DEAR BOB: I am 59, looking forward to retirement in a few years. My home has a mortgage of about $180,000. The house is worth around $500,000. Will I be able to get one of those reverse mortgages you often discuss? Will my outstanding mortgage balance prevent me from getting a reverse mortgage? – James T.
DEAR JAMES: When you become 62, you can obtain a reverse mortgage, which pays you money (instead of you paying the lender money each month). At that time, if you have sufficient home equity, you can use your reverse mortgage to pay off your existing mortgage in a lump sum. Then you won’t have any more monthly payments.
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The old mortgage must be paid off when you get a reverse mortgage because the reverse mortgage must be recorded as a first mortgage. The reason is its balance will slowly grow as you use the funds and interest accrues.
When you sell your home, move out for more than 12 months or die, then the reverse mortgage “matures” and must be paid off. If your heirs want to retain the home, they can then refinance to pay off the reverse mortgage.
Of course, the remaining equity goes to you or your heirs. Even if you live to 120, the reverse mortgage lender has recourse only against your home for repayment. There is never any personal liability for reverse mortgage repayment.
Because you are so young, I suggest you wait to obtain a reverse mortgage until you really need the money. At age 62, you won’t be entitled to much money. The reason is reverse mortgages are based on (1) the market value of your home at the time you take out a reverse mortgage, and (2) your life expectancy at that time.
More details are in my new special report, “The Whole Truth About Reverse Mortgages 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 PDF delivery at www.bobbruss.com.
THERE ARE LOTS OF BUYERS FOR FIXER-UPPER HOMES
DEAR BOB: I own a city fixer-upper house that I want to sell. But I cannot afford to fix it up before sale. The houses in my neighborhood range from handyman specials to totally renovated homes with major upgrades. I realize that due to the condition of my home I must sell below market. Should I sell it “as is?” What about these companies that advertise in the newspaper they buy houses in any condition for cash and can close in a few days? I am not in foreclosure or behind in my mortgage. Should I list my house for sale with a realty agent although it needs work? – Sharon C.
DEAR SHARON: Congratulations on being realistic about your home. The “sharks” you describe will buy ugly houses in any condition. But they insist on a far-below-market-value purchase price.
I suggest you answer those ads and talk with those sharks but don’t sign anything. Be sure to get their offers in writing and insist on time to think it over. Don’t be pressured into signing anything.
Next, interview at least three successful real estate agents who sell homes in your neighborhood. You may be pleasantly surprised to discover your home is worth far more than the sharks will pay for a fast sale.
There are lots of buyers for “handyman specials” or “fix-up houses” like yours. If you are not in a hurry to sell, consult both the sharks and legitimate real estate agents. When you decide to list your home for sale with the best agent you interview, after checking his or her references of recent nearby home sellers, don’t sign a listing for longer than 90 days (just in case you selected the wrong agent).
WHY NOT PAY MORE THAN 20 PERCENT CASH DOWN PAYMENT?
DEAR BOB: I was confused about your recent comments regarding a possible “real estate bubble” about today’s high home sales prices. Why did you say never pay more than 20 percent cash down payment? – Abel C.
DEAR ABEL: Nobody can be 100 percent certain they are buying a house or condo at the best time. That’s why I recommend never paying more than a 20 percent cash down payment, just in case you buy a “bad house” or a “bad condo.”
The 20 percent cash down payment limits your maximum cash loss just in case you made a bad decision.
That’s what I did when I bought my home. At first, the local market stagnated. Then it dropped a little. Finally, it started going up. Meanwhile, I enjoyed living in my home. Today, my residence is the best investment I ever made worth several hundred thousand dollars more than I paid.
But if I had purchased at the peak of a real estate bubble, and my home lost market value, by making only a 20 percent cash down payment, my actual cash loss would be limited.
The new Robert Bruss special report, “The 10 Key Questions Condo Sellers Hope Buyers Don’t Ask,” 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 PDF delivery at www.bobbbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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