May 4, 2014

SMART MONEY: Reverse mortgages can be helpful

by Bruce Williams Syndicated Columnist

---- — DEAR BRUCE: I don’t believe all these celebrities who are pushing reverse mortgages. One large brokerage house advises that they are currently the biggest scam going. Please give the public your take.

In July, I sold a house and took back the mortgage. My husband and I have great income from retirements, Social Security, VA, dividends and interest. I don’t want a reverse mortgage for us. — J.B., via email

DEAR J.B.: No question about it, they are not for everyone. But I don’t understand why you are so opposed to reverse mortgages. You mentioned you have a great income from retirements, and there is no reason for you to get a reverse mortgage. But on the other hand, someone may have a reasonably expensive home (possibly fully paid for) and yet be short of daily operating cash.

A reverse mortgage is particularly suited for someone along in years. As you must understand, the older you are, the more money you can pull out of your home and still retain complete ownership. It may very well be a solution for those individuals.

Yes, it can cost a little more than a conventional mortgage, but there is never a payment until the last person with the mortgage moves out of the house, as long as the taxes and insurance are paid in a current fashion. This can make life immeasurably more comfortable for people who have that particular need.

Reverse mortgages are not a one-size-fits-all product, but I certainly wouldn’t call them a scam.

DEAR BRUCE: Is there a home financing option for potential buyers with good incomes, but no money in savings and a poor credit score? — H.L., via email

DEAR H.L.: Yes, there are some home financing options for people with good incomes, poor credit scores and no savings, but they are few and far between, and they are generally going to be more costly. In other words, with a weak credit score and no savings, good use of the income has to be questioned.

Why does someone with a good income have no savings and a poor credit score? The answer has to be poor habits and bad decisions. It may be better to ask what you can do to improve your poor credit score and create savings.

Increasing savings is simple — start making regular deposits. As to the credit score, you will earn a better credit score by paying your bills on time.

Under current conditions, I wouldn’t be looking to buy a home right away because the cost will be considerably higher.