Senior Stuck with a Home - LawProblems.com

What can a senior stuck with a home and a mortgage do if they don’t qualify for a new mortgage and can’t refinance their existing mortgage.

By Ilyce Glink and Samuel J. Tamkin

A few weeks ago, we published a question from seniors who felt they were stuck in their home. They didn’t qualify for a new mortgage, and couldn’t refinance their existing mortgage.

The story struck a nerve with a number of readers who wrote to offer support and suggestions for any senior stuck with a home and a mortgage. Here is a sampling of their comments.

Bridge loan option for the purchase of a new home

Comment: I am over 65. I too have a similar problem to your reader. I was looking to buy a new home and every lender turned me down for a loan. Then I found a lender that gave me a bridge loan on my condo. The lender required me to have my home listed for sale to get the loan. I used the bridge loan to buy my new condo and when I sold my old home, I used those funds to pay off the bridge loan. Even though the bridge loan interest rate was 5.25 percent, it all worked out for me. The interest rate was high, but it was for a short period of time. Would that work for the reader of your column?

Bridge loan as an alternative

Ilyce and Sam: Bridge loans are a great alternative for some borrowers. Unfortunately, many lenders will still require the borrower to have sufficient income and funds available to afford the bridge loan. Where does the term bridge loan come from? Well, the lender provides a loan to bridge the gap between the sale of one property and the purchase of another.

Assuming the homeowner has the loan qualifications to get the bridge loan, you’re absolutely right that a homeowner can use this option when selling one home and buying another. You must understand that you do have the risk in some situations that the existing home does not sell and the homeowner must pay the loan payments to the lender. We’ve seen situations where the homeowner gets quite stressed out living in the new home, trying to sell the old home and needing to make monthly mortgage payments to the bridge loan lender at those higher than conventional loan interest rates.

Social security and reverse mortgages

Comment: Do you think that a couple on social security might be able to use the money from a reverse mortgage, along with the equity from the sale of a prior home and their social security income to buy a new home?

Ilyce and Sam: Sure, you can try any combination of financing arrangements with cash that you have available to buy a new home. Again, if you choose to use a reverse mortgage finance part of the purchase, be aware of the costs involved and make sure you understand how the reverse mortgage works. In your example, the homeowner will have cash from the sale of their old home. They also will have income from social security. The next question will be whether they can obtain a conventional mortgage from a lender. If not, then perhaps using a reverse mortgage to finance the balance of the purchase would work.

When all conventional methods fail and you are a senior stuck with a home and a mortgage, you should look at all other options if you want to be a homeowner. But, in the long run, it may be cheaper to rent.

Selling and renting instead of buying

Comment: One option with the reverse mortgage that you didn’t mention in your column is the ability to sell the current home if it doesn’t meet long-term living needs. You sell the old home and use the cash from the sale to buy a new home. That new home might meet the needs of the homeowner as they grow older. The new home might provide a more suitable housing arrangement for aging individuals, reduce the ongoing property costs and maintenance charges, and provide them a more convenient location to family members/caregivers.

Most consumers are not even aware that this is an option. Many seniors that review this option find it very appealing.

Using the money from the sale of a home for living expenses

Ilyce and Sam: You’re right. We didn’t mention it in the column because our correspondent wanted to stay in their home and weren’t looking to move. We do agree with you that there are times that people will look to stay in their current arrangement because it’s a known quantity, and change can be scary. And, as you age, packing and moving gets more physically challenging and difficult.

But staying in your home isn’t always the right choice, even if it is the easy choice. Some older people will find it easier being close to family, while others will prefer being in a single level home or closer to medical care.

We had neighbors down the street that were in their late eighties who would come to our block parties every year. And every year, we would tell them that they should move from their old two-story home into something that was easier to manage. They could hardly make it up the stairs. One day, as they were going up the stairs, they fell and were fatally injured in the fall. We have another neighbor in his 80s who fell while carrying a large package of toilet paper up the stairs. We’re happy to report that after a long stint in rehab, he’s finally doing better.

United States Department of Agriculture’s rural loan program

Comment: My hubby is 73 and I’m 58. I’m on Social Security disability insurance. We got a mortgage through the United States Department of Agriculture’s rural loan program. We qualified with social security income and disability income only. Our purchase price was $135,000 in a wonderful area that included a common ownership private inground pool. We bought in a nice community and we are a half mile from the city limits.

I just want to say, it can be done. Don’t give up and get a good realtor who knows the area well. You don’t have to be a senior stuck in a home. A senior can get a mortgage with favorable terms, they’re out there! I got 2.75 percent on a 30-year, fixed-rate mortgage.

Ilyce and Sam: Thanks for your comment. From time to time, we hear from readers who find financing through the USDA’s programs. For those that are able to get financing there, it’s a great loan program. As you mentioned the program has requirements. Some of the USDA loans are meant for people with lower income in rural areas. So, if you live in a city and are thinking of moving to a more rural area, it might work for you. You can get more information on the USDA loans at https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.