Q–Why don’t you emphasize the importance of school quality for homeowners?
When we bought our new home about seven years ago, we didn’t realize it was just a few blocks from a top quality school district.
But our home is in a rotten school district with long bus rides to overcrowded, run-down, poor quality schools. Virtually all our neighbors send their kids to private or religious schools, as do we, because we are afraid to send them to the public schools.
Now that we are trying to sell our home, we realize the bad schools are making it impossible to sell for what we paid seven years ago. You should warn home buyers to check the school quality before buying a home.
A–Thank you for emphasizing a topic about which I’ve written many times. Just as poor quality schools hurt home values, top quality schools enhance the market value of homes within a highly rated school district.
Home buyers should check school quality first, before deciding in which part of town they want to live. Usually the best-rated public schools are also located in the best part of town. I wonder why?
Q–My husband and I earn more than $60,000 annually. But our savings account only has about $4,500. We pay $1,450 a month to rent a beautiful condo in a luxury building.
We realize how stupid it is for us to waste this money on rent when it could be building equity and saving on our income taxes if we owned a home. For undisciplined people like us, is there any way we can buy a house with so little in savings?
A–Yes. It’s shocking that you and your husband earn $5,000 a month and you have less than one month’s savings. However, your situation is not unusual. Most people are just a few paychecks away from losing their apartments or homes.
Buying a home with a low or no down payment has never been easier than it is today. For example, Veterans Administration mortgages require no down payment, just closing costs. Federal Housing Authority mortgages are available for about 95 percent of the purchase price. PMI (private mortgage insurance) home loans cover 90 to 95 percent of the purchase price. Fannie Mae offers 97 percent mortgage financing to qualified buyers.
There are even ways to buy for nothing down, such as by assuming an existing high ratio mortgage on an over-financed house. Another method is to assume an existing mortgage and have the motivated seller carry back a second mortgage for the balance of the purchase price.
The key to buying a home with little or no cash down payment is to work with a creative realty agent. Just because a buyer has little or no cash for the down payment doesn’t mean there is no cash to pay the agent’s sales commission.
A good book to study on this topic is “How to Buy a House with No (Or Little) Money Down, Second Edition” by Martin M. Shenkman and Warren Boroson (John Wiley and Sons, NY, 1995, $14.95).
Q–My home has been listed for sale several months with a fine Realtor. She brought me a purchase offer close to my asking price but it has only a 10 percent down payment.
The buyer wants me to carry back a second mortgage for 10 percent of the sales price for 10 years. Is this dangerous for me? I really don’t need the money, but I’d hate to lose 10 percent of my sales price if the buyer doesn’t make his payments.
A–Before deciding, ask the Realtor to get a credit report on the buyer. Also, verify employment and income. If the credit report doesn’t show any late payments, that person probably will pay you on time.
Carrying back a second mortgage can prove to be a wonderful investment for you. It will also enable you to get your home sold now instead of waiting for another purchase offer which might not be any better than this one.
Don’t fear foreclosure. If the buyer doesn’t pay on time, you can foreclose and either be paid in full or get the house back to sell for a second profit.
Q–I am 57 and my wife is 52. When I was about 48 I had brain surgery and my chances of surviving were very slim. I beat the odds and am in excellent health today, thanks to a wonderful surgeon. But before the surgery I quit claimed our home to my wife so it wouldn’t have to go through probate if I died.
Now I’m retired and we want to sell our home so we can travel for a few years. However, as you may already suspect, we want to use that $125,000 “over 55 rule” home sale tax exemption.
Our tax adviser says we can’t because I’m not named on the title to our home. What can we do to solve our tax problem?
A–The “over 55 rule” $125,000 home sale tax exemption of Internal Revenue Code 121 requires the qualifying “over 55” spouse to hold title to the principal residence. Your wife, age 52, won’t be eligible for three more years. You don’t qualify because you’re not on the title to your home.
If you want to use this tax break, my suggestion is to wait at least a year before moving out of your home. The reason is another of this tax break’s requirements is the seller must have owned and lived in the principal residence at least three of the five years before its sale. That means the eligible seller (your wife) can move out as much as two years before the sale and still qualify.
Adding your name to the title now won’t shorten the three-year waiting time because of this three-out-of-five year rule. Either way, if you want to use this $125,000 tax exemption, you’ll have to wait three years.
You could stay in the house another year and then lease-option the house to a buyer with the condition the option cannot be exercised until your wife becomes age 55.
Just in case anything should happen to your wife, she might want to add your name to the title now so at least one of you will be eligible in three years. Ask your tax adviser for full details.
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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. Letters should be addressed to Tribune Real Estate Features Service, 435 N. Michigan Ave., Suite 1400, Chicago, Ill. 60611.
