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More Housing Options for Seniors

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 18th, 2018

Seniors who are house-rich but cash-poor, or who fear running out of money in their retirement years, have several options to save the day.

One, of course, is the much-ballyhooed Home Equity Conversion Mortgage, otherwise known as a reverse mortgage. But elder owners have other choices, including the financial ones described here last week. There are also a number of other alternatives:

-- Deferred payment loans (DPLs). Unlike the state-sponsored and local grant programs mentioned previously, in DPLs, a lien is placed against your house and the money must be repaid when you sell (or when you convert the property to a rental or refinance your first mortgage). But no payments are required and no interest is charged.

These loans, which are “probably more common than true grant programs,” ventures Rob Chrane of downpaymentresources.com, usually come from state housing finance agencies and nonprofits.

-- Refinancing. If you have plenty of equity and a first mortgage with a low balance, you can refinance your house, pay off your old loan and put the remaining proceeds into your pocket to pay your bills. Of course, you have to pay back your new first mortgage, month after month, and the new payment may be more than you can legitimately afford.

-- Lines of credit. This option involves lines of credit that you place against your house, as well as home equity loans. Both are essentially second mortgages that must also be repaid monthly.

With a line of credit, you can remove your equity as needed to pay your utilities, taxes, medical bills and other living expenses. With a home equity loan, you borrow a percentage of your equity; lenders usually won’t let you have more than 80 percent.

-- Sell and downsize. Your place is probably too big for you and your spouse -- not just in size, but in your ability to maintain it, and in monthly expenses such as utility bills -- so consider selling it and downsizing to a smaller, less costly house or market-rate apartment.

Also worth a look-see is an apartment in a senior living center. It’s not a retirement home, per se, although you can live out your years there if you like. Rather, it’s a unit in an assisted living community where you share amenities, dining rooms and medical help as needed with other seniors.

These apartments come with full, though small, kitchens, so you can cook and eat in. But you also have the option of taking up to three meals a day in the dining hall -- no muss, no fuss.

-- Sell to your offspring. If you are bent on passing your family home on to your children when you die, how about selling it to them now and letting them rent the house back to you at a fair market price?

This sale-leaseback arrangement allows your children to have some rental income, perhaps just enough to cover the cost of the mortgage they had to take out to buy the house from you. After all, they may not want to profit from your need for cash.

But at the same time, they may get to write off depreciation, property taxes and maintenance costs. And you get to stay in your house at a reasonable rent with a landlord you know well and love, and who will treat you right.

-- Rent a room. If you have the space, say an extra bedroom or a basement you never use, consider renting the space to augment your monthly income. But be careful: Choosing a tenant or roommate is tricky business. You don’t want to get stuck with the wrong person. Check out thoroughly any people you are considering, and make them sign a lease that gives you the right to evict them if they don’t fulfill lease requirements (such as keeping the place clean and limiting noise).

-- ECHO cottages. ECHO stands for Elder Cottage Housing Opportunity. If you have room in your yard -- and if local zoning rules permit it -- weigh the possibility of building a small accessory unit separate from your house. There are many so-called “tiny” houses on the market that include a kitchen, bathroom, bedroom and living space. Put one in your backyard and rent it out.

If your adult child has room in his or her own home’s yard, think about putting your ECHO cottage there. If the law says it’s OK, you can sell your house, move into the cottage and live near -- but not with -- your daughter or son.

Many zoning ordinances do not allow these kinds of outbuildings, so you might have to seek a variance for occupants age 55 or older. Contact your local zoning office to see what’s possible. If you get nowhere, try applying for a special-use permit, and solicit the aid of your local agencies on aging, senior centers or other groups with an interest in older folks.

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Alternatives to Reverse Mortgages

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 11th, 2018

Home Equity Conversion Mortgages (HECMs) may be a good choice for some seniors who fear they might outlive their retirement funds and will need cash to enjoy their remaining years. But they aren’t the only options elder owners might want to consider.

HECMs, aka reverse mortgages, are made to owners 62 years and older who have built up significant wealth in their homes. You borrow against a percentage of that equity, and draw the funds either in one lump sum or in monthly payments. Better yet, nothing has to be paid back until you pass away, or you permanently move out of the house.

Sounds appealing, and it is. But reverse mortgages are not cheap, and you still have to pay your property taxes and homeowner’s insurance. Otherwise, the lender can and often does initiate foreclosure proceedings.

But you can accomplish pretty much the same thing by choosing a less costly version of a reverse mortgage, sponsored by state and local governments, called a deferred payment loan (DPL). Generally, there are no origination fees, and insurance premiums and closing costs, if any, are very low.

Typically, seniors can use these loans only to make specific types of repairs or home improvements, such as roofing and heating. But many programs will cover accessibility modifications such as ramps, rails and grab bars, and energy-efficiency projects like storm windows, insulation and weatherstripping.

The interest rates on DPLs are low as well, if interest is charged at all. When it is, it’s often on a fixed basis, meaning the rate never changes. And many programs charge only simple interest as opposed to compound. Some plans even forgive part of, or the entire, loan if the owner remains in place for a specified period.

King County, Washington, offers loans of up to $25,000 at zero interest. No payments are required, and the loan need not be paid back until the house is sold, transferred to a new owner, is no longer your primary residence or you take out a home equity loan. Bloomington, Minnesota, offers loans of up to $35,000. Interest accrues at an annual rate of 2 percent for 10 years, but no payments are necessary until the place is sold, refinanced or conveyed to someone else.

DPLs aren’t available everywhere, and eligibility rules vary. Most are limited to owners with low or moderate incomes. Many jurisdictions place a limit on the home’s value and confine the opportunity to certain geographic areas. Some also have a minimum age or disability requirement.

These loans go by different names, so they may be tough to find. Check with your city or county housing department, your local office on aging, or the nearest community action or development agency. Also try your state housing finance agency.

Another public-sector version of the reverse mortgage is a property tax deferral (PTD) loan. Generally, it provides annual advances that must be used to pay all or some of your property taxes. But no repayment is required for as long as you live in the house.

In some places, but not all, PTD loans are offered on a uniform, statewide basis. Eligibility rules also differ from place to place, and most have a minimum age requirement of 65 and are limited to owners with low or moderate incomes.

In Cook County, Illinois, the income limit is $50,000, and you must have lived in the house for at least three years. In Wisconsin, the income limit is $20,000, but the residency requirement is just six months.

To find out if your state offers PTDs, contact the agency to which you pay your property taxes.

Seniors may also be eligible for monthly Supplemental Security Income (SSI) benefits if their liquid resources -- cash and savings -- are less than $3,000 per couple or $2,000 for an individual.

Your home and car do not count as resources under SSI, but your monthly unearned income cannot exceed $924 for a couple or $623 for an individual. Income limits are higher if you are employed or live in a state that supplements SSI.

If you meet the rules, you may automatically qualify for other public benefits that could allow you to postpone the need for a reverse mortgage. That way, if you do take out a HECM later, you may be able to receive a larger advance because you will be older and your property may have increased in value.

The National Council on Aging sponsors a website, benefitscheckup.org, that will locate public benefit programs that could pay for your prescription drugs, health care, utilities and other essentials. The site also explains how to apply for more than 1,150 programs available in all 50 states and the District of Columbia.

NEXT WEEK: Housing options.

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The More Bathrooms, the Better

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 4th, 2018

For most American homeowners, it’s “the more the merrier.” At least when it comes to the number of bathrooms.

Indeed, it’s a good bet that your next home will have at least two bathrooms, and perhaps more. Of all the new houses built in 2016, only a scant 3 percent had 1-1/2 baths or fewer, according to the latest figures from the Census Bureau. Even the number of new places with 2-1/2 baths or fewer fell in 2016.

At the same time, the number of new houses with three or more baths has been on the upswing for more than a generation, nearly doubling from 1988 to 2016. Americans love their loos.

People buying existing houses -- or who prefer to remodel rather than move -- also focus on their bathrooms, according to Harvard’s Joint Center for Housing Studies. The group reports 3.3 million bathrooms were remodeled in 2015, and 151,000 new bathrooms were added.

The boom in bathroom remodeling translates to a lot of money. In 2016, according to the National Kitchen and Bath Association, homeowners spent $38.5 billion on bathroom remodels of all shapes and sizes. That’s an 8.5 percent increase from the previous year. And when the books are closed on 2018, NKBA is projecting that owners will have dropped $46.3 billion on bathrooms this year.

That won’t be money down the drain, either, because bathrooms sell houses -- especially updated bathrooms.

Remodeling a bathroom isn’t a sign of vanity. In fact, vanities were only third on the list of key bathroom features on which improvers spent money. In 2016, they spent more on showers ($7.1 billion) and on flooring ($6 billion) than on under-sink cabinetry ($5.4 billion). On the flip side, they spent just $1 billion on ventilation. In between? Bathtubs, counters, toilets, sinks, lighting, faucets and medicine cabinets.

Homeowners aren’t thinking small when it comes to their bathrooms. Just about all the $38.5 billion spent on johns in 2016 were major remodels, says the NKBA. Just $4 billion was spent on minor jobs.

Things are similarly hot in the kitchen market, as spending on kitchen products went up by more than 10 percent in 2016. And the total for the combined kitchen and bathroom categories came to $147 billion, split evenly between the two.

Nearly three of every 10 dollars spent in the kitchen went to new rooms, while the rest went to remodeling. Cabinets alone accounted for nearly a quarter of all kitchen remodel expenditures, with a similar amount going toward appliance upgrades, according to the trade group.

NBKA notes that spending on kitchens and bathrooms made up a quarter of all residential construction costs in 2016, driven largely by a reignited real estate sector.

“The increase in residential construction in 2016, when housing starts rose by 5.6 percent to about 1.2 million units, resulted in greater demand for products used in the construction of those units,” according to the trade association.

Total construction spending for 2016 came to $600 million, about equally split between new home construction and remodeling.

Meanwhile, the Census figures on numbers of bathrooms point to a little-known fact that could be of interest to potential homeowners: In addition to counting people, the Census Bureau also counts houses -- or estimates their numbers, at any rate. And if you’re house shopping, there are a few stats in there that could have a bearing on your search.

Interested in knowing how much per month you’ll have to pay for your mortgage? According to the Bureau’s 2016 American Community Survey, the biggest payment category, into which nearly 10 million mortgages fall, is $1,500 to $1,999 per month. The next most popular bucket, with 6.5 million, is $1,250 to $1,499 per month.

The rarest mortgages have payments of $200 a month or less. Just 15,000 of the more than 47 million U.S. mortgages can claim that payment.

How much of your income can you expect to go toward your home loan? This may surprise you: The biggest category is a very reasonable 15-20 percent. Next biggest is 10-15 percent. So, if you are worried you will have to pay half your income or more on a mortgage, don’t. Little more than 10 percent of us do.

-- Freelance writer Mark Fogarty contributed to this report.

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