Open House by Jim Woodard

With an increasing number of seniors experiencing losses in their retirement assets, many are looking seriously at reverse mortgages on their homes to generate additional income. While these mortgage loans are a viable solution for some seniors, there are downsides that should be considered.

The most popular reverse mortgage is the Home Equity Conversion Mortgage, insured by the Federal Housing Administration. In the past year, sales of reverse mortgages increased by about 24 percent, according to the Department of Housing and Urban Development.

A bit of basic information: A reverse mortgage is a special loan available to homeowners who are at least 62 years old. Secured by the senior's home, reverse mortgages require no payments from the owner. In fact, most owners received monthly payouts, or loans, from the lender. They can also receive a line of credit or a lump sum — or a combination thereof.

The owner continues to live in the home. In most cases, payments continue until the owner moves from the residence or dies. At that point, the entire loaned amount plus interest is paid to the lender. Heirs inherit the home and equity after the lender is paid off.

"As retirement investments have plunged and work opportunities grow scarce, reverse mortgages have become a valuable retirement tool for many older Americans," said Eric Bachman, CEO of Golden Gateway Financial, a reverse mortgage lender. "These mortgagees are a way for those facing foreclosure or are in financial jeopardy to generate cash independent of a credit score or income requirements."

One downside is cost. Reverse mortgages can cost as much as selling your home. The largest single cost is for FHA mortgage insurance. Another major cost is the origination fee.

Sales agents will point out that most of the costs can be rolled into the loan, but this increases the repayable loan amount along with its added accrued interest. Also, Medicaid and other need-based government assistance can be adversely affected if too much money is received monthly, according to Reverse Mortgage Guides.org (www.reversemortgageguides.com).

Reverse mortgages can be complex and difficult to understand by many seniors. Fortunately, independent HUD counselors are available to help explain the process, fees and risks.

Q: To what extent will home values rise in the next few years?

A: Looking ahead long-term, home buyers and sellers will see a sudden upswing in home prices by 2015, predicts Dennis Torres, Pepperdine University School of Business and Management director of real estate operations.

In fact, the housing cycle will return to a robust market by that time, and the strong possibility of rampant inflation could increase home prices, Torres said.

In 2015, homes will be worth twice what they are today and by 2018 a home will be worth three times as much as today, he projects.

Torres suggests that now is a strategic time to buy a home. He predicts that durable goods, real estate, cars, machinery and other essentials will increase in value faster than the cost of living over the next several years, while salaries remain stagnant. That combination will make it difficult for anyone to buy a home in 2015, he said.

Q: National real estate trends often start in California. What's happening there?

A: Considering that California real estate trends often evolve into national trends, current data is indeed significant. Home sales increased 63.8 percent in March in California compared with the same period a year ago, while the median price of an existing home declined 39 percent, says a California Association of Realtors report.

Unsold inventory of homes is dropping. The median number of days it took to sell a single-family home declined to 48.3 days in March — down from 56.8 in March 2008.

Q: When is the deadline for filing for the $8,000 tax credit for a buyer of an under-construction house?

A: If you are buying a new or under-construction home and want to take advantage of the $8,000 first-time buyer tax credit, you should contract for the purchase very soon, suggests the National Association of Home Builders.

The tax credit is available to first-time buyers who purchase a home before Dec. 1, 2009. However, when a home under construction is purchased, the date the home buyers takes occupancy of the house is considered the purchase date, not when the sales contract is signed. It often takes four to six months after the contract signing for the house to be ready for the buyer to move in.

"Builders are ready to work with potential home buyers to get them into a new home, but time is running out to make those dreams become a reality while benefiting from the $8,000 tax credit," said home builder Mike Dishberger.

"Buyers also need to keep in mind that it takes time on the front end to select a community, builder, floor plan and options they want in the home before the first shovel hits the dirt, it was noted. "Often it takes up to a month to complete the process in order to ensure the satisfaction with the home they will be living in many years down the road."

In addition to the deadline, home buyers must also have not owned a home in the three years prior to the purchase, and have a modified adjusted gross annual income of less than $95,000 for single tax payers or $170,000 for married filers in order to qualify for the tax credit.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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