Ask Realty Times - December 17, 2004
by Peter G. Miller
Question: We bought a new home and received a $5,000 incentive to finance through the builder's lender. The only problem is that they don't publish their rates because they say they're not a large lender. We are left to believe whatever rate they tell us daily. The rate they offer is slightly higher than other lenders but with 0 points. Are lenders required to publish rates regardless of the size of their company? Answer: "The Truth in Lending Act," says the Federal Trade Commission, "requires lenders to give you written disclosures of the cost of credit and terms of repayment before you enter into a credit transaction." Because there are no points at closing you're paying a somewhat higher rate -- that's a trade-off many borrowers find valuable. The loan rate likely is "floating" and not locked-in and the closing date has not been established so the lender does not know what rate will be available. Ask the lender if the rate can be locked-in. If it can, ask if there is a "float-down" feature in case rates fall after the lock-in. Question: We paid off our $150,000 mortgage balance recently. The houses in our area are on the market for between $320,000 and $390,000. We were told by one of our neighbors that a few other neighbors are upset with us for doing this, because it dropped the value of the homes in our area. Is this true? Answer: No. If a home sells for $500,000 it means the owner gets $500,000 in cash at closing whether the home is owned debt-free or the sellers owe up to their eyeballs. The $500,000 is then reduced by closing costs, lien pay-offs, etc. Home values are determined by supply and demand. Easy financing and low rates create additional demand by expanding the pool of potential buyers. That a home is free and clear of all debt does not mean it is less valuable or more valuable in the marketplace. Question: I own a summer cottage. I am trying to sell this property. The cottage is part of a 50-cottage association. The association's constitution states that cottages must be purchased in cash. The cottages range from $20K to $50K. Do people have the right to apply for loans to purchase this property? Answer: By purchasing the cottage you agreed to abide by the association's rules. Thus, for example, you have a First Amendment right to paint your home a hearty puce as a matter of self-expression, but not if you live in a condo where the architectural committee disagrees. There are three issues to consider in your situation: First, a home financed with a mortgage is literally paid for in cash -- the cash comes from the lender. Does your association mean that they ban liens against the units? Second, by any chance is your "association" a cooperative and not a condo? If yes, it means the cooperative actually owns each cottage and you are merely a shareholder with an exclusive right to use one particular unit. The rules for financing real estate and stock are different. Third, if the association really bans anything other than cash purchases they may want to re-think their position: Co-op shares can be financed and by allowing debt purchases more buyers would be attracted to the property -- and thus values would likely rise. Check the local property records to see if any liens are now outstanding against units in the association. Question: My boyfriend has this elaborate plan to buy an apartment complex and try to make money on it. He is 21 years old, is still living at home and makes around a $100,000 a year. I am trying to convince him to buy a home for himself first and then venture out into the real estate world. He doesn't take what I say seriously because I am younger, but I have done some extensive research and believe I know what I am talking about. What would be the best decision for his future? Answer: Given that your boyfriend is 21, living at home and making $100,000 a year perhaps there is much we could learn from him. That said, an apartment building is probably not a good first investment because such a property is complex to operate and hard to finance. An alternative is this: Buy a two, three or four-unit property and occupy one unit. That would allow the purchase to be financed with a low-cost residential mortgage. Monthly ownership costs would be off-set by rent and there would be a good opportunity to learn about real estate management. Later the property can either be sold or the owner's unit can be rented out. Question: If you lose your job does private mortgage insurance cover the monthly house payments until you can get a new position? Answer: Private mortgage insurance (MI) is required when a buyer finances more than 80 percent of a home purchase. The logic is that buyers with little down represent more risk than purchasers who have a big financial stake in the property. The beneficiary of an MI policy is the lender: If a home goes to foreclosure an MI policy assures that the lender gets back some or all of the outstanding loan balance. Last spring, one private mortgage insurance company began offering unemployment insurance at no additional cost to borrowers. The coverage lasts for the first five years of the loan. For details, speak with lenders. There is also a limited form of insurance which comes into play for homeowners who lose a job: unemployment insurance. In general terms, this coverage will make up to 12 monthly mortgage payments -- however it's important to ask questions about such policies. For instance, when does payment start? Are property taxes and insurance costs covered? Can you get coverage if you're self-employed? What is the cost? Etc. Insurance brokers can provide specific details. Question: When I moved into my Florida house the garage had been turned into another room with air conditioning duct work, paneling, carpeting, etc. I am thinking about converting the room back into a garage. Which is better from a property value standpoint? Having the extra room is great now, but come hurricane season it sure would be nice to have a place to put the cars. Answer: This is really a localized issue. Finished living space which can be used year-round is generally more valuable than garage space -- a view tempered by personal preferences, parking shortages in metro cores, parking regulations and other hassles. Speak with local real estate brokers and ask which approach would maximize the value of the property were you to sell.
This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought. | 
