By Althea Chang | MainStreet.com

If you’re planning on getting a reverse mortgage, you’ll likely need a reverse mortgage counselor. In most cases, such a counselor is required.

Here are answers to some common questions about reverse mortgage counseling.

1. Why do I need counseling?
The U.S. Department of Housing and Urban Development requires a certified counseling session for a federally insured reverse mortgage, also known as a home equity conversion mortgage.

“This is a very important financial decision for a senior citizen who wants to make use of the assets they have available until they die,” says Sue Hunt, housing counseling program manager at Consumer Credit Counseling Services.

“We certainly don’t want to have seniors making decisions that aren’t well educated and well informed,” she adds.

2. Does everyone need counseling?
If you’re part of the majority of reverse mortgage borrowers choosing a federally insured reverse mortgage, you’re required to get counseling before you apply.

If your home is worth more than the $625,000 federal limit, you may want to apply for a reverse mortgage through a proprietary lender. In that case, you may not be required to get counseling, but it’s generally recommended, says Peter Bell, president of the National Reverse Mortgage Lenders Association.

Some lenders may first suggest that you speak with their own consultants to learn about your reverse mortgage options, but it’s not the same as official counseling from an independent HUD-approved counselor who’s certified to work with you on your options.

3. How do I find a counselor?
Reverse mortgage lenders are required to provide prospective borrowers with a list of 10 reverse mortgage counseling agencies. Five of the agencies must be local, with at least one a reasonable driving distance from your home. The other five must be national intermediaries such as AARP.

At HUD’s web site you can find national counseling agencies, as well as local HUD-approved counseling agencies. The counselors can meet face-to-face or provide counseling by phone.

4. What will the session entail?
In reverse mortgage counseling, you’ll get information and advice based on an analysis of your budget.

More specifically, you’ll discuss why you want a reverse mortgage. You’ll also review your current income, if any; debts, including an existing mortgage if you have one; your monthly expenses; medical expenses; planned home improvements; your current access to emergency cash and the possibility that you’ll move, either into a new home or a nursing home within a few years.

You’ll receive a projection of how much you can expect to receive from a reverse mortgage, Hunt says. And you’ll compare which lenders and payout terms would be best for you.

Reverse mortgage counseling has to be done in person or on the phone. It’ll take about an hour, or more if you have several questions. If it’s over the phone, it may take more than one call. (In North Carolina, counseling can only be done face to face.)

5. What do I need to bring to my counseling session?
“It’s a good idea, before your session is scheduled, to make some notes about how much money you’re making and how much your expenses are, including housing, utilities, food, transportation and medical expenses,” says Hunt. You don’t necessarily need to provide your actual pay stubs or bills, she says.

You’ll also want to know if there are any liens on your house, she says. In addition, although you don’t need an official appraisal yet, you may want to call a real estate agent who does business in your area, or visit Zillow.com to get an estimate on how much your home is worth, Hunt suggests.

If a lender has given you a projection of your reverse mortgage payout, bring it your counseling session as well, Hunt suggests.

6. How much will it cost?
The fee for a reverse mortgage counseling session is usually $125, but it may be waived if you’re facing foreclosure, bankruptcy, an immediate medical crisis or another hardship.

If you’re not facing an immediate hardship, but you can’t pay the fee, your counselor is required to work with you. A counselor with Consumer Credit Counseling Services, which offers reverse mortgage counseling nationwide, for example, may look over your income, debts and expenses. If your expenses are more than your income, CCCS will allow you to pay your fee from your reverse mortgage payout. If that payout is less than $7,500, the fee is waived, Hunt says.

Some counseling agencies, like the Catholic Charities of the Diocese of St. Cloud, Minn., provide free, independent reverse mortgage counseling.

“You’ll have to call and ask what their policies are,” says Bell. That may mean calling everyone on the list you receive from your prospective lender.

7. What is a certificate of HECM counseling?
A certificate of HECM counseling is written proof that you’ve received counseling.

The form cannot be filled out until your counseling is completed, and in order to process your application, your lender will have to have an original copy of the certificate signed by you as well as your reverse mortgage counselor, according to HUD. If you’ve had counseling by phone, you and your counselor may be able to send your lender separate original certificates, signed.

8. What if I’m acting as a legal guardian or have power of attorney?
A reverse mortgage counselor may require proof of your guardianship or power of attorney before conducting a counseling session. Around 5% of reverse mortgage counseling sessions conducted by CCCS are conducted on behalf of people who have a legal guardian or someone with power of attorney, Hunt says.

9. Who can I contact if I have a complaint about my counselor?
Contact the counseling agency your counselor works for. You can also contact your local HUD office and file a complaint with the person in charge of reverse mortgage counseling. The Federal Trade Commission also handles consumer complaints.

By Althea Chang | MainStreet.com

If you’re a homeowner 62 years of age or older and you need to supplement your income, you may be able to tap into the value of your home using a reverse mortgage to get money now.

Unlike a traditional mortgage, you won’t have to make monthly payments and your income doesn’t affect your eligibility, according to Peter Bell, president of the National Reverse Mortgage Lenders Association.

If you’re interested in getting a reverse mortgage, one of the major considerations is how much you can get. How much you get also varies on how you choose to receive your payouts. Here is what you need to know to get started.

How Much Can You Get?
The simplest way to figure this out is to use an online reverse mortgage calculator, where you plug in where you live, your age, your spouse’s age and the value of your home, says Bell.

How much you actually get is also determined by a variable: an interest rate that’s either calculated using the one-year treasury or the one-month London Interbank Offered Rate (LIBOR). The calculator on ReverseMortgage.org figures out interest rates for you and explains how it’s calculated. If your lender offers both an interest rate based on the treasury and one based on the LIBOR, you can discuss with your loan originator which one would be better for you. The LIBOR rate may be recommended, since a set margin means it carries less interest rate risk for brokers, but patriotic investors tend to choose the treasury-based rate, Bell says. Some lenders only offer one or the other. Both rates fluctuate.

About 90% of reverse mortgages, according to the AARP, are made through the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Authority (FHA) and their Home Equity Conversion Mortgage program.

Late last year, FHA-backed reverse mortgage loans were limited to between $200,000 and $300,000, depending on where you live. This year the American Recovery and Reinvestment Act raised the limit to $625,500.

Some proprietary lenders, such as Bank of America (Stock Quote: BAC), MetLife (Stock Quote: MET), Senior Lending Network and other national and community banks may offer higher-amount reverse mortgages, but such loans will not be FHA-insured.

Payout Options That Pay More
How much you can get also varies on how you choose to receive your payouts. You may choose a lump sum payout to pay off a single debt such as a credit card balance. If you need help covering regular expenses, you can receive monthly reverse mortgage payments, known as the tenure option, for as long as you live in your home. A similar option is to receive monthly term payments, which only last for a set period of time. Lastly, you can opt for a line of credit if you want backup cash in case of unexpected expenses.

As a general rule, the older you are, the more money you can get. If you’re younger, your loan amount will have to stretch over a greater number of years.

With a line of credit, your unused available credit increases annually, meaning you can have more access to cash as years go by. If you opt for tenure payments, even if they’ve added up to more than the value of your home, you’ll continue to receive them regularly for as long as you live there.

So what does this all mean in real terms? Consider these two examples of hypothetical neighbors in Sacramento, Calif.

Reverse Mortgage Example No. 1:
If a 70-year-old man and wife, 62, have a $200,000 home, and need extra money each month to help cover regular expenses, monthly payouts are determined using the age of the younger spouse.

According to the reverse mortgage lenders association’s calculator, the couple can get a lump sum of about $80,363; a line of credit for about $80,363 that increases by 4.6% each year; or monthly payments of $509 for as long as either one lives in their home, based on interest rates calculated using the one-year U.S. treasury.

With an interest rate calculated using the LIBOR, electing a lump sum would pay $88,119; a line of credit equal that amount plus a 3.90% increase per year; or monthly payments of $535 per month.

So, the best option for the couple would be monthly payments from a reverse mortgage with an interest rate calculated using the LIBOR.

Reverse Mortgage Example No. 2:
A 75-year-old widow has a home worth $625,000. She wants to make minor home repairs and have backup funds in case of an emergency or unexpected medical bill.

She can get a lump sum of about $364,372; a line of credit for about $364,372 that increases by 4.6% each year; or monthly payments of $2,593, based on the one-year U.S. treasury, according to the calculator.

With a home equity conversion mortgage pegged against the LIBOR, electing a lump sum would get her $382,952; a line of credit for that amount plus a 3.90% increase per year; or $2,633 per month.

The best option in this case would be a line of credit.

Once you have an idea of how much you should be able to get, discuss your financial situation and your income needs with a reverse mortgage counselor and a loan officer. When deciding what payout option that works for you, remember that you’ll still have to pay your real estate taxes, homeowners insurance, home repairs and mortgage insurance, too.

The new Make Homes Affordable plan will drop some homeowner’s mortgages down to 1%.

By Farnoosh Torabi | MainStreet.com

Recently a distressed reader wrote to me wondering whether he should stay in his Detroit home or just give up and walk away. His main gripe—like some eight million other Americans—is that his mortgage is far more than the home is currently worth. He isn’t building any equity and probably won’t at any point in the foreseeable future. So, should he just stop paying and let the bank deal with it?

My reader Michael (not his real name) has an extremely high interest rate of 8.6%, making his monthly payment roughly $1,850. Plus Detroit has the highest unemployment and foreclosure rates in the country, so a quick market recovery there is not likely.

“The area is starting to decline due to many vacant or vandalized homes with several break-ins, three for myself,” Michael writes. His credit is already poor, he says, and he no longer uses credit cards. He is married with two young kids.

More Reasons to Walk Away
More middle-of-the-road homeowners are grappling with the same issue as Michael. It’s not necessarily because they can’t afford their monthly payments, but because they are “underwater,” owing more on their mortgage than the home is currently worth. They’re not building any equity and when time comes to sell, they’ll probably be in the hole.

The IRS has made it less of a tax pain to give up on your mortgage by now offering special tax relief for financially strapped borrowers who lose their home due to foreclosure. Previously, so-called “forgiven” debt was considered taxable income.

As the fixed-income team at Credit Suisse noted at the end of last year, “Should the downward spiral in home prices, neighborhood condition and equity deterioration continue, more and more mainstream borrowers are likely to walk away from their homes.” Credit Suisse also predicted that more than eight million mortgages would enter into foreclosure over the next four years. That’s about 16% of all mortgages.

In Michael’s case, he definitely needs to move to a safer neighborhood. Three break-ins in one month is more than enough reason to flee. But should he abandon his mortgage? Should anyone ever abandon their mortgage? That’s an entirely different question, so I asked a few experts to weigh in: Joe Brusuelas, a director at Moody’s Economy.com (Stock Quote: MCO); Gerri Detweiler, a credit advisor for Credit.com and Jon Maddux, CEO and co-founder of YouWalkAway.com, a site that helps distressed homeowners learn about their alternatives, such as ditching their mortgage.

When It’s OK to Walk Away
Even for Joe Brusuelas from Moody’s Economy.com, who is not a fan of walking away from a mortgage, ditching your mortgage sometimes make sense. But it’s an exception, not a rule, he says. “There may be a narrow range of conditions under which walking away from a home that is so far underwater is rational,” says Brusuelas.

Here are some of the factors our experts say are extremely important to consider before making your decision. In any situation you want to speak to a bankruptcy attorney.

1. Your Bank Won’t Help (and Won’t Chase After You). Bottom line: Banks don’t want to go through another foreclosure process. It takes time and money. But if saying you desperately need to modify your loan fails to earn you any material help, then you may have to take matters into your own hands and walk away. Before you do, make sure your bank has no plans to chase you down and sue you for “deficiency” claims, says Detweiler of Credit.com. Those claims, depending on your situation, could end up costing thousands and thousands of dollars. Some states, like California and Florida, now prohibit deficiency claims. In other states, some lenders are choosing not to go after defaulted borrowers because they’ve got too much on their plates. But others aren’t so lenient.

“Until the statute of limitations is expired, I wouldn’t think I was in the clear,” Detweiler says. “[The lenders] may come after you in a couple of years after taking a deep breath.” Some attorneys recommend getting a signed letter from your bank stating it won’t sue you for deficiency claims.

2. You’re Not Able to Save. For a $1,000 fee, YouWalkAway.com guides you through the process of ditching your home. Of the 5,000 members who’ve signed up so far, many have decided to forgo their mortgage because they say they’re no longer able to save any money.

“They see [their home] as a major drain to their savings and cash flow in general. They don’t want to keep bleeding basically,” says Maddox, the CEO. If every payment on your mortgage is a step backwards from achieving your financial goals, a foreclosure, he says, may be a suitable path. Especially if you don’t see the area appreciating in value in the next five, seven or 10 years.

3. You’re OK with Damaging Your Credit. A foreclosure stains your credit report for seven years, much like Chapter 13 bankruptcy, which is a partial debt repayment plan. A Chapter 7 bankruptcy, which eliminates your debt entirely, sits on your credit report for 10 years. This means that for a period of time, you may have trouble getting a loan on another property.

“Ultimately, lenders make decision based on risk,” says Detweiler. “Lenders really shy away from serious negative items like foreclosure and bankruptcy.” It will take at least a few years before you can qualify for a new loan and your rates will be extremely high.

Another tip: Don’t let the potential consequences on your credit report decide between filing for a foreclosure or a bankruptcy. They’re both quite ugly. Instead, you should examine the bigger picture, figure out what your future goals are and what the best personal strategy may be for you. And talk to a bankruptcy attorney to weigh it all out. “The homeowner needs to focus on what is the best financial strategy for the next say, five years, versus trying to beat the credit scoring system,” says Detweiler.

4. You Need to Be OK With It. The decision to walk away from your home has been chastised by some in the press for being “immoral.” A contract is a promise, some critics argue, and therefore should be upheld no matter what. What’s more, foreclosing on your home potentially lowers the value of the neighborhood and hurts the economy.

Maddox, on the other hand, says there’s no moral obligation to keeping an unfavorable mortgage. Desperate mortgage holders should do what they can to help themselves get out of painful situations, especially when their bank won’t compromise. After all, he says, banks have no problem breaking contracts or writing off assets.

“If banks cut their bottom line by, for example, firing workers, they get applauded by shareholders. But guys struggling to pay for their kids’ college because their mortgage is too high, those guys get thrown under the bus and we say they’re dead beats, unethical and immoral,” he says.

By Althea Chang | MainStreet.com

If higher interest rates or lower income leave you struggling to make your monthly mortgage payments, you may be able to get a mortgage modification.

Do Your Research
First, use our mortgage modification calculator to see if you qualify.

Under the federal Making Home Affordable program guidelines, to qualify for a modification, you’ll have to have an unpaid mortgage balance of $729,750 or less for one unit properties, have a loan that was originated on or before Jan. 1, 2009, and have monthly mortgage payments that amount to more than 31% of your pre-tax monthly income.

Next, find out whether your loan servicer—the financial institution that collects your monthly mortgage payments—is participating in the Making Home Affordable program by calling the number on your mortgage statement or checking online. Keep in mind that your loan servicer may not actually be your lender.

Gather Your Files
Know your monthly gross income and make sure you can provide recent pay stubs, records of any other earnings and your most recent tax return. You’ll also need to provide account balances, minimum monthly payments due on all credit cards, student loans, car loans and other debts as well as information about your assets and your second mortgage, if you have one. And of course, you’ll have to explain why your mortgage is unaffordable, whether the rate on your adjustable-rate mortgage has gone up, you’ve lost your job, your income has been reduced or your expenses are higher for some other reason.

Make the Call
If your servicer is participating in the Making Home Affordable program, call them and ask to be considered for a Home Affordable Modification.

To go over your options based on your income and expenses, you may want to call contact a housing counselor approved by the U.S. Department of Housing and Urban Development at 888-995-HOPE (4673) for free assistance before calling your service provider.

Loan servicers aren’t required to participate in the modification program, but the government is offering incentives to these companies and their investors, so most major servicers are expected participate. If yours isn’t, ask them or a housing counselor about other options that may be available.

Work Out a Plan
The program defines “affordable” as mortgage payments equaling 31% or less of your gross monthly income. Its aim is to make mortgage payments affordable for struggling homeowners after a review of all monthly debts.

If the sum of your debts, plus modified mortgage payments, equals or exceeds 55% of your gross monthly income, you can only get the modification on the condition that you participate in housing counseling with a HUD-approved counselor.

Depending on your how much you earn, the interest you pay on your mortgage may be reduced to as little as 2% to make your mortgage payments affordable. If this isn’t enough for you to reach an affordable payment amount, your loan servicer may try to extend your payment term to as many as 40 years. If that’s still not enough, you may be able to defer repayment on a portion of the amount you owe. Some of your debt may be also be forgiven.

Things to Remember
If you own and live in a property that has more than one unit, consult your loan servicer directly to find out whether you qualify for a mortgage modification.

Borrowers who do qualify will never be required to pay a modification fee or pay past due late fees. And if there are any costs associated with modification, including payment of back taxes, your servicer will let you decide whether to add the amount to what you owe or pay it in advance.

Beware of any agencies that charge an upfront fee for housing counseling or modification. Advice from a HUD-approved housing counseling agency is free.

Jim Cramer says he sees a static not a declining market. He is staying defensive but is also finding the discounts and getting aggressive.

Buying a home is one of the biggest and possibly best decisions you can make (especially with the economy the way it is today). People are constantly lowering the price of their homes in order to get someone to buy and get it off the market. If you are looking to either rent or buy, here are some reasons that buying may work out better for you.

You Get Something Out of It – When you pay rent you are constantly putting money into something that you cannot call your own. Every month you pay rent but once your lease is up, the apartment is no longer yours. Putting so much money towards an apartment is very similar to throwing money away. In the end, you do not get anything out of rent once the lease is done. However, when you buy a home you could instead put money towards the mortgage instead and at the end of the day you have a house to call your own.

Appreciation Over Time – When you buy a home, the value of the home has appreciation over time. As time goes on, the value of the home gets greater (providing the economy is doing well) and when you turn around and want to sell your home you typically get more out of it than you paid, especially if you added a room or fixed up some areas of the house.

You Can Do What You Want with Your Own Home – When you rent an apartment you have to answer to a landlord. When you buy your own home you only have to answer to yourself. You can paint the walls, renovate the kitchen, and change things around as you like. When you rent, the possibilities are definitely not as endless.

Yes to Pets! – One of the hardest things about renting an apartment is that there is always the chance that you will not be able to move your pets in with you. Some apartments even charge rent to have your pet each month. Pets are expensive as it is without the cost of rent on top. When you own your own home, pets are not a problem and possibly you will have your own backyard for them as well!

You Can Get Roommates – If you are still young and haven’t yet started a family, getting roommates can help you pay the mortgage each month. Although you may have purchased your own home, there are still many young people out there that are more willing to pay rent each month. Another benefit of getting roommates is that you may find yourself with some extra cash to help you fix us your home or add your own little touches that you wouldn’t be able to afford otherwise.

Accomplishment – Owning your own home gives you an amazing sense of accomplishment. It is one of the biggest (if not the very biggest) decision you are going to make in your life. Although you may not be able to afford the biggest house on the market or even the nicest, you will find a home that you can call your own and one that you can make whatever changes to that you feel necessary.

After all things considered, the decision is still up to you, however definitely take some of these things into consideration when you decide whether to rent or buy. Also, do not forget that purchasing your own home is not without its issues.

— By Hannah Waters, Geezeo.com

Photo By: Roxanneh

Inside Mainstreet.com’s new calculator – it tells you if you qualify for Obama’s mortgage rescue plan.

Click here to go directly to the Obama Mortgage Calculator at MainStreet.

Lynnae at Beingfrugal.net believes that “credit card debt is bad. Nobody should have it. Car loan debt is bad.  Student loan debt is questionable.  Mortgages are OK if you do them right. Put a big chunk of money down, don’t bite off more than you can chew, don’t take out a HELOC, and pay it off as quickly as possible.”  Lynnae started her blog as a way to hold herself accountable for the financial decisions that she has made.  Here’s a look back at what she has been writing about.

Travel is something that people do all year round, and lately it seems that it is getting more and more expensive.  “But if you plan ahead and anticipate expenses, there are corners you can cut to ease up on the budget without impacting the fun.”  Check out these Budget Travel Tips.

Is it possible that fruglity can go too far? Lynnae shares with her readers a guest post from DebtKid who lets us know how far is too far.

Here’s a great frugal tip for cleaning your mini-blinds.

With Lynnae and her family working hard to get out of debt, you may wonder what her advice is when it comes to a plan of action.  To her, it’s basic.  You need to make a commitment to just do it.  Commit yourself to getting out of debt.  Once that commitment is made, then you need to formulate a plan.  A goal without a plan is just a dream.  Check out what else Lynnae says about getting out of debt.

Here are more frugal tips from Lynnae.  This time, it’s for your garden.

By Jeffrey Strain | MainStreet.com

Owning a home may be the ultimate symbol of financial stability, but there are plenty of reasons to keep renting.

Now that home prices have tumbled from their highs, more people are trying to take advantage of the weak economy and buy a house. Before jumping in, it’s important to remember that home ownership can increase your living costs and tie up your cash. Consider these six potential issues:

Financial risks: Contrary to popular belief, home prices don’t always go up. Even if prices decline at double-digit rates, it’s impossible to know if prices will rebound or keeping falling.

Getting stuck: Most people who purchase a house plan to live in that city for a significant amount of time. What they often don’t realize is that if circumstances change, they might be stuck if they want to move.

For example, if you lose your job, it might make sense to move to an area with more professional opportunities. However, if the city in which you live is in decline, it may be tough to sell your house. It’s easy to pack your things and move out of a rented apartment, but selling property requires more planning and time.

Maintenance: Owning a house requires regular repairs and upkeep, which landlords typically take care of when you rent. Delaying maintenance when you own isn’t always an option.

Longer commutes: Houses becomes more affordable the further away they are from a city. If you must move to distant suburbs to be able to buy a home, your commuting expenses would likely rise along with the time it takes to get to work each day.

Additional costs: People often compare rent with mortgage payments when trying to decide whether to own. They forget that homeowners also pay property tax, buy insurance and make repairs. They might need to purchase appliances and lawn equipment they typically wouldn’t need as a renter.

When it’s time to sell, you might have to make costly upgrades and hire a realtor, who will charge a commission.

Cash might be difficult to access: People who view their homes as investments must sell them and move to cheaper properties and regions to reap the returns. If they can’t sell, they might have to resort to home equity loans or reverse mortgages to access cash.

If you put all the extra money you save by renting into your retirement account, you might be able to save more money than you would have by owning a house.

Related articles:

• Cramer: Home Mortgage Alert Part II: Your Map to Lower Mortgage Payments (geezeo.com)