What is CMPS?

CMPS is a training, examination, certification and ongoing membership program for financial professionals who provide mortgage and real estate equity advice.

You can be assured that a mortgage professional with CMPS credentials has met rigorous, peer-developed and reviewed standards endorsed by a national professional body.  The CMPS Institute was formed as a joint effort by leaders in the mortgage and financial planning industries to raise professional standards among mortgage professionals and integrate sound financial planning advice into the mortgage process.  Recognized for its preeminence within the industry, the CMPS curriculum represents the core knowledge expected of  residential mortgage advisors, regardless of the diversity of specializations within the industry.

The CMPS curriculum incorporates five essential skill sets related to integrating a client’s mortgage, debt and home equity strategies into their overall financial plan.  The curriculum includes:

• ∞ Financial Market and Interest Rate Analysis
• ∞ Cash Flow and Debt Analysis
• ∞ Real Estate Investment Planning
• ∞ Mortgage and Real Estate Taxation
• ∞ Ethics and Compliance

With such a wide range of subjects to be mastered, the education process doesn’t end once the designation is earned.  There is a strong commitment among CMPS members to continuing education through advanced training, conference calls, seminars and self-study.

Do You Need a CMPS?

• CMPS professionals have demonstrated financial knowledge and expertise regarding the tax and financial planning implications of various mortgage and real estate investment strategies.
• CMPS Professionals can better advise you when it comes to:
  • ∞ Your single largest debt-your mortgage
  • ∞ Your single largest asset-your real estate equity
  • ∞ Life Planning needs and cash flow goals
• ∞ CMPS Professionals are trained to help you increase your cash flow
• ∞ CMPS professionals are skilled in helping you become debt free sooner and achieve true financial freedom
• ∞ CMPS professionals are equipped to help you profitably invest in real estate, and protect you from mortgage and real estate investment scams
• ∞ CMPS professionals are qualified to help you implement mortgage and real estate equity strategies, which can help you save money on capital gains, estate and income taxes
• ∞ CMPS professionals are able to explain the benefits and drawbacks of paying off your mortgage before retirement, and help you to determine which strategy works best under your individual circumstances
• ∞ CMPS professionals can guide you in implementing the best home equity and mortgage strategies for divorce situations
• ∞ CMPS professionals can help you implement a financial strategy to finance a college education for your children
• ∞ CMPS professionals are equipped to better enable you to financially care for your elderly parents
• ∞ CMPS professionals are able to help you implement beneficial mortgage and real estate equity strategies before and during job or career changes
• ∞ CMPS professionals can help empower you to start a business or sell your business, by implementing viable mortgage and real estate equity strategies
• ∞ CMPS professionals are able to recommend the proper financial strategies when you are ready to buy or build a vacation home
• ∞ CMPS professionals have pledged to follow a code of ethics.

 

Conventional Mortgages

A conventional mortgage loan is a lender agreement that is not guaranteed or insured by the federal government under the Veterans Administration (VA) the Federal Housing Administration (FHA), or the Rural Housing Service (RHS) division of the U.S. Department of Agriculture. Although a conventional mortgage is not insured or guaranteed by the government, it can still follow the guidelines of government sponsored enterprises such as Fannie Mae or Freddie Mac.

Conventional Mortgage History

At one point in the United States, conventional mortgages were the only mortgage loans available and they were all issued by local lenders such as banks, savings and loans, and credit unions.  These private lenders kept and serviced these mortgages in their own portfolio until they were either paid in full or foreclosed on.  There are still some lenders that keep and service their own mortgages, these are referred to as portfolio lenders. A portfolio lender many times will offer broader or more adaptable lending standards, while charging a higher interest rate.

In the late 1930′s, a secondary market was created which allowed local lenders to sell their mortgages, getting the full payment much more quickly.  Then the organizations that purchased the mortgages owned the agreement and collected payments from the borrower.  Today it is very common for lenders to sell their mortgages on the secondary market.

Types of Conventional Mortgages

Conventional mortgages may be “conforming” and “non-conforming”.   Conforming mortgages follow the terms and conditions set by Fannie Mae and Freddie Mac.  The 2009 conforming mortgage limits remain at the limits set in 2006, 2007 and 2008.  These guidelines put the maximum price for a first mortgage at $417,000 for a single-family dwelling.  If the purchase is made outside of the 48 contiguous United States (in Guam, the Virgin Islands, Hawaii, or Alaska), or the dwelling is for a two-family, three-family, or four-family configuration, larger values apply before the loan is no longer considered a conventional mortgage.

Nonconforming mortgages don’t meet Fannie Mae or Freddie Mac qualifications, but they are still considered conventional mortgages.  Jumbo mortgages are one example of a conventional mortgage that does not meet Fannie Mae or Freddie Mac guidelines.  A jumbo mortgage is a mortgage with a dollar value above the maximum mortgage amount established by Fannie Mae or Freddie Mac.  Jumbo mortgages usually come with a higher interest rate, and more stringent qualifying standards apply.

Conventional mortgages can be fixed rate mortgages, adjustable rate mortgages, balloon mortgages, or hybrid mortgages.  Almost any type of mortgage that you take, if not issued by a government entity, is considered a conventional mortgage.

 

FHA Mortgages

An FHA Mortgage is a mortgage loan insured by the Federal Housing Administration (FHA).  The FHA does not provide the mortgage, rather it insures the loan for the lender.  If the borrower defaults, the lender can seek partial recourse from the Federal Housing Administration.  This lowers the lender’s risk and makes them more likely to issue a loan.

The FHA was formed in 1934, and joined the Department of Housing and Urban Development in 1965.  The organization has insured more than 33 million home mortgages since its inception.  Today it continues to help low- and middle-income families move into their dream homes, by making it easier to obtain mortgages.  More than 800,000 current homeowners have mortgages insured by the FHA.

One of the benefits of an FHA-insured loan is low mortgage rates.  For single-family homes, down payments can be as low as 3.5 percent, making it possible to afford a higher-priced home than with a more conventional mortgage which requires 10- to 20-percent down payment.  The FHA can also help home buyers finance their closing costs, and all FHA mortgages come with mortgage insurance.

In addition, the FHA does not allow prepayment penalties, meaning that if you pay off the loan ahead of schedule, you won’t be penalized.  FHA Mortgages are also assumable, meaning that if you are selling the home you financed with an FHA mortgage the buyer can assume your current loan, as long as they are qualified.  This can be a tremendous asset to both the buyer and the seller in times of rising interest rates.  For example, if you happen to be selling a home with a 5.5% FHA mortgage interest rate, and current mortgage interest rates are 9.5%; this would be an attractive option for the buyer and possibly make the home sell much faster.

Qualification

As is customary withmost loans, you’ll need to qualify for an FHA mortgage by meeting specific requirements, including:

• ∞ A good credit record
• ∞Enough money for a down payment, which can be as low as 3.5 percent
• ∞Total housing costs that are no more than 29 percent of your gross monthly income. Therefore, if your annual household income is $60,000, your housing costs should not exceed $1,450 per month.  Based on certain compensating factors, these limits can also be higher. 

Also keep in mind that the maximum amount you can receive from FHA-insured mortgages varies from county to county, and from state to state.  These mortgages are also subject to periodic improved adjustment, and that may be offered only in areas where residential real estate prices are high.

203(k) Rehabilitation Mortgage

The FHA 203(k) mortgage can cover repairs, improvements or both on a residential property.  Unlike traditional financing, which typically requires separate loans to purchase the property, finance repairs and then later refinancing everything into a long-term mortgage when the work is done, the 203(k) program allows everything to be financed through a single transaction.

Find a property, prepare an estimate

To qualify, a home buyer needs to identify a property they wish to purchase, then determine an estimate of the cost of the work that needs to be done.  For this reason, the program can’t be used for homes purchased at a foreclosure auction as you won’t be able to fully inspect the property and come up with a reliable estimate beforehand.  The FHA 203(k) Mortgage can be used to purchase an REO (bank-owned) foreclosed property that’s being offered on the market; a real estate agent who specializes in REO sales can be helpful here.

There are a variety of services that provide local listings of foreclosed properties available for sale, including the online listings of properties reclaimed by the four major government agencies that insure mortgages – Fannie Mae, Freddie Mac, Veterans Affairs (VA) and the Department of Housing and Urban Development (HUD) – the FHA’s parent agency.

An FHA 203(k) mortgage is not limited to the purchase of foreclosed properties, it can be used for the purchase of any single-family home that needs repairs or that the buyer wishes to improve.

Loan based on improved value of property

Once a sales price has been agreed upon and an estimate prepared of the cost of the repairs or improvements, an appraisal will typically be required.  Usually, an appraisal of the property value after repairs or improvements are completed is all that is needed, but sometimes an appraisal of the as-is value will be required as well.  In the case of HUD-owned properties, an appraisal may not be necessary; the agency’s own listing of the market value along with an estimate of needed improvements, is often adequate.

The mortgage is usually set to cover the appraised value plus the cost of the improvements, or 110-percent of the predicted appraised value of the rehabilitated property.  In the case of older homes, a 10- to 20-percent contingency fee must often be included in the estimate of repairs.

Can cover home expansion

The rehabilitation work can be fairly extensive.  These may involve adding extra rooms, converting a multi-unit building to a single-family home, or a single-family property to multiple units.  Luxury items may not be covered in the improvements, but the work may include certain amenities such as the addition of a patio or deck.

Buyers can do some or all of the work themselves, but must be able to show they are qualified to do so.  Self-contracting can also drag out the application process, using a licensed contractor will make things go much more quickly; the home buyer can still do much of the work once the contractor has prepared the estimate.

Streamline option for minor upgrades

For properties which need only minor work, the FHA offers a variation called a 203(k) Streamline Mortgage, which provides loans of $5,000 to $35,000. These upgrades can include painting, window replacement, basement refinishing, floor replacement or other improvements for which plans, consultants or engineers are not generally required.

Reverse Mortgages

A Reverse Mortgage can help you to improve the quality of your life by providing you with a steady stream of dependable income if you have a home that is either paid off or has significant amount of equity.  Instead of you making payments to a mortgage lender, the lender sends you money every month; which is why it’s known as a “reverse mortgage.”  This mortgage is made in payments, which are against the value of your house.

There are various types of reverse mortgages but most of them are similar.  You will still be the owner of your home just the same as with a normal mortgage,  and you will be responsible to pay for all taxes and repairs; as well as for necessary maintenance and upkeep.  You or your heirs must repay all of your cash advances in addition to interest at the end of the mortgage; however, there are no mortgage payments due for as long as you are living in the house.  Just like with any other mortgage, there are fees associated with getting a reverse mortgage, and  these fees can be paid with the money you receive from the reverse mortgage.  Your mortgage balance has these costs added to it, and they must be repaid with interest at the end of the mortgage loan period.  However, there are no out of pocket upfront expenses with a reverse mortgage, with the possible exception of an appraisal fee.

With a reverse mortgage, the homeowner can convert their home equity into cash; though a reverse mortgage also benefits the homeowner in many other ways.  With most types of the mortgages, the lender verifies your income and uses that figure to determine the amount you’ll be able to repay.  You don’t have to satisfy the monthly repayments with a reverse mortgage, homeowners over the age of 62 years may apply for a reverse mortgage, even without any income.

Options

The tax-free payments from your reverse mortgage will not affect your Social Security or Medicare benefits.  Drawbacks and disadvantages include the fact that there is a top limit to the amount that you can borrow; this is mostly dependent on where the property is situated and can vary from $200,160 to $362,790.   The upfront costs can be high, as there is a mortgage insurance premium that must be paid to guarantee the loan.

Advantages

One of the main advantages is that lenders have no claim on anything beyond the sale price of your home.  Reverse mortgages offer several benefits such as carefree retirement, the ability to pay off the mortgage amount at any time, and the fact that you can choose any of the different withdrawal options offered by the lender.

Thousands of homeowners may live more comfortably in their retirement through a reverse mortgage.  Reverse Mortgages have become increasingly popular in recent years and as more baby boomers reach retirement this trend will most likely continue.

Another often asked question is in the end, how much will you or your survivors owe?  Your total debt for the reverse mortgage will be the sum of all cash advances, plus all of the interest that is added to the balance of the mortgage.  You or your heirs are allowed to keep any excess above this amount.  Whatever the value of your home is, that is the top limit of what you must repay; meaning with a reverse mortgage you can never actually owe more than the value of your home.

Your golden years could be made more golden, if you are “house rich” but “cash poor,” by taking advantage of a reverse mortgage.  Before you make your decision, be certain to go over all of the loan papers carefully with a trusted mortgage professional, preferably a Certified Mortgage Planning Specialist, and make sure that you understand all of the conditions of the mortgage.

 

 

With our Borrow Smart Analysis we strive to answer the three  questions every client must answer before moving forward with a transaction:

• Do I have the Cash for this transaction now?
• Do I have the Cash Flow for this transaction now?
• How will this impact my Wealth over time?

 

As Certified Mortgage Planning Specialists, we focus on the synergy between sound financial planning and prudent home financing.   We have found that most clients misunderstand how their cash and borrowing liabilities support or impede their ability to save.  When we look beyond assets, and incorporate both the assets and the liabilities of our clients into their overall financial goals, we  greatly increase the ability of our clients to build wealth.

The home is the greatest single asset and liability for most Americans, and a key focus for our unique educational process.  We’ve found that when clients focus on only one aspect, either the liability or the asset, it is like trying to heat or cool their home with all of the doors and windows wide open.  It will work eventually, but it’s just not very efficient.  A mortgage is not obtained in a vacuum, but in most financial plans the mortgage is never given much attention.  Our approach ensures our clients get more accomplished with their mortgage payment and our unique process ensures clients don’t miss financial opportunities along the way.