The fact that nationwide home sales have picked up over the last couple months is great news for many home owners. A majority are hopinh to trade up for a bigger house, as a result, or at least borrow against their increased Florida home equity and remodel/consolidate debts.

But what if you have no plans to downsize and no desire to add Florida home loan payments to your budget - how can you benefit from your real estate wealth? Many that comprise this group would be retirees … and many retirees live in the Sunshine State. What could their future hold?

Enter the reverse mortgage - a loan that lets homeowners age 62 and older take money out of their home and never have to move out or worry about paying it back.

What is a reverse Florida mortgage?

You can think of a reverse mortgage as the mirror image of a traditional mortgage. When you borrow to buy a house, your monthly payments whittle away at your debt and build up your equity over time.

With a reverse mortgage, however, you gradually take that equity out and increase your home’s debt. The bank doesn’t collect the principal and interest until you or your heirs sell.

Although reverse mortgages still represent only a small fraction of Florida home loans, demand for these once obscure financial products has grown exponentially. Last year more than 43,000 homeowners took out a reverse mortgage. In 1990 about 150 did.

“We used to joke that more stories were written about reverse mortgages than loans originated,” says Bronwyn Belling, a reverse mortgage specialist for the AARP Foundation.

The demand for reverse Florida home loans

Today real-estate-rich retirees are taking out reverse mortgages to pump up their income, fund home improvements or refinance debts. Still, these loans are not without serious drawbacks - complexity and high costs among them.

Read on to learn about the pros and cons of such a home loan. For certain individuals, it may be ideal. For other, the confusion and price could be too much to deal with.

With a reverse mortgage, it’s possible to withdraw roughly half the value of your home. For example, a 70-year-old owner of a $200,000 house could take out $113,000 at today’s rates or opt for a $700 monthly payment for life. You don’t need good credit, a high income or ample savings to qualify.

How much you can borrow comes down to four factors:

1. The value of your house
2. Where you live
3. Current interest rates
4. Your age (Younger homeowners qualify for smaller loans because a longer life span means more years for interest to accrue - and more risk that the bank will lose money.)

If you are thinking about a Florida home loan of this nature, here are three goals to keep in mind related to it:

Monthly income: A reverse mortgage means a regular check to supplement your pension, investments or Social Security - a small one for life or a bigger one for just a few years. You might consider drawing down your home equity early in retirement so that you can put off taking a pension or Social Security and collect richer payments when you do.

A credit line: The most popular and potentially least expensive way to take out a reverse mortgage is through a line of credit. You pay interest only on the money you withdraw, and the amount you can tap in the future keeps growing as you age.
Debt management: If you bought a home late in life or had to dip into home equity to fund big expenses like college tuition, you could very well find yourself still paying off a mortgage deep into retirement. Refinancing into a reverse mortgage can erase that monthly payment.
While there are many benefits to putting your Florida mortgage in reverse, there are two big reasons not to. They are:

The cost: You could be charged as much as $10,000 to take out a $200,000 reverse mortgage after you cover the 2% lender’s origination fee, 2% mandatory mortgage insurance and miscellaneous costs such as title insurance, an appraisal and even repairs. You’ll also owe 0.5% of the loan balance in mortgage insurance premiums every year.

You may consider these fees a small price to pay for the ability to hold on to your home and preserve your standard of living. (And the costs may not seem so bad compared with the 5% to 6% brokerage commission you’d have to pay if you sold your house.)

But if you think you may downsize in a couple of years anyway or will need to move to an assisted-living facility, a reverse mortgage probably isn’t your best option for cash, says Barbara Stucki, project manager of the National Council on the Aging’s reverse mortgage initiative.

“Because these loans have sizable up-front costs,” she says, “your time frame is critical.” Instead, consider a cash-out refinancing or Florida home equity loan to tide you over until you sell.

The future: Someday your mortgage has to be paid off, either in cash or when the house is sold. Although mortgage insurance ensures that you or your heirs won’t owe more than your house is worth, it’s entirely possible to drain your home’s equity, leaving your children with little or nothing.

One reason is that when the Florida home loan comes due, the bill is for what you borrowed plus fees and interest, and rates on reverse mortgages are NOT fixed. The annual rate, recently 8.3%, is the rate on a one-year Treasury bill plus 3.1 percentage points and 0.5 points for insurance. Over the life of the loan, your rate can’t rise more than five points. At today’s rate, a homeowner who borrows $100,000 would owe $222,000 in interest and principal in 10 years.

If leaving your home or money to the next generation is important, think twice. Another option for cash is to sell the house to your children and rent it back.

How to shop for a reverse Florida home loan

If you decide a reverse mortgage is right for you, you have still more decisions to make, including what loan program to use. The U.S. Department of Housing and Urban Development’s home-equity conversion mortgage (HECM) is the only reverse mortgage insured by the federal government, but loan values are capped based on typical home prices in your area.

If you own a valuable house, you may be better off with a loan from Fannie Mae or from a private lender such as Financial Freedom.

When you shop, you have one thing going for you: Because reverse mortgages are so confusing, you have to meet with a counselor before you can apply. That person will spell out the pros and cons, as well as the alternatives. We recommend this step before choosing your ideal Florida home loan.

A new book sheds light on the use of real estate as a way to help fund seniors’ retirement, according to today’s Sacramento Bee. For years, investors have looked at retirement funding as a three-legged stool.

• Pension(s)
• Social Security
• Whatever else you can save

But the traditional trio may no longer be enough for the increasing number of baby boomers in the U.S., thanks to uncertainties with corporate pensions and retirement funds. Investors need to bolster their savings plans with a fourth leg — the family home. This is the theme of Jim Keene and Gillette Edmunds in their work, “Retire on the House: Using Real Estate to Secure Your Retirement.”

“Millions of retirees are sitting on substantial amounts of home equity in their properties that they can use to help fund their retirement,” Keene said. “In fact, many new retirees have four times more money in their home equity as they do in their stocks.”

Keene is a certified financial planner based in Walnut Creek, Calif. With 25 years in the industry, he’s seen it all and believes there are a number of financial options that homeowners can use to augment their retirement funds. Among those options reverse mortgages, home equity lines of credit, moving to cheaper housing markets and implementing innovative methods of selling a home to family members.

Reverse mortgages, which are essentially loans that enable you to withdraw home equity in the form of a lump sum or credit line, have soared in popularity in recent years. They do not require selling the home or giving up the title, and do not have to be repaid until the home is sold or passed to an heir upon the owner’s death.

“In order to get a reverse mortgage, a number of requirements must be met, including the fact that the borrower must be at least 62 years old and that the borrowers must go through a mandatory loan counseling session,” said Keene, who cautions borrowers to understand the full extent of their cost.

Although reverse mortgages are not nearly as competitive as they should be, Keene expects that will change rapidly in the coming years. A simple home equity line of credit could be a viable and attractive alternative. It’s easier to understand and handle for many.

“If you choose this course of action, it allows you to draw on funds only when needed, giving you maximum flexibility. At the same time there are no loan origination fees and you can make interest-only payments,” he said.

There’s also the option of leaving where you live and relocating to a place where you get more house for the money. Many people in the San Francisco Bay Area have moved to places like Sacramento, Reno and Las Vegas for this reason, and locally, many people priced out of the South Florida housing market are heading to the northern part of the state… and beyond.

Another option growing in popularity is what Keene calls an “interfamily sale and leaseback.”

Under such arrangements, family members purchase their parents’ home and pay the parents either a lump sum or installment payments, which can be used for future expenses, such as health care. It also eliminates real estate commissions and can have helpful tax benefits. Such arrangements can be very valuable in cases where the parents want to stay in their house while the next generation wants to keep the home in the family.

In addition to keeping the home in the family, the sale-leaseback maximizes the equity available for use by the retired parents. There is certainly a lot to think about for Florida real estate owners in the coming years, especially the state’s millions of retirees. If you’ve got questions about maximizing your capital (specifically your Florida home equity), it might benefit you to check this book out.

What’s the deal with a reverse mortgage?

A recent article stated that while this may be a helpful financial tool for Americans 62 and older, it isn’t a way to keep you out of foreclosure. To accomplish this aim, you’ll need different help.

Details of a Florida reverse mortgage

In order to obtain one of these resources, you need to be at least 62. Also, you must have substantial equity in your home, meaning your mortgage must be fairly close to being paid off or the value of your property far exceeds the balance on your Florida home loan.

If you meet these two criteria, get on the phone right now and find a lender in your area that writes reverse mortgages.

However, a better way to save your home might be to call your lender’s workout department. If your company has specialists on staff, these are the professionals to speak to, not the collection-department workers who have been calling you demanding payment.

Many lenders are bending over backwards to keep borrowers in their homes. If you are eligible - that is, if there is any possibility that you can get back on track within a reasonable amount of time - they have several tools at their disposal to help people who have lost their jobs, suffered from a major medical problem, dissolved their marriages and so on.

Here are some of the options lenders can make available to those nearing delinquency:

- Forbearance: An agreement that temporarily allows borrowers to pay less than a full payment, or no payment at all, for a set period. Forbearance is an option when you can show that funds from a bonus, tax refund or other source will let you bring the mortgage current at a specific time in the future.
- Reinstatement: Sometimes combined with forbearance, this allows the borrower to pay the total amount they are behind in one lump sum by a specific date.
- Repayment plan: An agreement that gives you a fixed amount of time, say six months, to repay what you owe by combining a portion of what is past due with your regular monthly payment. At the end of the repayment plan, you will have gradually paid back the amount that was delinquent.
- Loan modification: An agreement that permanently changes one or more terms of your original mortgage so your payment is more affordable. You and the lender may agree to add the missed payments to your loan balance, for example. You might turn an adjustable-rate loan into a fixed-rate mortgage. Or you could extend the number of years you have to repay.

This is a relatively new cosmos in the lending arena called loss mitigation. Investors — and the companies that service the loans for investors — won’t do anything to help deadbeats who can pay but won’t. If you have a legitimate reason for not being able to meet your obligation, though they want to help.

“Where it is economically feasible, we do whatever we can to get ‘nonperforming’ loans re-performing,” says Bill Merrill, director of nonperforming loans at Freddie Mac, a secondary-market company which helps keep the mortgage money flowing from Wall Street to Main Street.

Like most investors in mortgages - or conduits for investors - Freddie Mac works hard to keep borrowers in their homes. In fact, it demands it of the companies which collect monthly payments on its behalf, all in the name of what Merrill calls “homeownership preservation.”

“We require, we measure and we incent,” says Merrill. As a result, most companies which administer mortgages have what are variously known as workout departments or portfolio-retention sections. The goal of these professionals is to keep those who want to remain in their homes in their homes.

Your Florida home loan lender might even be able to help, even if you do not or cannot keep your home. Indeed, there are several different ways to avoid foreclosure and reduce the negative impact on your credit report, depending on your particular financial circumstances.

Taking care of your outstanding debt

Here are three quick ways to avoid foreclosure and move closer to fiscal freedom:

1. A qualified buyer could be allowed to take over your debt, even if the loan is considered nonassumable.
2. If you can sell, but only for less than what you owe, the lender might agree to a “short payoff” in which the company writes off the portion of your mortgage that exceeds the net proceeds from the sale.
3. You can voluntarily transfer title of your home to the lender in exchange for canceling your entire debt.

In conclusion, reverse mortgages are popular as versions of Florida home loans because the state welcomes many senior citizens. Before you decide on this as an option, however, pursue all possibilities.

The weekly real estate mailbag in the Miami Herald contains a couple of interesting entries this week. Readers’ questions are answered by Robert J. Bruss, a licensed real estate broker.

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Q: I am a senior citizen homeowner, age 68, who is, as you say, ”property rich and cash poor.” My house is worth at least $400,000, but needs a new roof, which will cost an estimated $15,000 to $20,000. My daughter says I should take out a home equity loan at my bank. But when I ask how I will afford the payments on my limited retirement income, she says to take the payments out of savings. I have about $35,000 in CDs but don’t want to touch that money except for an absolute emergency. What would you do in my very limited cash situation?

A: I don’t blame you for wanting to keep your $35,000 liquid cash reserves. Spending up to $20,000 of that amount on a new roof would be the least costly of your alternatives, but will leave you with depleted liquid reserves.

It sounds like you need increased monthly income. My suggestion is for you to consider reverse mortgages, which never require repayment until you sell the home, move out for more than 12 months or die. Meanwhile, you can enjoy monthly lifetime income, lump sums as you need them or a home equity credit line (except in Texas).

If you are already short of cash, making monthly home equity payments will further deplete your cash. A senior citizen reverse mortgage can solve your cash problem. It’s easy to find local reputable reverse mortgage originators online using this link.

Q: My father-in-law resides in New Jersey in his own home, but is the victim of financial exploitation. His grandson’s wife recently had him sign a quitclaim deed (he has dementia and did not know what he was signing). The grandson’s wife prepared the deed but put the wrong block number on it. Is this enough to invalidate the transaction while the D. A. investigates the case? I am afraid the grandson and his wife will try to sell the house.

A: Financial abuse of the elderly is a major nationwide problem. You were wise to bring this situation to the local district attorney for investigation. The general rule is a deed with an incorrect description of the property conveys nothing. That is why it so important the legal description on a deed be 100 percent accurate.

However, if the deed contains other evidence describing the property, such as street address or county parcel number, a court might rule such information prevails over an incorrect legal description in the deed. Keep on top of this matter until the local district attorney investigates. You might wish to speak to a local real estate attorney about recording a lis pendens (which means litigation pending) against the title to prevent a conveyance.

Q: A few years ago, we made an Internal Revenue Code 1031 tax-deferred exchange of our rental property for a beautiful single-family house where we eventually wanted to live. Following your advice, we rented that house to tenants. They recently moved out and we moved in to our dream home. What is our adjusted cost basis for this house?

A: I suggest you consult your personal tax advisor for details, but an easy way to estimate your adjusted cost basis on the property acquired in such an exchange is to subtract from your purchase price the amount of your tax-deferred capital gain.

For example, suppose you paid $400,000 for the new rental property and you had a $150,000 deferred capital gain on your old property. Subtracting the $150,000 deferred capital gain results in a $250,000 adjusted cost basis for the acquired property. From that amount, don’t forget to subtract the depreciation you deducted on the acquired rental house.

Q: I entered into home purchase contract that was supposed to close October 22, 2005. It has yet to close because the bank I am buying from does not yet have the title. What can I do?

A: It sounds as if you are buying a bank foreclosure property. The bank should not be selling that property unless it already holds title, or unless the contract clearly disclosed the bank does not yet hold title. I suggest you and your attorney read that contract carefully to see what it says about conveying marketable title. If the bank misrepresented it held marketable title, the bank might be liable for damages.

Unless the bank can clear up its title problem quickly, I suggest you ask your attorney about suing the bank and recording a lis pendens against the title to that home. There is a possibility the bank realizes it sold to you for a bargain price and they can get a higher price from another buyer. Especially in a situation like this, don’t trust the banker.

Reverse mortgages are financial resources for people age 62 and older that enable them to increase financial flexibility by tapping into home equity for extra cash. The post-WWII “baby boom” generation is starting to reach that demographic. See where this is going?

More and more seniors are opting for these loans, and no longer out of basic necessity. The typical borrower used to be the elderly widow with limited cash but a valuable property - an applicant whose primary goal was to make ends meet and remain in the home. Other common uses for the funds include home repairs / remodeling, medical expenses or in-home care, and repayment of other forms of debt.

Now, however, as reverse mortgages gain popularity, borrowers are younger and using the money to improve lifestyles during longer retirements.

One such case is Robert Simmons, a 67-year-old retired Long Island man who recently took a reverse mortgage on his home of more than 20 years, using the money to pay down his remaining loan, close a credit line for home repairs and buy a car.

“I wasn’t struggling to pay bills, but I needed just the extra boost to give me a good cushion so I could do nice traveling and have an enjoyable time in my declining years,” Simmons said. “Before I go out completely, I want to see something.”

Loans can be taken as lump sums, fixed monthly payments, a home equity line of credit or a combination of these options. Homeowners keep title to their houses and the mortgages are not repaid until borrowers move or die. The repayment cannot exceed the home’s value. Reverse mortgage demand has been doubling annually, and this month, the U.S. Housing and Urban Development Department (HUD) expanded its counseling network to address the high number of applications.

In the coming months, a Congressional subcommittee will also debate a bill eliminating a cap on the amount of reverse mortgages insured by the Federal Housing Administration (FHA), the agency that insures 90 percent of all U.S. reverse loans. Proponents of lifting the cap say that it would protect seniors from possible fraud by increasing the amount of federally insured reverse mortgages.

A GENERATION WITH NO AVERSION TO DEBT?

Experts say lenders and borrowers will get more creative now that baby boomers are nearing reverse mortgage eligibility. Michael Fratantoni, senior director of single-family research and economics at the Mortgage Bankers Association, says conventional wisdom points to the group having no inhibitions of increasing its debt.

Home prices have surged by double digits annually all decade and many homeowners have built a great deal more equity. Low mortgage rates and larger loans are appealing to younger borrowers. Uses of home equity are also adapting to new borrower profiles, as the standard applicant becomes one in search of discretionary spending rather than necessity.

To illustrate the rising demand, industry analysts say that less than 1 percent of seniors 65 or older now have reverse mortgages, but predict 5 percent should by 2010. Experts warn that these loans should be avoided if users plan to move before benefits exceed closing and other costs. There is also concern that borrowers reserve or use funds prudently rather than for investment or frivolous purchases.

The risk to investors, namely Fannie Mae, which buys reverse mortgages (also known as home equity conversion mortgages) from lenders, is offset by the FHA insurance on those loans.

“Whether the borrower outlives the actuarial models that are pricing the loan, whether the house goes down in value or interest rates go through the roof and the loan balance grows greater than the value of the house — in all those instances there is no risk to Fannie Mae,” said Jim Mahoney, chief executive of Financial Freedom Senior Funding Corp.

Use of the Internet to take part in the home-buying process is more prevalent than ever. According to a recent survey, this holds even more true for senior citzens looking into a house purchase.

A report was released today from the Senior Advantage Real Estate Council was entitled “Moving Forward: 50 and Beyond.” Itconducted in September 2005 and explores the buying trends of U.S. consumers 50 or more years of age who purchased a home within the last six months.

The survey discovered key differences in behaviors between “younger” seniors, those 50 to 64 years of age, and “older” seniors, those 65 or more years of age.

According to the study, nearly two-thirds (61%) of home buyers utilizing the Internet did so to locate a specific realtor, 92% used the Internet to research comparable prices and 19% went online to learn about specific neighborhoods.

“While the prospect of retirement is an exciting time for most seniors, many have not planned for the economic issues that arise as a result,” said Dr. Nathan Booth, senior advisor to the council. “For seniors choosing to remain in the workforce, or even retire early, help is needed in finding the best and most prudent use of the resources available to them in real estate.”

The survey also revealed that not only did most senior home buyers stay within their home state (82%), they moved less than 100 miles from their previous home. Younger seniors tended to move farther away from their previous residences than did older seniors, according to the survey.

Of those senior home buyers who did move to a new state (18%), the most popular choices were:

• Florida - 26%
• Texas - 11%
• Arizona - 8%
• Nevada - 7%
• Virginia - 6%

Florida home loans are affected by this online trend. How come? Because this is the state with the greatest number of retirees in the nation.