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Can I Get A Home Equity Loan With Low Income?

By Gina Pogol
Mortgage Credit Problems Columnist


Bill Asks: Dear Gina, I am retired and all my income comes from Social Security ($997 a month). I don't owe much on my mortgage but I need a home equity loan to pay my property taxes and make some repairs. I also wouldn't mind getting a car that runs if I could get enough money. Could I get a home equity loan with my income? I have some bad credit from a hospital bill but it was not my fault.

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Gina Says:

Dear Bill,

That's a lot of issues for one question! But I think I can help you. First things first. Very few lenders make home equity loans to homeowners with very little income and bad credit problems too. Now, the good news: you do have some options. I'll go through them one at a time:

Single purpose reverse mortgage

Reverse mortgages don't need to be repaid while you live in your home, so your income and your credit rating don't matter. Single purpose reverse mortgages are offered by some state and local government agencies and nonprofit organizations. They are the least expensive reverse mortgages around, but they have some limitations.

  • They can only be used for specified purposes, usually for property taxes or necessary home repairs.
  • They are available only to homeowners who are at least 62 years of age and who occupy their homes.
  • They typically have income limitations.
  • They are not available in all areas.

In short, single purpose reverse mortgages are for people like you, retirees with low-to-moderate income who need help meeting their housing expenses. The cost is very low or it may even be free. To find a program, try the Texas Department of Aging and Disabilities Services (DADS).

Home Equity Conversion Mortgage (HECM)

You can get an HECM with bad credit and low income. HECMs come in two forms--HECM standard, which gets you the most money but costs more, and HECM Saver, which provides fewer funds but costs significantly less. I recommend that you check out both--you may be able to meet your immediate needs and also provide some extra income to make your life easier. HECM fees are regulated by the government, but you should still shop around (like you would for any bad credit mortgage) to get the lowest rate.

New legislation provides hope

Finally, the other issues you mentioned--low income and medical bills--may soon be addressed by Congress. A new bill proposed by Ohio Representative Mary Jo Kilroy should reduce the impact to your credit scores following a medical emergency. The Medical Debt Relief Act will require credit bureaus to remove negative medical payment information from your credit report once your medical debt has been settled.

And proposed legislation may put shared equity arrangements under the FHA umbrella. Shared equity arrangements typically mean that you can borrow money now and make no payments in exchange for a share of your home's appreciation in the future. So again, your credit and income would not be a consideration. It's going to be interesting to see how these developments shake out.

Sources

http://www.credit.com/ / http://rismedia.com/ / http://www.consumersunion.org

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