Q–My wife and I are debating whether to buy a new home in early 1998 or wait to see if mortgage interest rates come down later. Are you predicting home loan interest rates will go up or down in 1998?
A–Sorry, I don’t predict mortgage interest rates. But I do listen carefully to what economists anticipate for interest rate trends.
The consensus seems to be that home loan interest rates will stay steady or possibly go down slightly in early 1998. That means today is an excellent time to buy a home. Mortgage rates are extremely affordable, so there is no advantage in waiting to buy. If interest rates should plummet, which I doubt will happen, you can refinance.
Winter is a great time to buy a home in most towns (except winter resort areas, of course), since competition from other buyers is lowest. Thus, the prices are low. The worst time of year to buy a home, but the best time to sell one, is in the spring, when buyers come out of winter hibernation.
To summarize, mortgage interest rates make home buying extremely affordable today, so there is no advantage in waiting to buy your new home.
Q–Last September, I started renting two bedrooms in my home to two wonderful college boys. They each pay $75 per week and help out with household chores. I’m a widow, so the income helps me pay expenses. Do I have to declare this income to Uncle Sam and file income tax returns?
A–Since you receive rental income for more than 14 days per year, those rents are reportable on Schedule E of your federal income tax returns. However, you can deduct some household expenses, such as part of your utilities, insurance, property taxes, mortgage interest and repairs, which apply to the rented rooms.
Depending on your total annual taxable income, however, you might be exempt from filing income tax returns. Please consult your tax adviser to determine if the rental income requires you to file income tax returns.
Q–I’m new to this home buying game. Who determines the sales prices of homes? Is it the Realtors? Appraisers? Someone else?
A–Superb question. The market value of real estate depends on recent sales prices of comparable properties. For houses, that means recent selling prices of similar neighborhood homes.
Most appraisers and home buyers adjust the comparable sales prices to a per-square-foot market value. To illustrate, suppose a 2,000- square-foot home sold for $200,000. That’s $100 per square foot. If you are considering buying a similar nearby home of 1,900 square feet, it might be worth about $190,000.
Of course, value adjustments are made up or down, allowing for the pros and cons of each residence. Local market conditions and mortgage interest rates also play a role in determining market values. Until a home sells, its market value is only an estimate by the realty agent, seller and possibly an appraiser.
Once the home sells, after being exposed to the marketplace for a reasonable time, then its market value is determined by how much a buyer was willing to pay.
Q–My husband and I pay $1,475 for a very nice apartment. But we realize rent is wasted money. As you often suggest, we tried to get preapproved for a home mortgage with a mortgage broker. But my husband’s income fluctuates each year, since he is a commissioned salesman. I stay home with our 10-month-old baby girl. We have $45,000 for a home down payment and good credit. Any suggestion on how we can get preapproved for a mortgage?
A–One alternative is to apply with a more flexible mortgage lender. You may wish to go direct to a bank, S&L, or mortgage banker, rather than negotiating through a mortgage broker. Most mortgage brokers should be able to get you preapproved, but maybe yours wasn’t doing a good job on your behalf.
Since you have a substantial down payment for a home, perhaps if your parents or your husband’s parents co-sign on the mortgage, you can then qualify. However, most mortgage lenders require co-signers to also take title with the primary borrowers. Thankfully, not all mortgage lenders are the same. Your bank or S&L should gladly preapprove a mortgage, unless your husband’s income fluctuates wildly. Shop around.
Q–My father died about four months ago. I inherited his house and started making the mortgage payments. My son and I have moved into the house. A few weeks ago, the mortgage company contacted me. They refused to accept my mortgage payment because I changed the fire insurance policy into my name. They want me either to pay off the mortgage or pay a 2 percent mortgage assumption fee. Can they do this?
A–No. The federal Garn-St. Germain Act prohibits mortgage lenders from enforcing a due-on-sale clause when a one- to four-unit residence is inherited by a related owner-occupant.
Just write a polite letter to the loan servicer, explaining that you’re the daughter of the borrower and you inherited the house in which you now reside. Emphasize that federal law prohibits enforcement of the due-on-sale clause in your situation. Just to intimidate the loan servicer, ask for the name and address of their state or federal regulator. That should put an end to the lender’s threat. If necessary, consult a local real estate attorney.
Q–I’ve never seen my situation addressed in your column and hope you can help. My mother and father divorced about 15 years ago. The divorce agreement specified my mother is to have a life estate in the family home. When she dies, I am to receive it. She is now 84 and in excellent health. However, I’m having financial difficulties due to unemployment, illness and other problems.
Someday, I am to receive this free-and-clear house, which is worth about $450,000. I’ve asked my mother if she can help me out, but she can’t or won’t. I’ve approached several mortgage companies about borrowing on the house, but they all refuse to do so because of the life estate. Any ideas?
A–The obvious alternative is to sell your remainder interest to your mother. However, your letter indicates she has no interest in buying it. Frankly, if I were in her situation, I wouldn’t either.
Another alternative is to sell your remainder interest in the house, subject to your mother’s life estate. However, don’t expect to receive anything close to market value of the house, because investors in a remainder interest are few and far between. If you have sufficient income, perhaps an experienced mortgage broker can arrange a mortgage for you, probably from an individual lender.
Q–We’re considering buying a house that’s offered for sale “as is.” The Realtor says this means the seller, who is in a convalescent home, won’t make any repairs to this run-down property. But we are concerned about discovering any serious defects. When a home is sold “as is,” does the seller have to disclose the home’s defects?
A–The old days of “caveat emptor” (let the buyer beware) are long gone. Except in a few states, even when a home is offered for sale “as is,” the seller must disclose known defects.
As the Realtor correctly told you, an “as is” sale means the house is being sold in its current condition and the seller will not pay for any repairs. However, there are a few exceptions to the defect disclosure requirements, such as homes being sold by estates and foreclosing lenders. The very logical reason is that these sellers are not likely to be aware of the defects.
Rather than relying on the seller and realty agent to disclose house defects, your best protection is to make your written purchase offer with a contingency clause for your approval of a professional inspection report on the house within 10 days. After the seller accepts your offer, you can hire a professional inspector ($300 is a typical cost) to give you a complete written report on the house. Be sure to accompany the inspector to discuss any defects discovered.
If you don’t want to accept the inspection report, you can then cancel the purchase and get your deposit refunded.
Q–I am the executor of an estate involving 11 heirs. The major asset is a large, old house. It is in such bad condition no mortgage lender will finance it. We’ve had several offers, but they all failed because the buyers couldn’t get mortgages. I suggested to the 11 heirs, and they accepted the idea, that the estate finance the sale for the buyer with a 20 percent cash down payment. However, the estate’s attorney says this is illegal. Can an estate finance a home sale?
A–I’ve bought several houses from estates that carried back the mortgage financing for me. I’m not aware of any state that prohibits estates from financing asset sales.
I recall , for example, that when I was a little boy growing up in Minnesota, one of the big events for my mother each month was receiving a check for her share of the mortgage payment on her parents’ Montana estate home sale. She had six brothers and sisters who also received monthly checks. It was a sad day when the final payment arrived after 25 years and my mother realized she wouldn’t receive any more monthly checks for about $100.
Q–Several years ago we were visiting Florida and fell for one of those retirement home land promotion schemes. We bought a lot without ever seeing it because the roads weren’t in yet. Our monthly payment is only $119.
We recently visited our lot and decided we don’t want to build a retirement home there. We tried to deed the lot back to the developer, but were told that can’t be done. Local Realtors laughed at us when we asked if they could resell our lot. If we stop making monthly payments, will our credit be hurt?
A–Probably not. A few developers hound defaulting lot buyers, but most just want to foreclose and get the lot back to sell it again to another sucker. Check with a Florida real estate attorney near the lot to learn if there will be any adverse consequences if you default on the payments.
Q–Almost two years ago, my wife and I leased a house with an option to buy it for $127,000. We put down $3,000 and moved in. The house was a mess, so we painted it. But the landlord recently had the house appraised for $108,000. Now she says our $3,000 will not go toward purchase of the house. My wife and I really like this house, for which we have been paying $800 per month rent. The lease-option is almost up. How can we find financing to buy, or have we been taken? What recourse do we have?
A–I presume you have a written lease-option contract. The landlord can’t refuse to apply your $3,000 option money toward your purchase of the home.
Perhaps the landlord got an appraiser to make a low appraisal to discourage you from exercising your purchase option. If the house has actually lost market value, that was your risk. Had the house gone up in market value, then you would have profited.
If you qualify for a VA mortgage, no down payment is required. FHA home loans require 3 to 5 percent down payments. Fannie Mae offers 3 percent down payment mortgages. A local mortgage broker can explain your home finance alternatives.
Please consult a local real estate attorney if your landlord gives you difficulty exercising your purchase option or applying your $3,000 to the purchase price. Of course, if the home has really declined in value to $108,000, you certainly don’t want to exercise your $127,000 option. Details on lease-options are available 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.
———-
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.
