Take Celeste and James Kuta. The couple recently put a deposit on a new home at Carillon at Cambridge Lakes in northwest suburban Pingree Grove. They plan to sell their home in Streamwood next spring and move to their new house.
Though they own their free and clear, they're taking out a mortgage to buy the new house. That way, they figure they can use some of the proceeds from the sale of their old home. "We have the benefit of a large amount of equity," said Celeste.
The Kutas aren't sure how much of the new house they'll finance. That depends on how much cash they decide they want to walk away with and what they want to use it for.
The Kutas aren't unusual.
Families near or in retirement are getting more in debt, according to the Employee Benefit Research Institute. A big factor is housing debt.
Households headed by those 55 or older with housing debt increased to 36 percent from 24 percent between 1992 and 2004. The study attributed the rising debt burden to homeowners who take some equity out of their homes because they need cash. Or they buy a new house and need to finance part of it. More older people are taking out reverse mortgages, too.
The next generation of retirees will be even more likely than the current one to tap their home equity and go into debt, according to the Center for Retirement Research at Boston College, because Baby Boomers are not prepared for retirement.
At local active-adult projects by Cambridge Homes, about 40 percent of home buyers have a mortgage. That compares to about 20 percent five years ago, said Dave Smith, vice president of marketing at the Libertyville-based company.
As a group, older buyers tend not be too forthcoming about their finances, he said. Besides, he said, a growing number of buyers in active-adult communities are still working, so they're a little more confident about making house payments every month.
Home State Bank in Crystal Lake is making more mortgages to older people. Greg Grojean, group senior vice president at the bank, said people who aren't moving and want to get cash out of their homes are opting for long-term fixed-rate mortgages instead of home-equity loans. These borrowers tend to have no mortgage, Grojean said.
Home State Bank is also getting more requests for reverse mortgages. The bank doesn't offer the product now, but plans to do so in the next few months.
Despite the turmoil in the mortgage markets, money is available. The Kutas have a fixed-rate mortgage lined up through the lending arm of Cambridge Homes. "It was very cut and dried," said Celeste, who would never consider an adjustable-rate mortgage because she thinks it's too risky.
By law, lenders cannot discriminate against older people, said John Mechem, a spokesman at the Mortgage Bankers Association, Washington, D.C. The only product that does consider age is the reverse mortgage. (Borrowers must be 62.)
However, lenders do judge the borrower's profile, which may change with age. Many older borrowers will benefit, in the lender's eye, by having a long credit history. Of course, lenders also look at the borrower's monthly income, which may have taken a hit.
"If some people don't qualify on traditional income guidelines, we dig a little deeper," said Grojean about his bank.
While underwriting standards have changed because of the subprime mortgage mess, "People with good credit can get a good-quality mortgage," said Grojean. He added that those with a low credit score or income should be prepared to make a bigger down payment.
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Jane Adler is a Chicago-area freelance writer. Write to her at Senior Housing, c/o Chicago Tribune Real Estate, 435 N. Michigan Ave., Chicago, IL 60611. Or e-mail realestate@ tribune.com. Answers will be supplied only through the paper.
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source: chicagotribune.com
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