names, and much more.

Then consider how many financial accounts you have or manage online – including PayPal and other accounts with credit balances, as well as online accounts with detailed financial records, automatic bill-paying processes, etc.

If you haven’t given any thought to what will become of these things – and who will manage them after you’re gone – it’s probably a good time to do so.

Increasingly, executors are being faced with very difficult questions about what to do with these online assets. How can they access them? To whom do they belong? What would the deceased loved one have wanted? [Read more...]

How to buy a vacation home with friends or family

Sales of vacation homes have been rising sharply lately. Across the country, the number of vacation homes sold last year was up 30% from the year before, according to the National Association of Realtors.

Vacation homes now account for 13% of all home sales. The median price last year was $168,700. Interestingly, most vacation home buyers are under age 45.

Many people have long dreamed of owning a second home, but buying one can seem like a big stretch. One solution is to join forces with friends or family and purchase a home together.

This can be an ideal solution – you get to use the home for part of the year, just as you planned, but you can also share the cost, the maintenance work and the expenses with others.

But before you take the leap, it’s important to think through everything that will be involved, and what will happen if something goes wrong. You’ll want to have a frank conversation with your partners and draw up an agreement that covers all the bases – a kind of “real estate prenup.” [Read more...]

‘No down payment’ mortgages are back

Remember “no down payment” mortgages? These were the kinds of loans that often led to foreclosures during the real estate bust a few years ago. They’re making a comeback – but in a different form.

In their new incarnation, home buyers put up their home and a portion of their investments as collateral. The amount of a portfolio that must be pledged depends in part on the nature of the investments – a larger amount must be pledged if they consist of stocks rather than bonds, for instance. The homeowner keeps ownership of the investments, although there are some restrictions imposed by the lender, and typically the investment account must be held at the lender’s institution.

The advantages for buyers are that they (1) don’t have to sell appreciated stocks and pay capital gains taxes to fund a down payment, (2) may get a larger mortgage interest deduction, and (3) may come out ahead if their investments return more than the mortgage interest rate.

Of course, there are dangers, too, since homeowners will have put their personal assets as well as their home at risk if anything goes wrong.

Want to build a second home next to your current one?

Many cities have liberalized their zoning laws in recent years to allow people who live in single-family homes to add a second home on their property. They can do this by creating a basement apartment, building an “add-on” apartment to the house, or even constructing a separate cottage in the backyard.

Cities are responding to requests from homeowners, many of whom are middle-aged couples whose children can’t afford to find their own apartment and want to live with them. Other owners want a nearby space to take care of aging parents who can no longer live on their own, or simply want to rent space to bring in extra income.

Laws have changed recently in Seattle; Vancouver; Salt Lake City; Silicon Valley; Missoula, Montana; and many other places.

Of course, these changes can be controversial, since nearby homeowners may worry that their neighborhoods will become more crowded and experience problems with noise and traffic.

New rules for reverse mortgages

The federal government has tightened the rules for reverse mortgages, making it harder for some seniors to get these types of mortgages and reducing the amount of a home’s value that can be tapped.

Reverse mortgages allow elders who are house-rich but cash-poor to use their housing equity. Homeowners who are at least 62 years old can obtain a loan that doesn’t have to be repaid until the homeowner moves, sells, or dies. The homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the borrower’s age, and current interest rates.

Homeowners can get the money in one of three ways (or in any combination): a lump sum, a line of credit, or a series of regular payments, called a “reverse annuity mortgage.” Seniors sometimes use the loans to pay for home care while they remain in the home.

Almost all such loans are insured by the U.S. government. The government says that in recent years, default rates have been rising, and many seniors are losing their home when they are unable to continue paying for insurance and property taxes. [Read more...]

Tenants with children can’t be limited to lower floors

Managers of apartment buildings sometimes want to require tenants who have small children to live on a lower floor, in order to prevent complaints from other tenants about noise in the apartment above them.

But the U.S. Department of Justice says this is illegal. The government announced that such a rule would violate the federal Fair Housing Act, which prohibits discrimination against tenants based on “family status.”

The Department recently filed a lawsuit against the owner of an apartment complex in Massillon, Ohio, claiming that the owner illegally refused to rent apartments on upper floors to families with children.

How to leave items of sentimental value to your heirs

Often, the issue that causes the most hard feelings among family members after a death isn’t how much money everyone received in the will, but who should get the plate on which Grandma served her famous Thanksgiving pie year after year.

Most people don’t think much about items of sentimental value when they do their estate planning. But they should, because doing so can avoid a lot of awkward situations.

For instance, you might plan to leave everything to your children in equal shares, but what about the piece of jewelry that you always promised to your eldest daughter, or the antique vase your cousin loved that no one else in the family liked? Or what if you have a valuable item such as a piano that can’t be divided equally?

It’s definitely a good idea to make provisions for items such as these in your will. [Read more...]

Mortgages for ‘do-it-yourselfers’ are spiking

There’s been a big increase recently in a special type of mortgage for people who are buying land and then building their own home on it.

These “hybrid” loans function as construction financing during the building phase. Essentially, they act as a line of credit, which borrowers can tap each time they need to make a construction payment. During this phase, borrowers must pay interest on the loan, but they don’t have to make any payments toward the principal.

Once the house is finished, the loan converts into a traditional mortgage secured by the home.

The loans can be very useful if a buyer is working with a smaller or specialty contractor who isn’t able to arrange its own financing for the project. And they enable the buyer to undertake just one loan, rather than having to navigate a standard construction loan while also trying to arrange a conventional mortgage on a house that’s still on the drawing board.

One bank that offers these loans, TD Bank, says its originations are up 110% so far this year.

Should life insurance be part of your estate plan?

Traditionally, the purpose of life insurance is to replace a person’s income for their family in the event they die before they stop working. For this reason, many people buy “term” insurance that ends when they reach retirement age.

However, there are also some very good uses for life insurance as part of an estate plan. For example:

  • You might want to make sure that your heirs won’t have to sell important assets (a business, real estate, etc.) after you die in order to pay estate taxes or because of a lack of liquidity in the period after your death. Life insurance can provide your heirs with ready cash to cover taxes and other expenses.
  • Suppose you have several children and you want to leave them equal inheritances, but your estate consists largely of assets that are hard to divide – such as a business, real estate, or an art collection. You could leave the assets to the children most likely to appreciate them, and use insurance to equalize inheritances for the other children. [Read more...]