Reverse mortgages aren’t based on credit or income but value and longevity

Q: A while back you had someone ask you about reverse mortgages. I lost the article; therefore, would you please let me know how to attempt the process of getting a reverse mortgage. I will be 62 on Dec. 26 of this year. Does your credit standing have to be excellent, or will a person with fair credit be acceptable? Also, right now I have a payment agreement with my mortgage company until a year from July.

My balance owing on the property is approximately $32,000. Do you have enough information to give me the details needed to proceed? In addition, just exactly how does a reverse mortgage work? -- D.H.

A: You don't need to prove credit or even income to place a reverse mortgage, because you won't make any payments as long as you live in the house. You remain the owner of the property, just as with any other mortgage.

When you move out or die, everything you've received -- plus closing costs and interest -- must be paid back, usually by the sale of the house. If you live a long time and borrow more than the house is worth, mortgage insurance takes care of the shortfall.

It's possible to use the reverse mortgage to pay off your existing loan, and then receive regular monthly checks, building up that debt against your home. The amount you can borrow is based on the value of your home and life expectancy. At only 62, when you could be expected to live and collect payments for a long time, you would be offered less than if you were older. But if your house is worth a lot, perhaps there would be enough to relieve you of your present mortgage for a start.

You can find a great deal of information at reversemortgage.org. There, you can calculate just how much you would be allowed to borrow.

What's a BPO?

Q: What is meant by a BPO? -- via e-mail

A: The acronym probably refers to a Broker's Price Opinion. That would be an experienced local broker's written estimate of probable market value. It's less detailed and less expensive than a full appraisal. It might be required, for example, with a homeowner's request to drop private mortgage insurance coverage.

Renting to buy is complicated

Q: Exactly what is entailed in buying a house when you want to rent with the intention of buying? I asked someone and they seemed to think it was too complicated. I believe this is the only way I can get a house right now. Is this a bad way to go and if so, why? -- K.

A: Two different arrangements are possible.

A lease-option allows you to move in as tenants with the right to buy the property later at a specific price, if you want to. You're not obligated to buy. Sometimes you pay a non-refundable deposit in return for the option. Sometimes, part of the rent goes toward your down payment if you do buy. In most cases you'd still have to qualify financially for a mortgage loan, sooner or later. If you couldn't, you would remain as ordinary tenants under the lease.

A land contract allows you to move in and be obligated to buy on a sort of layaway installment plan.

The seller acts as your bank, collecting the money monthly. Sometimes the place is then deeded to you partway through the payment schedule, if everything is going well.

You and the property owner can negotiate whatever arrangement suits both of you. Every contract is different.

You're right in thinking these are complicated documents. You must involve your own real estate lawyer to make sure your interests are protected, before you sign anything.

Lots need to be prepared

Q: What is considered a buildable lot? -- S.D.

A: The definition varies from one place to another depending on local regulations. Before a lot can be OK'd for construction, it must usually be of at least a certain size with a specific amount of road frontage.

If no sewerage is available, it probably needs to pass a percolation test showing it can support a septic system. Zoning or subdivision requirements may be involved.

To find out the details in any particular area, contact the local government's building bureau.

No way to decrease capital gains

Q: I just sold my rental income house. A year from now I shall have to pay capital gains. Where can I put this money so I cannot pay so much in capital gains? -- S.N.

A: At this point the IRS doesn't care what you do with the proceeds from your sale. It won't make any difference in your capital gains tax.

Edith Lank will respond personally to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.