Homeowner may want to consider reverse mortgage

Q: I own a home worth $150,000 — all paid, no mortgage and in excellent shape. My only income is $1,000 a month in Social Security. Can I get a refinance (second mortgage) loan of $50,000 with only that income? I have no other debts and a good credit record. — J. D.

A: When I calculated the monthly payment on a 30-year mortgage at today's low rates, I was pleasantly surprised to see that you met the guidelines for handling the payments comfortably. Then, my favorite mortgage broker agreed that if your property taxes aren't too high, you just might qualify for a $50,000 loan.

That wouldn't be a refinance or a second mortgage, by the way. As the place is free and clear, you'd be looking for a first mortgage.

If you're old enough for regular Social Security, you might also want to consider a reverse mortgage. With that one, you make no monthly payments and can receive a lump sum or monthly income. The debt, including closing costs, interest and Federal Housing Administration insurance premiums, just keeps piling up. It will be paid off, usually by the sale of the property, when you die or move out.

Whether that would suit your situation — possibly with nothing to leave your heirs — I can't tell, of course. You'd be discussing that with qualified counsellors before you decided.

Q: I have been following the tub vs. shower discussion with interest. I was surprised no one mentioned my experience. Ten years ago I asked a plumber to replace my tub with a walk-in shower. He advised against it, as he said banks will not give financing to buyers who purchase such a home. That seemed amazing, so I contacted three banks and two real estate brokers. They all confirmed it. The banks said such homes have a limited pool of potential buyers and banks that do not consider it a good risk to possibly be stuck with such a home to sell. I wonder if the caveat still applies. — M

A: Interesting question, M. Again, I consulted the mortgage broker. He says he has never heard of that, and that a house with no bathtub might even qualify for Veterans Affairs or FHA financing. He also says, in fact, that he and his wife are thinking of downsizing, and wondering if they really need a tub at all.

Q: I'm trying to find accurate information about H4P mortgages. I can't seem to find a website that is detailed. I want to buy a retirement home down south and it seems like a good deal. Can you tell me the pros and cons? One issue is the information I have states that in order to be on the deed, both husband and wife must be 62 or older. My wife will not be 62. Will it be a problem changing the deed two years later to add her name? Does that change the status of the loan? Will the balance be required if we do that? Any information would be appreciated. — T. S.

A: The H4P plan is a relatively new type of reverse mortgage. For years now, reverse mortgages have been used by homeowners 62 and older to receive income from the equity in their homes, with no repayments due until they died or moved out permanently. This new version is available for seniors who want to buy using a reverse mortgage. It works well for those who are ready to downsize.

The buyer must make a substantial down payment, maybe a third or half of the cost of the new residence. Often that comes from the sale of a larger long-time home. The rest can be financed with no monthly payments due. As with any reverse mortgage, the amount owed just keeps increasing. It needn't be repaid as long as the homeowner remains there. Eventually, even if the debt amounts to more than the house can be sold for, FHA insurance will take care of the shortfall.

If you are still in your 60s, you wouldn't be offered a very large loan, because you're starting at a relatively early age. I don't see any problem with adding your wife as co-owner later.

The advertisements make the whole plan sound great, and so it is — but only for the right people in the right circumstances. Again, you'd be offered counseling so that you understood the plan and whether it was right for you.

Edith Lank will respond personally to any question sent to www.askedith.com, to edithlank@aol.com, or to 240 Hemingway Drive, Rochester NY 14620.