Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 27, 1992 TAG: 9201250132
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Long
YOUR HOME CAN HELP PAY RETIREMENT BILLS
Many older people have worked hard to pay off mortgages, only to find themselves strapped for income. And they find their biggest asset is locked in homes they don't want to sell.Reverse mortgages are the usual answer for such people but commercial lenders say such programs generally have gone unused. The Virginia Housing Development Authority this month is launching three new programs intended to meet such needs of older Virginians.
In concept, reverse mortgages are not so different from the popular home equity lines. The new plans are a way to tap into the house that is the major asset most families own.
Home equity lines provide a line of credit that keeps revolving as payments are made. Reverse mortgages, on the other hand, are designed to drain the money from the home into support for people in retirement.
The process can be expensive. As with any mortgage loan, there are points and closing costs that, depending on the value of the home, add up to hundreds of dollars.
Just as interest is added to the monthly payment for people buying a home, lenders deduct interest from monthly payments to people who are in essence selling their homes through reverse mortgages.
It is considered a sale because the lender has a lien against the property for the loan. When the owner leaves the home, for whatever reason, the reverse mortgage agreement requires that the house be sold to pay off the debt.
There are advantages, however. All of the programs guarantee the owner a lifetime right to live in the home. And the payments provide the homeowner with extra income to continue living there.
The amount of the monthly payment depends on the owner's age, the interest rate on the loan and the value of the house.
The monthly payment will be larger the older the owner, the lower the interest rate charged on the loan and the higher the value of the house.
As with home equity lines, the owner can generally obtain a reverse mortgage for about 80 percent of the appraised value of the house.
Under all three of the programs launched this month by the Virginia Housing Development Authority, the owner must be at least 62 years old to qualify. If two people own the house, both must be at least 62.
The house must be the owner's primary residence. It must be a single-family residence such as a house, town house or condominium.
The structure must be in good repair and free of debt. But if a small mortgage remains on the house or minor repairs are needed, those bills can be paid off with some of the proceeds from the reverse mortgage.
Owners can generally choose to receive payments for as long as they live in the home or for a fixed term, such as 20 or 30 years. That option also affects the level of monthly payments.
Or they can opt for a line of credit that can be accessed as needed. Still another option is monthly payments combined with an amount set aside for a line of credit.
The three types of programs available in Western Virginia are:
HUD-Insured Home Equity Conversion Mortgages, a program that uses the acronym HEMC. It is sponsored by the U.S. Department of Housing and Urban Development and the Virginia Housing Development Authority.
The program is attractive to lenders because HUD insures the mortgages as FHA does for traditional housing loans.
But there are maximum income limits for the owners to qualify. These maximum amounts vary by locality. The top house value that HUD will insure also varies by location, as detailed in the accompanying chart.
In determining an owner's income, money from all sources is considered, including wages, pensions, Social Security, interest, dividends, annuities, public assistance and alimony.
The authority said the loan will not affect the owner's rights under Social Security or Medicare. But it could impact amounts received under programs where an applicant's income determines eligibility, such as Supplemental Security Income (SSI), Medicaid, food stamps, fuel assistance and other services through the Virginia Department of Social Services.
Most lenders under this program limit their work to the Northern Virginia and Tidewater areas. The only statewide lender under this program is Tidewater First Financial Group of Virginia Beach. The company can be reached by phoning (800) 282-4326.
The program requires that applicants be counseled before they sign anything. That counseling in this area is provided by Total Action Against Poverty in Roanoke.
Owners interested in the HUD plan can call either Tidewater First or TAP. TAP has an office at 145 Campbell Ave., S.W. It's phone number is 345-6781.
The only conventional reverse mortgage lender in Western Virginia is Capital Holding Corp.
Capital Holding is a financial services company based in Louisville, Ky., which operates in Virginia through an office at McLean.
Spokesman Michael Bateman said Capital Holding sends counselors throughout the state by appointment. It can be arranged by calling the company's toll-free number, (800) 456-8754.
Homes must be appraised at $75,000 or more. The upper limit for a loan is $500,000.
Based on the owner's age and home value, the company said, it will pay from $200 to $1,000 or more a month.
Crestar Mortgage Corp. offers what it calls a Sale/Lease-Back program throughout the state.
The company's western regional manager, James McKinney of Lynchburg, said Crestar may ultimately offer conventional loans statewide but is currently conducting a test program limited to Tidewater.
Under its present plan, Crestar lends money to a blood relative of the homeowner. The relative actually buys the property from the older owner and leases it back to the resident.
The advantage of the Crestar program, McKinney said, is that the relative-buyer need put down only 10 percent of the value of the home.
McKinney said the relative-purchaser is actually buying investment property. Under traditional lending plans, he said, that would require a 30 percent down-payment.
The plan provides fixed payments over 30 years with no pre-payment penalty and a 60-day lock-in of the rate.
McKinney said the loan must meet the standards of the Federal National Mortgage Association (Fannie Mae).
The parties must sign a recorded lease agreement giving the seller-tenant a term of occupancy, preferably for a life term.
McKinney said interested persons can inquire about the program at any Crestar Mortgage office such as the one in Roanoke. Its phone number is 989-9875. People also may inquire at any Crestar branch bank.
The Crestar program could have tax ramifications for the owner's heirs, so the plan should be reviewed with a tax adviser, such as a certified public accountant or a lawyer specializing in estate planning.
Consumer information about reverse mortgages is available by sending a postcard to the American Association of Retired Persons, Home Equity Information Center, 1909 K Street N.W., Washington, D.C. 20049. Ask for a free copy of "Home Made Money" and allow three to four weeks for delivery.