DEAR BOB: I am a 66-year-old divorced woman. I own my condo, purchased 15 years ago for $232,500. My mortgage balance is about $115,000. Condos like mine in my building have been selling for $500,000 and up. My problem is I have a lot of equity, but I can’t tap into it for cash. I am on Social Security and have a part-time job. I have pristine credit. However, I’ve been turned down for a home equity line of credit because my income does not qualify. When I tried to refinance my mortgage, I was told I could only do so without income verification. But I find it difficult to understand how I can pay $771 per month on my current mortgage but I can’t qualify to pay $100 per month less on a refinanced mortgage. Any suggestions? – Stephanie H.
DEAR STEPHANIE: I am shocked the banker or mortgage lender you consulted didn’t suggest a senior citizen reverse mortgage. Since you are over 62, you qualify. No repayment is required as long as you live in your condo. Instead of making $771 monthly payments, you will be receiving tax-free income with no monthly payments required.
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There are three nationwide reverse mortgage lenders (FHA, Fannie Mae, and Financial Freedom Plan). I want you to compare all three plans for your specific situation and then decide which is best for you. To find reputable local reverse mortgage lender representatives go to www.reversemortgage.org.
Whichever reverse mortgage lender you select, your $115,000 mortgage must be paid off from the new mortgage proceeds because a reverse mortgage must be recorded as a first mortgage. Then you can decide how to “spend” the balance of your reverse mortgage entitlement for any purpose you wish, such as a new car, travel, or condo improvements.
Your reverse mortgage choices will be a lump sum, monthly lifetime income or a credit line (the most popular choice). Details are in my special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
WHAT IS THE DIFFERENCE BETWEEN HOME EQUITY LOAN AND AN EQUITY LINE OF CREDIT?
DEAR BOB: Can you explain the difference between a home equity loan and an equity line of credit? What is the cost and which do you recommend? – Rufus R.
DEAR RUFUS: A home equity loan is really a second mortgage. It is for a specific amount, which you receive with a specific monthly repayment schedule, such as five or 10 years. The interest rate is either fixed or adjustable.
But a home equity credit line is more flexible. You can borrow up to the loan limit, usually by writing checks provided by the lender. Then you can make monthly payments of interest only or more, pay off the balance entirely, or pay whatever amount you wish. When you repay the credit line, you can then re-borrow up to the maximum limit.
The interest rate on home equity credit lines is usually the prime rate, or lower. For example, yesterday I received in the mail an offer from American Express for a home equity credit line at one-quarter percent below the prime rate, up to $250,000. That’s better than my current Wells Fargo home equity credit line so I might switch.
There should be no or very low up-front home equity loan fees. Usually, there is an annual fee around $50. Bankers love home equity credit lines because of the ultra-low default rate.
WHAT TO EXPECT WHEN MAKING FINAL MORTGAGE PAYMENT
DEAR BOB: I will be making the final payment on my home mortgage this month. What documents should the lender provide to me? Also, I want the title deeded to my living trust – Naomi G.
DEAR NAOMI: Congratulations on making your final mortgage payment. Exact paperwork procedures vary by state and whether you have a mortgage or a deed of trust.
Your lender should provide you with evidence of a recorded satisfaction of mortgage or a deed of reconveyance. Also, the lender should send you either the original promissory note or a copy marked “paid in full” signed by an authorized officer. In addition, you should receive a check for any balance in your escrow impound account.
As for deeding the title for your home to your living trust, you can sign and record a quit claim deed from yourself to your living trust. For more details, please consult a local real estate attorney.
HOW TO GET A REFUND OF YOUR BUYER’S GOOD FAITH DEPOSIT
DEAR BOB: About four years ago, I paid a $1,000 deposit on the purchase of a condo. But the deal did not go through due to a credit problem. I called the seller’s lawyer to return my deposit. But he said I couldn’t get a refund without the seller’s written approval. The seller refused to refund my money. My lawyer wrote several letters to get my $1,000. No results. The $1,000 sits in an escrow account. How can I get that money? – Sheldon F.
DEAR SHELDON: Because this happened four years ago, I fear the statute of limitations has expired. Since the $1,000 is so small, your least expensive recourse is to sue the condo seller in local Small Claims Court where the condo is located.
Let the judge decide if you are entitled under the contract to refund of your $1,000. That should resolve the dispute with either you or the seller getting the $1,000.
HOW TO GET RID OF A FOREIGN TIMESHARE
DEAR BOB: I own a two-week interval timeshare in Saint Martins. The maintenance costs and airfare have become too excessive for me. I tried selling with no results. If I stop paying the annual maintenance fee, can I be sued? – Jerry R.
DEAR JERRY: Some nasty timeshare associations are “monsters” about collecting unpaid annual maintenance fees. A few even report unpaid timeshare fees to the credit bureaus, thus ruining your credit.
Others aren’t so aggressive and let timeshare owners “walk away,” losing their timeshares for non-payment of annual fees. Because your timeshare is offshore in Saint Martins, you probably won’t be sued in the U.S.
Before defaulting, I suggest you politely check with the timeshare management firm to see if you can quit claim your timeshare to the management association without adverse results.
PAY OFF 11 PERCENT MOBILE HOME LOAN ANY WAY YOU CAN
DEAR BOB: I look forward to your weekly articles as I have learned so much about real estate from you. In 2000, I bought my singlewide mobile home with a mortgage from Conseco. But I pay 11 percent interest. I owe about $6,500 and have excellent credit. Recently I received an offer from MBNA (Maryland Bank) for a fixed 6.9 percent interest rate. Should I pay off my existing mortgage? – Jo Ann M.
DEAR JO ANN: Yes. Just be sure there isn’t any “catch” to that MBNA offer, such as an increased interest rate after six months or a year.
Your current 11 percent interest rate is outrageously high. Considering the small amount involved, anything is better than paying that very high interest rate.
HOW MUCH HOMEOWNER’S INSURANCE IS ENOUGH?
DEAR BOB: How much homeowner’s insurance do I need? I am retired on a limited income. I recently inherited three houses, all over 30 years old. At present, I carry only liability insurance on these houses. My insurance agent insured the houses for just one-third of their replacement costs, based on current market value. Is this enough? – Patricia H.
DEAR PATRICIA: Please consult at least three homeowner’s insurance agents to compare their quotations for your situation. From your letter, it appears you are under-insured.
However, forget market value. What you need to consider is cost to rebuild if the house burns down.
In addition to liability insurance in case an accident occurs on your property due to your negligence, you need replacement cost insurance. Your tenants are responsible for their contents so their furnishings need not be insured.
Only by consulting at least three insurance agents representing different insurers can you make an informed decision which insurer is best for your situation.
QUICK QUESTION; QUICK ANSWER TO TRANSFER TITLE
DEAR BOB: Quick question. How can I transfer title to my vacation condo to my son and daughter-in-law? I am no longer able to use it. But they and their two children enjoy it so much. I want them to have it in their names – Marco W.
DEAR MARCO: Quick answer. A quit claim deed properly signed and notarized from you to them, in recordable form, is the easy way to transfer title.
However, if the net value transferred exceeds $22,000 ($11,000 to each donee) you must file a federal gift tax form. But no gift tax will be due unless you have given away more than $1 million during your lifetime, which is not exempt from federal gift tax. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Pros and Cons of Foreclosure and Distress Property Purchases,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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