Dear Bob,
I am one of those senior citizens (age 79) you often write about who is house-rich but cash-poor. My home, which I dearly love, is worth at least $500,000. Since my husband passed away about four years ago, I realize what a valuable asset my home is because it has no mortgage. Where could I live so cheaply? My only household expenses are maintenance, utilities, insurance and dreaded property taxes.
Unfortunately, when my husband died, his generous pension died, too. My Social Security, limited interest and dividends, and small income from a part-time job at a charity thrift shop that I help support, are inadequate. Every month or two I have to sell off some stocks or other investments to pay the bills.
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My two adult “girls” want me to sell my home and move into an “assisted living center” near them. Some of those places are very nice, but I don’t think I could stand being around all those old folks.
I just passed the driving test to renew my driver’s license. The tough examiner said I am better qualified to drive than most of the teenagers he tests. But my house needs a new roof. I’ve had three estimates by reputable roofers. The lowest estimate is almost $20,000. My oldest daughter suggests I get a reverse mortgage to pay this major expense. But I’ve seen newspaper ads for low-interest home equity loans. Which is best? – Agnes C.
Dear Agnes,
Your letter is an inspiration. I hope we’re all doing as well as you are at your age.
It sounds like you want to stay in your home as long as possible. That’s the way most senior citizen homeowners feel. To illustrate, a few weeks ago I was in Florida at the Sarasota Herald-Tribune annual real estate information forum where I spent the afternoon with about 400 nice readers. Many of the senior citizen attendees had situations similar to yours.
My suggestion is listen to your smart daughter and obtain a reverse mortgage rather than a home equity loan or credit line. The big drawback of a home equity loan or credit line is it requires monthly payments of at least interest only.
That’s fine for younger folks, but not you. With your limited income, although you have a huge $500,000 idle home equity, you’re not in a financial position to make monthly loan payments.
A senior citizen reverse mortgage, which requires no payments, offers you choices of a lump sum (such as to pay for that new roof and property taxes when they come due), lifetime monthly income payments to you and/or a credit line to use as you wish (except in Texas).
There are three major reverse mortgages: Federal Housing Administration, Fannie Mae Homekeeper and Financial Freedom Plan. FHA is the most popular and lowest cost. But FHA has the smallest loan limit. Financial Freedom Plan offers virtually unlimited reverse mortgage amounts, depending on your home’s appraisal.
Since you own a luxury home, please consider all the plans. You can find local reverse mortgage lenders on the Internet at ReverseMortgage.org. If you don’t have a computer, your public library will help you find that web site. More details are in my new special report “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners.” It is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at (800) 736-1736 or instant Internet download at BobBruss.com.
Avoid mortgage escrow account if you can
Dear Bob,
When we recently refinanced our home loan, the mortgage lender offered us an “escrow waiver” if we would pay the lender $340. I thought that was stupid. But now I think we should be able to pay our property tax and homeowner’s insurance direct. We had to pay into a “reserve” so we will always have more money in our escrow account than the lender needs to pay these bills when they come due. Doesn’t the lender trust us? – Brent W.
Dear Brent,
It’s not a matter of trust. Your greedy mortgage lender wants the use of your “free money” in your escrow account, which the lender can invest until your property taxes and homeowner’s insurance bills come due. The latest mortgage lender rip-off junk or garbage fee is the “escrow waiver fee,” which you refused to pay. I hasten to add if you had a VA or FHA home loan, escrow impound accounts are required and are non-negotiable.
Keep a close eye on your mortgage lender to be sure your property tax and insurance bills are paid on time from your escrow account. Some mortgage lenders pay late, then illegally charge the late payment fees to their borrower’s escrow accounts. Now you know why I recommend home loan borrowers avoid escrow accounts.
Why recommend ASHI home inspectors?
Dear Bob,
Why do you always recommend home buyers hire inspectors who belong to the American Society of Home Inspectors? I am a professional home inspector, formerly a home builder, who chooses not to become an ASHI member because of their outrageous requirements. There are several other excellent home inspection organizations that have equally competent inspector members. Does ASHI pay you? – Howard H.
Dear Howard,
ASHI does not pay me to recommend their fine national organization. Non-ASHI members like you often complain that I don’t mention their home inspection organizations.
However, I know of no other nationwide group that has such high membership standards. Do you?
Home buyers should be very wary of hiring a non-ASHI professional inspector. Unfortunately, some realty agents often recommend non-ASHI home inspectors who are known as easy non-deal killers. But home buyers need tough, honest inspectors who will thoroughly inspect homes and report to buyers the facts discovered.
When can private mortgage insurance be canceled automatically?
Dear Bob,
Is there a point when home private mortgage insurance must be automatically cancelled by the lender without the need for a new appraisal which my lender insists I obtain at my expense? – Louis C.
Dear Louis,
By federal law, your expensive PMI premium must be automatically cancelled by your lender when your home loan-to-value ratio declines to 78 percent of the property’s original appraised value. For most borrowers, this takes more than 10 years. The federal law is worthless.
You should contact your lender in writing, explaining why you want your PMI cancelled now. If you have an on-time payment record, you will be asked to pay for a new appraisal by a licensed appraiser approved by the lender. Your cost should be $350 or less.
That expense is very worthwhile because you will save hundreds of PMI dollars each year, which you don’t have to pay. If your lender still refuses to cancel your PMI premium, refinance with another lender who doesn’t require PMI.
Who selects title insurer?
Dear Bob,
When I recently sold my home, before the closing I got a phone call from the title insurer selected by the buyer, who finally got a mortgage from a credit union. But the title insurer the credit union hired said there was a $9,000 lien against my property. It was a big surprise because I bought the house from the U.S. Department of Housing and Urban Development. I contacted my real estate lawyer, who contacted the credit union, which agreed to let him handle the closing and the buyer’s title insurance. How could that lien have arisen or was the buyer’s title insurer trying to manipulate me to pay extra fees? – Humberto C.
Dear Humberto,
I think your question is who selects the title insurer. It is by mutual agreement of the buyer and seller, regardless who pays the title insurance fees.
Perhaps the first title insurer made a mistake. That often happens. Maybe the buyer’s title insurer found a recorded $9,000 lien, but didn’t discover the later-recorded lien release. If the lien was still valid, you would then have a claim against your title insurer at the time you purchased the house. I’m glad all turned out well.
The new Robert Bruss special report “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at (800) 736-1736 or instant Internet download at BobBruss.com. Questions for this column are welcome at either address.
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