Q–Thanks for your recent report on the new developments in reverse mortgages. I looked into them several years ago and concluded they were rip-offs for old folks. However, I can see much has changed with Fannie Mae recently getting into the business. My father, age 74, loves his house but it is getting badly run down. The house needs about $25,000 of repairs. Can he get a lump sum now but hold off on receiving monthly payments as he seems to have enough income?
A– Yes. The four major reverse mortgage lenders, FHA, Fannie Mae, Household, and Transamerica, will make a lump sum payment now with flexibility for future monthly payments. However, there will be an up-front charge.
Of course, no repayment is required until your father either sells the house or dies. Then the loan “matures.” With Transamerica’s lifetime annuity plan, your father can even sell the house and continue receiving monthly income until he dies.
I suggest you and your father talk with representatives of all four major reverse mortgage lenders. Each plan is different. Then decide which program is best for your father’s situation.
My reverse mortgage report is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
Q–I own a condominium. In February, the condo owner’s association levied a special assessment of $2,300 which I couldn’t pay due to my limited income. Now the association threatens to levy on my condo. What should I do?
A–Contact the president and treasurer of your condo homeowner’s association. Ask for a $2,300 loan secured by a mortgage or deed of trust on your condo.
Offer to pay the association monthly payments you can afford, such as $50 or $100. Most condo associations will make such loans in hardship situations like yours. You should have gone to the association officers months ago to explain your problem, but it’s never too late to work out a reasonable accommodation.
Q–I moved out of my home about two months ago. It hasn’t sold so I am considering renting it to get enough rent to pay the mortgage. If I rent my house to tenants, will I owe any tax?
A–There is no tax due when converting your personal residence to rental status. Of course, you must report the rental income on Schedule E of your federal income tax returns.
Schedule E is also the place where you can deduct applicable expenses, such as mortgage interest, insurance, property taxes, repairs and utilities. In addition, you can depreciate your adjusted cost basis, excluding the non-depreciable land value. For further details, please consult your tax advisor.
Q–My husband and I were driving around last weekend and happened to stop at an open house a few miles from where we live. It was love at first sight! The house is perfect for us and the price is right.
The problem is that the seller wants a 30-day escrow and it would take us at least that long to fix our home up and find an agent to sell it. Should we make an offer on the new house, even though we haven’t put our old one up for sale yet?
A–No, not unless you’ve got enough cash tucked away to start making two mortgage payments instead of one. By your own admission, it’s going to take at least 30 days to fix your home up and find an agent to market it. Figure on spending another 30 or 60 days waiting for a buyer, and yet another month or two for the sale to close.
Add it all up, and it’s going to take at least three months to sell your current home. Five or six months is probably a more realistic figure.
If you buy the new home today, you’ll be stuck making payments on both the new home and your current one well into the fall and possibly part of the winter. Nothing can drain a bank account faster than having multiple mortgage payments each month and paying for the upkeep of two properties rather than one.
Explain your problem to the seller of the home that you would like to purchase. Perhaps he would compromise and accept a 60-day escrow, which would eliminate the need for at least one month of double payments. He might be even more flexible if you agree to pay his full asking price or if you make an unusually large earnest-money deposit to prove that you are a very serious buyer.
Q–Recently you used the term “hard money mortgage.” Is there any other kind? The reason I am asking is for several years I have loaned money, through a mortgage broker, to home owners. My yields today are about 12 percent. The broker also earns a fee.
Is there any other type of mortgage loan I can invest in?
A–A hard money mortgage is a loan of actual dollars. When a bank makes a mortgage loan, that is a hard money loan. If it enables the borrower to buy a property, it is also called a purchase-money mortgage. When you loan money to property owners, you are making hard money mortgage loans.
But a soft money mortgage occurs when a property seller carries back a loan, such as a first or second mortgage. It is called a soft money mortgage because no money changes hands and no actual dollars are necessary. In other words, the lender is making a credit loan rather than a loan of real money. This is sometimes called a purchase-money mortgage.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
Robert Bruss’ report “How to Shop for a Reverse Mortgage” is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
To find out more about the Robert Bruss National Real Estate Newsletter, call 1-800-788-1225.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
