Q–We are considering buying a brand new house in a new subdivision tract. The developer’s salesman is trying to sell us an already-completed house on a corner lot. But it sells for 25 percent more than similar-size houses on non-corner lots. Do you think a house on a corner lot is worth 25 percent more?
A–No. Your question is often asked. Many people think corner lots are actually less desirable than interior lots. Corner lots only have neighbors on two sides, but they also have traffic on two sides, rather than just in front of the house. If you have small children, you’ll have to worry about cars on both streets.
Also, if you buy that corner house, you’ll have less privacy with cars and pedestrians on the side and in front of your house. Sorry, I can’t recommend you buy that house on a corner lot, especially if it costs 25 percent more.
Q–My husband and I have been married about a year and were hoping to buy a house in mid-1998. But I’m expecting our first child in February, so we need to buy a house soon. Our problem is we don’t have much of a down payment and don’t know the first thing about buying a home. Where should we start? Would a condo make a good first home purchase?
A–Please don’t expect your first home to be your dream home. Buy the best home you can afford, but don’t stretch your budget too far. Later, you can move up to a nicer home as your family income increases.
Forget about buying a condominium, except perhaps a townhouse condo. Most apartment-type condos are not suitable for raising a baby. But a townhouse condo might be ideal, especially if it has a fenced patio.
The first step for any home buyer should be to get preapproved (not just prequalified) for a mortgage. Most banks, S&Ls, mortgage brokers and mortgage bankers will be glad to get you preapproved. Then you will know what price range is right for you.
Q–My uncle, age 83, owns a vacation cabin in northern Minnesota. We enjoy hunting and fishing there. It’s probably worth about $50,000. He is now in a convalescent home and can no longer make use of it. On my last visit with him, he offered to give me a quick claim deed to the cabin and promised to have his lawyer prepare the deed. Will a quick claim deed give me good title?
A–I don’t know. A quit (not quick) claim deed conveys only whatever title your uncle owns to that cabin. It could be fee simple absolute title. Or it might be no title, or a defective title.
It is all right to accept a quit claim deed if you also obtain an owner’s title insurance policy at the same time, which shows marketable title. Otherwise, you might become obligated to pay liens against the property, such as for unpaid judgments, income taxes and mechanics’ liens.
Q–Our four-bedroom home has been listed for sale over six months with two different Realtors. The second Realtor reduced the asking price by $8,500, but even that didn’t bring any purchase offers. The problem is, our yard backs up to a noisy elementary school playground. Even parents with young children don’t want to be that close to all the noise. Another problem is, the house is on a busy street. We showed your article about lease-options to our Realtor, but she said “Lease-options don’t work.” She refused to advertise our house for sale with a lease-option. Our listing expires next week. How can we find a Realtor who will help us with a lease-option? We can’t afford the mortgage payments on two homes.
A–There are two primary reasons most Realtors won’t help you with a lease-option: (1) Most Realtors have never done a lease-option and don’t have the slightest idea what to do; and (2) the Realtor gets part of their lease-option commission up-front, but must wait for the balance until the tenant exercises the purchase option.
A lease-option is ideal for a “difficult” house like yours. There are always more lease-option buyers than sellers. A typical lease-option buyer wants to acquire a home but hasn’t enough cash for a down payment. The obvious solution is the lease-option “rent credit,” which is really a forced savings account to accumulate the down payment in a year or two.
Meanwhile, the lease-option tenant will pay you rent so you can pay the mortgage. Fortunately, lease-options are so simple must homeowners can create one without the help of a Realtor. Details are in my special report “How to Quickly Buy or Sell Your Home With a Lease- Option” available for $4 from Robert Bruss, 251 Park Road, Burlingame, Calif. 94010. Credit card orders are welcome at 1-800-736-1736.
Q–About a year ago, I took early retirement at age 62. I am now thoroughly bored playing golf several times a week with my older friends. Since my wife and I own several rental houses, she suggests I get a real estate sales license so I can find bargain rental houses for us to acquire. Do you think this is a good idea?
A–No. If you want to get your real estate sales license to list and sell real estate to earn sales commissions, that is an excellent idea. Your advanced age is an advantage, not a disadvantage, in real estate sales.
If you intend to get a realty sales license to find bargain properties for acquisition, forget it; it’s a disadvantage in negotiating for the bargain properties. You’ll do much better working as a principal with a diligent realty salesperson notifying you when a bargain comes on the market.
Q–I often see newspaper ads for foreclosed VA and FHA (HUD) houses. But when we went to look at several, they were boarded up and looked terrible. One Sunday a real estate broker was holding an open house, so we went inside a HUD foreclosure. There were no utilities turned on, so no lights or running water. The yard looked awful. It was thoroughly depressing. The asking price wasn’t much less than for houses in better condition in the same neighborhood. We talked with the broker outside. He couldn’t wait to get us outdoors, since the house had a bad smell. He tried to get us to make a bid, even below the asking price. Are VA and FHA foreclosed houses a bargain?
A–No. My experience has been that VA and FHA foreclosed houses are not bargains. They are often overpriced, but they usually offer attractive financing. Just because a house is a foreclosure doesn’t mean it’s a bargain.
Q–For the last three years we have been buying our home on an installment land contract sale. We pay the seller and she pays the mortgage. All was going fine until the seller got sick and moved away to live near her daughter. Apparently, the mortgage payments haven’t been paid for some time. Last week a man posted a notice on our front door that the mortgage was in default. We immediately contacted the out-of-state mortgage company to explain the situation; they said we have three months to get it straightened out. We wrote to our seller at her new post office box, but she doesn’t reply. We’re not even sure she’s still alive. We have no other way to phone or contact her. What should we do?
A–Run, don’t walk, to a local real estate attorney’s office. You need legal help to get a court injunction to stop the foreclosure proceedings so this matter can be straightened out.
Your situation shows what can go wrong with an installment land sale contract. The basic idea of the seller keeping the title until the buyer makes all or an agreed number of payments is fine. But in reality, problems such as yours often arise.
Another frequent problem is that the buyers faithfully makes their payments to the seller and finally become entitled to receive the deed. But the seller is then often unable to convey marketable title that a title insurance company will insure. Various liens or encumbrances may have arisen to make the title defective. For these reasons, I do not recommend this type of home sale.
Q–I greatly enjoyed your article a month or two ago about “serial home sellers” who, under the 1997 Tax Act, can fix up their principal residences and, every 24 months, sell with tax-free profits up to $500,000 for a married couple. My husband is a carpenter, so this is a perfect situation for us. I’ve found a perfect run-down fixer-upper house. It’s been for sale almost a year. The Realtor said everyone who looks at it refuses to tackle all the work. My husband got excited about the opportunity it presents, but we can’t find a mortgage lender to finance it. The seller is an estate. Any ideas?
A–Virtually the only way to finance acquisition of a badly run-down house like the one you describe is with seller financing. Contrary to popular misbelief, estates can carry seller financing. I’ve bought several probate houses with seller financing.
Make your written purchase offer, at a very low bargain price, with seller financing. When the estate administrator and the heirs discuss the offer and realize they can probably use your monthly payments, that’s when the estate will decide to finance the sale. Since you plan to resell after 24 months of owning and living in the house, offering a short-term five-year mortgage may make your offer acceptable.
Q–My 1995 income tax return is under IRS audit for my home mortgage interest deductions. I paid and deducted the mortgage interest on my personal residence as well as on my mother’s house, since I also pay her mortgage and property taxes. The IRS auditor says I can’t deduct the interest and taxes I pay on my mother’s house. Is this correct?
A–The IRS auditor is correct. Since you are not legally obligated to make those payments, you cannot deduct them on your tax returns. However, if you were a co-owner of your mother’s house, then your future interest and tax payments for her would be deductible. Your tax adviser has further details.
Q–I am considering refinancing my home mortgage to (1) reduce the interest rate and (2) take-out some of my equity to raise cash to invest in the stock market. My home equity is almost $80,000. I paid just over $100,000 for the house and it’s worth around $150,000 today. My mortgage balance is about $70,000. If I refinance for $120,000, will I owe tax on the $20,000 loan balance exceeding my purchase price?
A–No. Home mortgage money is tax-free. There is a very good reason why. Since the money is a loan that must be repaid, it would be unfair to tax it as income.
Being able to periodically refinance and receive tax-free cash is another benefit of home ownership. However, I do not think it would be smart to refinance and withdraw cash to invest in the risky stock market. Please reconsider.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
