Dear Savvy Senior,
What can you tell me about reverse mortgages? I was considering one last year, but now I hear they are more difficult to get.
--Ready to Reverse
That's correct. Tighter rules on reverse mortgages that have recently gone into affect have made them harder to get, especially for seniors with heavy debt problems.
The reason the Federal Housing Administration (FHA) made these changes was to strengthen the product, which has suffered from a struggling housing market and a growing number of defaults by borrowers. Here's a rundown of how reverse mortgages now work in 2014.
Overview: The basics are still the same. A reverse mortgage is a loan that allows senior homeowners to borrow money against the equity in their house. The loan doesn't have to be repaid until the homeowner dies, sells the house or moves out for at least 12 months. It's also important to know that with a reverse mortgage, you, not the bank, own the house, so you're still responsible for property taxes, insurance and repairs.
Eligibility: To be eligible for a reverse mortgage you must be at least 62 years old, own your own home (or owe only a small balance) and currently be living there. You will also need to undergo a financial assessment to determine whether you can afford to make all the necessary tax and insurance payments over the projected life of the loan.
Lenders will look at your sources of income, assets and credit history. Depending on your financial situation, you may be required to put part of your loan into an escrow account to pay future bills.
If the financial assessment finds that you cannot pay your insurance and taxes and have enough cash left to live on, you will be denied.
Loans: Nearly all reverse mortgages offered today are Home Equity Conversion Mortgages (HECM), which are FHA insured and offered through private mortgage lenders and banks. HECM's also have home value limits that vary by county, but cannot exceed $625,500. See hud.gov/ll/code/llslcrit.cfm for a list of HUD approved lenders.
Loan amounts: The amount you get through a reverse mortgage depends on your age, your home's value and the prevailing interest rates. Generally, the older you are, the more your house is worth, and the lower the interest rates are, the more you can borrow. A 70-year-old, for example, with a home worth $300,000 could borrow around $170,000 with a fixed-rate HECM. To calculate how much you can borrow, visit reversemortgage.org.
Loan costs: Reverse mortgages have a number of up-front fees including a 2 percent lender origination fee for the first $200,000 of the home's value and 1 percent of the remaining value, with a cap of $6,000; a 0.5 percent initial mortgage insurance premium fee; along with an appraisal fee, closing costs and other miscellaneous expenses. Most fees can be deducted for the loan amount to reduce your out-of-pocket cost at closing.
In addition, you'll also have to pay an annual mortgage insurance premium of 1.25 percent of the loan amount.
Payment options: You can receive the money in a lump sum, a line of credit, regular monthly checks or a combination of these. But in most cases, you cannot withdraw more than 60 percent of the loan during the first year. If you do, you'll pay a 2.5 percent upfront insurance premium fee.
Counseling: All borrowers are required to get face-to-face or telephone counseling through a HUD approved independent counseling agency before taking out a reverse mortgage. Some agencies are awarded grants that enable them to offer counseling for free, but most charge around $125 to $250. To locate a counseling agency near you, visit hud.gov or call 800-569-4287.
Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of "The Savvy Senior" book.
The Internet has turned me into a hardcore comparison shopper, and apartments are no different. There are dozens of apartment rental sites listing dozens of properties in my hometown. It pays to check out several of these sites when you're looking for a new pad. I mentioned a few sites you should use (and a few you shouldn't) in The Best (and Worst) Apartment Rental Sites. But don't stop your search with your computer. I found my last apartment through a "For Rent" sign in the window. The place was $150 cheaper than anything else I found, and I never saw an online ad for it.
Location is everything in real estate. If you live in the most popular area, you're going to pay the highest rent. But if you move a couple of miles (or sometimes even a few blocks) away, you can get a serious discount. For example, renters in my city (New Orleans) pay about $1,250 a month to live in studio apartments on a trendy street. I live four blocks away and pay $750 a month for a one-bedroom. I don't get bragging rights, but I'm still within walking distance - and I'm saving $500 a month.
I start looking for a new apartment a month or two before I need one. If I find a place I like, I keep an eye on it. More often than not, private landlords lower their asking price if they don't find a tenant within a week or two.
You're locked into your rent as long as you're under a lease. If you sign a longer lease, you'll be locked into the lower rate if the cost of rent goes up. Two years ago, my friend signed a three-year lease on his apartment. Last year, the landlord raised the rent $200 across the complex. By locking himself into a set rate for three years, my friend has saved $2,400 so far.
I am not a haggler, but when it comes to my single biggest expense, I negotiate. It doesn't always work, but if you do your homework - and give the landlord a good reason - he may be willing to lower the rent. (Learn how to haggle here: The Simplest Way to Save on Everything.) Start by researching the average rent in the area. If the landlord is charging more than everyone else, print out a few ads to prove it. Then convince the landlord that he should want you as a tenant. I ask for referral letters from my previous landlords, make copies of my bank statements, and pull my credit report. By showing the landlord that I'm a good tenant - and I know that he's over-charging - I can negotiate a better rate.
I always compare the cost of the rent with the amenities or the utilities that are sometimes included. For example, I recently looked at two duplexes. One went for $775 a month but didn't include any utilities or a parking space. The other rented for $800 a month but included water, trash, Wi-Fi, and an off-street space. Obviously, $775 is cheaper than $800. But when you consider the average water and trash bill in my area is $50 a month, and the average Internet cost is $45 a month, I'd actually save $95 a month by going with the more expensive rental.
If you have a skill a landlord needs, you might get a discount on your rent. My landlord rents a unit to a tenant who also serves as our maintenance guy. In exchange for doing the odd job, he gets $350 a month off his rent. But you don't have to be handy with tools. Landlords occasionally need people to maintain their website, design rental ads, or manage their properties. If you've got free time, offer to trade your services for a discount.
A few of my neighbors have made a quick profit by renting out their place for the night to tourists. Granted, there are some serious downsides to the idea - like your place possibly getting trashed - but my neighbor made $300 in two nights. If you live in a popular city, you could stand to make a profit a few times a year. Just make sure you get your landlord's approval - and ask for a security deposit before you open the door to strangers. If you're a renter, also check out 6 Myths about Renter's Insurance - and How to Save and 9 Ways to Remodel Your Rental Without Breaking Your Lease.