March 29, 2024

Mortgages: Qualifying for a Loan After Retirement

Sanford Evans, 75, ran up against this requirement recently when he applied for a $174,000 loan to finance the purchase of an apartment in the Riverdale section of the Bronx. With brokerage accounts exceeding $1 million, a TransUnion credit score of 822, and the ability to make a 40 percent down payment, Mr. Evans didn’t anticipate any problem with qualifying.

“I would have paid cash,” he said, “but the interest rates are so low it didn’t make financial sense to do it. I figured this was going to be as easy as it’s been in the past.”

But despite the loan officer’s initial assurances that the loan would close quickly, Mr. Evans, who was moving from a condo in Boston, endured delays that dragged on for months. The problem, he was told, was his income. He received Social Security and monthly dividend distributions, and supplemented these earnings with part-time medical writing for a Boston hospital. Yet he still came up short. The lender wouldn’t count the writing income because he was moving away from Boston.

This made no sense to Mr. Evans, given the size of his brokerage accounts. “Having a job does not give you any more security than having the assets that I have,” he said.

Most lenders, though, measure income the same way, said Richard Pisnoy, a principal of the Silver Fin Capital Group, a brokerage in Great Neck. When they look at dividends, they want to see a regular annual amount on the tax return paid out over at least the last two years. As far as part-time work, when the borrower applies, “they need to be able to confirm you’re actually employed at that moment,” he said. They will then credit income shown, but may require a two-year work history. Social Security income is always counted. Borrowers should be aware that Fannie Mae guidelines allow lenders to increase that income by 25 percent if the beneficiary isn’t paying taxes on it, Mr. Pisnoy said.

John Prom, the Manhattan branch manager for Real Estate Mortgage Network, offers other tips on coping with the income requirement. A couple of portfolio lenders are still issuing loans without verifying income, he said, but their interest rates are a little higher. So are down payments, at 30 to 40 percent.

In addition, some lenders qualify income-deficient, asset-rich retirees by using a program known as asset depletion.

“They take a fraction of your assets, amortize it and apply it as income,” Mr. Prom said.

Asset depletion was ultimately the strategy used by Sterling National Bank to qualify Mr. Evans, according to Tony Jao, a regional sales manager.

But by the time Sterling was ready to close, Mr. Evans had grown so frustrated that he had applied to a second bank, HSBC. It interpreted his income differently, given that he could work remotely, and approved his loan in four weeks. He ultimately took his business there.

Mr. Evans says the application process wouldn’t have irked him so had he known what to expect. “I was in the advertising business for 40 years,” he said, “and the rule was always underpromise and overperform. That’s what part of the problem was here.”

Article source: http://www.nytimes.com/2013/05/05/realestate/qualifying-for-a-loan-after-retirement.html?partner=rss&emc=rss

Mortgages: Mortgages — Inheriting a Home, and a Loan

“It’s like getting a gift with a string,” said Judith D. Grimaldi, a principal of Grimaldi Yeung, an estate planning law firm in Brooklyn. Thirty-one percent of people 65 and older, in fact, have home mortgages, according to the Census Bureau.

“Most of my clients just end up selling the house,” Ms. Grimaldi said, “taking the proceeds and saying, ‘Thank you, Mom.’ ”

But if the beneficiary wants to keep the home, just who is responsible for paying the mortgage until the estate is settled can fall into something of a “gray area,” said Deirdre R. Wheatley-Liss, a tax lawyer at Fein, Such, Kahn Shepard in Parsippany, N.J.

Under federal law, the mortgage must be allowed to remain in effect without changes when it passes from one person to another because of a death. This negates any due-on-sale clause in the mortgage.

Who pays generally depends on the deceased relative’s will, and also who among the survivors has the ability to maintain the mortgage, the experts say.

The will might stipulate, for example, that the heir receive the home, free and clear, Ms. Wheatley-Liss said, which may mean that the executor will be directed to sell stocks, bonds or other assets in the estate to pay off the mortgage. (If there is no will, state law will come into play.)

The survivors, meanwhile, should look at the inheritance of property from a practical, economic perspective. “You need to look very strongly at whether you can afford to maintain the mortgage and maintain the property,” Ms. Wheatley-Liss said.

Although there may be some emotional attachment to the home, having it appraised can help determine whether it’s worth keeping. “The question would always be: ‘Are you protecting equity?’ ” said Michael McHugh, the president and chief executive of Continental Home Loans in Melville, N.Y.

An estate lawyer or financial adviser can provide advice on estate taxes and other expenses associated with the property.

The survivors should contact the lender early on to let it know that the borrower has died and that they are the heirs, or the executor of the estate, and to determine the loan’s status. Mr. McHugh suggests sending the lender a copy of the death certificate and a letter from the estate’s lawyer.

It is also important to determine whether the deceased relative has stayed current on the property taxes, if they are not paid through the lender.

But what if the mortgage is delinquent — overlooked in a final illness? If the payments are behind by 60 days or so, it is possible to catch up. If it’s 90 or more days late, the property may already be in foreclosure proceedings, Mr. McHugh said. Depending on state laws and lender practices, the lender could either demand full payment of all the back payments, or continue with the foreclosure.

Some family members ask about whether they can “walk away” from the property if it is underwater, or worth less than the mortgage balance, Ms. Grimaldi said, noting that such requests are more common in this shaky economy. They can do this and allow the foreclosure to show up as the estate’s responsibility and record, she said. But care is needed if the estate has other assets, like a second home or an investment portfolio, which the lender could come after to satisfy the debt.

In some cases, negotiating with the lender for a short sale on the property may be the best solution. In a short sale, the lender agrees to accept less than what is owed on the mortgage.

If the deceased relative had a reverse mortgage on the property — one that paid him or her a stipend and accrued a balance — the heirs could pay off the mortgage balance in full; sell the property and pay off any balance with the proceeds; or refinance.

Article source: http://feeds.nytimes.com/click.phdo?i=04d37a2939e1dc0f7070ad91b0ea5d61

Economix: Moving From Disability Benefits to Jobs

In an article today, I explore why Social Security is strained by the number of workers who now collect disability benefits, and why it is so difficult for these beneficiaries to go back to work.

Many, of course, suffer such severe disabilities that it is all but impossible to work. For them, the benefits provide an essential lifeline. For others, some work is possible, and economists and advocates for the disabled argue that if these people were provided with the right assistance and workplace accommodations, they might be able to work enough to leave the benefit rolls.

But some economists and policy analysts argue that many beneficiaries who might work are discouraged from doing so because of the so-called “cash cliff” that stipulates that workers who earn even $1 more than $1,000 a month — a level deemed “substantial gainful activity” — will lose all their cash benefits once a nine-month trial period is completed.

According to a paper submitted to the Journal of Vocational Rehabilitation by Tim Tremblay, Alice Porter and James Smith of the Vermont Division of Vocational Rehabilitation and Robert Weathers of the Social Security Administration, this cash cliff is a “substantial disincentive to work.”

Let’s say a disabled beneficiary goes back to work part-time, and earns $13 an hour for 15 hours a week. His total monthly earnings would be $845. Because that amount falls below $1,000, he would be able to keep a total of $1,845 a month. But if he upped his hours to 20 hours a week, he would then be earning $1,127 a month, which would put him over the threshold for collecting benefits. After the nine-month trial period, he would be stripped of benefits and thus would have only $1,127 in earnings. So by working five more hours a week, he loses $718 a month.

The authors of the paper suggested that many beneficiaries work just up to the threshold in order to maintain benefits. They suggested that a gradual reduction in benefits, rather than an abrupt cutoff, would spur more beneficiaries to work and earn more.

Many disabilities entail “a gradual road to full employment,” Mr. Smith said in a telephone interview. “You’re not going to go from being severely ill to being fully employed in nine months. So we think that the emphasis of the program should be on offering people an easy exit ramp, versus this sudden and dramatic cutoff.”

Since 2005, the Social Security Administration has conducted a pilot program in four states — Connecticut, Utah, Vermont and Wisconsin — in which a test group of randomly assigned disabled worker beneficiaries saw their benefits reduced by $1 for each $2 they earned at work above the substantial gainful level for up to six years. That way, they preserved some benefits as they eased back to work, rather than losing them all after just nine months. A control group did not receive the gradual reduction, losing all benefits if their earnings were above the threshold after nine months.

A preliminary study of the pilot program showed that in Connecticut and Vermont, beneficiaries who were given the gradual reduction in benefits were much more likely to work and earn more than the threshold amount. In Utah, the effects were less striking, and in Wisconsin, there were no statistically significant differences between the pilot and control groups.

Mr. Smith said that although the results were preliminary, the data from Connecticut and Vermont suggested that giving beneficiaries a longer-lasting safety net would encourage more of them to work and earn enough to reduce their benefits. Even if Social Security continued to pay out some benefits for the rest of their working lives, Mr. Smith argued, that would be better than paying full benefits to a vast majority of beneficiaries.

With the disability trust fund headed for insolvency by 2018, it’s a thought.

Article source: http://feeds.nytimes.com/click.phdo?i=6824ea436beab0fb003b7e9271a57343