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Ask Realty Times - June 4, 2004
by Peter G. Miller
Question: My mom and I saw a house we really like -- it's perfect! The listing price is $749,000. My parents' annual income together amounts to around $50,000 -- they have $50,000 in savings and excellent credit. Can they buy this house? We expect to rent two floors at $2,000 a month. Answer: Let's say that you put down 5 percent and finance the rest. That means you would need $37,450 in cash -- PLUS more cash for closing. If you have a buyers' market you might be able to negotiate a contract under which the sellers pay some or all of your closing expenses. At a fixed rate of 6.50 percent, you would be financing $711,550. Over 30 years your monthly cost for principal and interest would be $4,498. You would also have to pay taxes and insurance. (Your interest rate would be somewhat higher than today's rate because you are looking for "jumbo" financing with little down.) If you received $2,000 a month for rent that would be great -- but what about vacancies? Lenders might give you credit for qualification purposes of $1,500 a month. Your folks earn $50,000 a year or $4,167 a month -- before taxes. If we allow 30 percent of their monthly income for housing costs, that's $1,250 a month. Add $1,250 plus $1,500 and you get $2,750 a month. But, your parents may have another asset: Equity from the house in which you now live. If the equity is large enough, it may be possible to move up. However, without substantial equity the loan amount and monthly payments are so great that the home would be an impossible financial burden. So ask your parents about the equity in their home after marketing expenses and speak with lenders in your community. Question: My husband and I had filed for bankruptcy little over a year ago. The plant where my husband worked for six years as a supervisor shut down and we got so far behind on our bills that there was no catching up. Now he has a great job. We have purchased two acres of land on a land contract, but were trying to get a loan so we can put a manufactured home on it and combine both payments together. What is the best way to do this? Answer: You and your husband ought to be congratulated for getting back on your feet. Your next job is to speak with every lender you can find. You want a loan of sufficient size to pay off the land contract and also pay for a manufactured home. In your favor you now have a solid monthly income, a reason for bankruptcy which was not caused by poor spending habits or credit abuse and some time to re-establish good credit. If you have savings or equity that will greatly help. Find a lender you like and have your credit report checked. Look into constructing a modular home rather than a mobile home -- financing may be much easier and the interest rate may be lower. Question: An owner in a community has constructed a ramp to provide wheelchair access for a family member. She has been told she could be fined by the community for not obtaining prior approval for the ramp. Can they do this? Answer: Community organizations often have substantial authority with regard to external construction and cosmetics. One might ask: Does anyone believe that a ramp is not a "reasonable accommodation" for someone who uses a wheelchair? Does the Americans with Disabilities Act apply in this situation? It may be that the association is simply saying "the ramp is not a problem but for purposes of administration please fill out our forms." If that's it, if it's only a bookkeeping concern, then fine: Fill out the forms, keep the ramp and there's no need for the matter to become a larger dispute. Question: We were first-time buyers last year and now it looks like we'll be first-time sellers in the coming year. Prices have slowed in our community and if we sell we may face a loss. We also have a 5.3 percent loan which we hate to give up. Can we avoid a loss by selling so quickly? Answer: Given the low mortgage rate, see if it makes any sense to rent the property. This may prevent a loss in the short-term and provide income to cover ownership costs. However, if values rise and you have not lived in the home for two of the past five years, then profits may be taxed as capital gains. See a tax professional for details -- and speak with local brokers regarding the rental market. Question: What happens in a situation where borrowers are approved, a loan is funded, the three-day rescission period passes and the lender says it will no longer provide a loan because of rising rates? Answer: If the rescission period has ended does that mean a settlement was held? In this case, the borrowers will call a local attorney who specializes in real estate matters. The lawyer will review the paperwork received by the borrowers and go from there. If the facts and circumstances warrant, the lawyer will contact state or federal lending regulators as well as the nearest court to seek damages and remedies. Question: How much money can parents give to children to help them with the purchase of a home? We want to help our daughter and her husband purchase a house. Answer: Under current tax rules you -- as one donor -- can give $11,000 to your daughter and $11,000 to your son-in-law each year without paying a gift tax. Your husband -- another donor -- can do the same. That means the two of you can give $44,000 (4 x $11,000) annually. For details, see the IRS gift information page and speak with a tax professional.
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