Q-My husband and I bought our home in 1988 with no money down, thanks to a VA mortgage at 10 percent interest. But the house is now too small for our growing family. We are thinking of selling it in the spring of 1992. (1)
Should we refinance now, so we can carry our VA certificate with us? (2) In the refinancing process, how can we know which lenders to avoid? (3) Our current mortgage company does not deposit our payment until mid-month. How can we be sure they are giving us proper credit? As soon as they get our payment check, shouldn`t the interest tabulator stop ticking?
A-(1) If you plan to sell your home within a few months, it would be a very costly mistake to refinance now. When your VA mortgage is paid off from the home sale proceeds, then your VA eligibility will be restored.
(2) Although you shouldn`t refinance if you are going to sell your home soon, if you change your mind and decide to add on to your present home, then refinancing becomes viable. Did you know you can refinance with your current VA lender? Ask your lender what terms you can get on a new VA mortgage.
(3) Most mortgage lenders give a 10- or 15-day grace period. On an amortized mortgage, such as a VA loan, it doesn`t matter whether your loan payment is credited on the first or the 15th. However, if you had a simple interest mortgage where interest is charged each day, then it pays to make your payment early.
Depreciation deductions
Q-During various job assignments out of the country, we rented our home and depreciated it before the 1986 Tax Reform Act. What effect will that depreciation deduction have on our profit tax when we sell the house and use that once-per-lifetime $125,000 tax-free exemption?
A-When you deducted depreciation during the period your home was rented to tenants, the depreciation deduction reduced your adjusted cost basis. When you sell, your profit is commensurately increased.
For example, suppose you paid $100,000 for your home and deducted $10,000 in depreciation while it was rented to tenants. Your adjusted cost basis became $90,000. If you sell it for a net (adjusted) sales price of $200,000, you will have a $110,000 capital gain profit. Without the depreciation deduction, your capital gain in this example would be only $100,000.
Using the ”over 55 rule” $125,000 home sale tax exemption, up to $125,000 of your sale profit will be tax-free. To qualify, you must (1) be age 55 or older on the day of sale, (2) have owned and lived in your principal residence any three of the five years before its sale, and (3) never have used this tax break before. For further details, please consult your tax adviser.
Discount brokerages
Q-We needed to sell our home and listed it for sale with Help-U-Sell, a nationwide discount real estate brokerage. Their service was excellent. However, in three months on the market, only one offer materialized. It was from a buyer whose Realtor refused to deal with us, because we wouldn`t pay her a 3 percent commission plus the Help-U-Sell fee. Finally, we listed with a full-service Realtor, who sold our home quickly through the local multiple listing service. The price was the same and the house was the same, but the local agents wouldn`t show our house when it was listed with the discount broker. Don`t you think this is a dishonest business the way homes are sold?
A-No. Help-U-Sell is one of many discount brokerages. They give less than full service in return for a low, fixed commission fee. But, as you discovered, this arrangement didn`t get your home sold. Naturally, that Realtor who had a buyer refused to work for free and help her buyer purchase your home if she wasn`t going to be paid. I doubt you would work in your business without being paid.
As you discovered, once your home was placed in the multiple listing service, it received far wider market exposure than when it was listed only with Help-U-Sell. Yes, it cost you more, but your home was quickly sold. There is nothing dishonest about that.
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Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Robert Bruss will answer inquiries addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
