DEAR BOB: We would like to buy a home in an area you would call the inner city. The seller has accepted our purchase offer, but we can't get a mortgage lender to close a loan there because no insurance company will insure our town house. Any ideas? Roberto M., Washington.
DEAR ROBERTO: Many insurance companies and agents are not aware that it is illegal to redline. Redlining means refusing to do business in certain neighborhoods.
A recent federal District Court decision in the case of Dunn v. Midwest Indemniity Co. held that insurance companies violate the Civil Rights Act of 1968 if they refuse to write insurance policies in all neighborhoods. However, the insurance company can charge higher rates in neighborhoods that have higher loss rations. Your attorney can further advise you.
DEAR BOB: As a mortgage loan officer, I take exception to your recent statement where you said now is not a good time to refinance home loans. While conventional mortgage money is tight and expensive, FHA and VA refinance home mortgages are available at 11 1/2 percent on 30-year terms, as of this writing. The loan discount points can be absorbed into the new mortgage. Refinancing with a VA or FHA home loan beats getting a new second mortgage, both in interest costs and monthly payment amounts. Richard B., Kensington.
DEAR RICHARD: Tahnk you for pointing out the merits of home loan refinancing with FHA and VA mortgages. Howewver, such borrowing is wise only if the borrower has a profitable use for the money, such as investments, paying off higher-interest-rate consumer loans, or other uses.
Refinancing is expensive today, but in most communities FHA and VA home loans are still available from mortgage brokers, banks and savings associations. Thank you for reminding us of FHA and VA loans.
DEAR BOB: The letter from the cab driver a few weeks ago got my attention. If a guy with a ninth-grade education can buy 12 properties, staring with a $6,000 investment in 1968 (although he said it would take $10,000 to start today), I figure I can do the same. I would like to buy a small house or condo. After a year, I would sell for $10,000 net down payment and take back a second mortgage for my profit. Then I would reinvest the $10,000 in another property, and keep selling and taking back second mortgages to build up a portfolio of second mortgages so I can retire on the income. I am 33 now and would like to retire by age 43. Is my plan reasonable? Betty E., Bethesda.
DEAR BETTY: Your plan is not only reasonable, but very feasible. Get started now. Inflation is your only enemy. The sooner you start buying, the sooner you'll benefit from the great inflation protection of good real estate investments.
DEAR BOB: We recently sold our old home for $96,000. After paying off the mortgage, we have about $37,000 cash left, now sitting in a money market fund earning about 12 percent interest. According to your articles, we have 18 months to buy another home if we are to defer our profit tax. We are thinking of buying a condominium. If we buy one for around $100,000 (1) will that qualify for the profit tax deferral and (2) shoud we reinvest the $37,000 cash in the condo. Marcie S., Washington.
DEAR MARCIE: (1) Yes. (2) No.
Any singe-family house, cooperative apartment, condominium, mobile home or houseboat that is your principal resident replacement can qualify for profit tax deferral if its purchase price exceeds the adjusted sales price (gross sale price minus selling costs) of your former principal residence and if it is bought within 18 months before or after the sale of your former home.
As home sellers are now finding out, it pays to keep your equity lean. Those who have a large mortgage find it is easy to resell their home today. But home sellers who have a small mortgage often find it difficult to sell unless they carry back part of the financing for the buyer.
In addition to easier resale, other advantages of getting the largest available mortage when buying a home include (a) repayment in cheaper, inflated dollars worth less than today, (b) maximum income tax dollar savings for the interest deduction, and (c) maximum profit per dollar invested when the home is eventually resold. At purchase time, it's best to get the maximum mortgage available and keep your cash for other investment opportunities.
DEAR BOB: If I prepay in 1979 a year's interest on my home mortgage, can I deduct the entire payment on my 1979 income tax return? Mr. K. C., Annandale.
DEAR MR. K.C.: No. Prepaid mortgage interest deductions are no longer allowed. They were invalidated by the 1076 Tax Reform Act. For details, see your tax adviser.