DEAR BOB: Several times you've said it's wise to buy a home which the seller will finance. I've tried to find such homes here but it's very difficult. The agents say they don't have such listings. How can I find such a home? Marcus S., Annandale.
DEAR MARCUS: While a few listings specify "seller will help finance," most don't. Even the best realty agents never know for sure which sellers will help finance the sale.
The best way to get a home seller to finance your purchase is to make an offer which provides for seller financing. I've found it doesn't pay to ask the seller: "Will you take back a first or second mortgage?" A better approach is to write up your purchase offer providing for the terms of the seller financing you want.
Until a seller sees the full offer, including the amount of monthly payments he will receive, he usually doesn't realize the benefits of financing the sale. hBut when a seller sees an offer on the table providing for monthly payments on him of perhaps $300 or $500, that's when he often decides he could use that extra income. If your first seller financing offer doesn't get accepted, keep making similar offers on other houses until an offer gets accepted.
DEAR BOB: In a recent tax article about selling one residence and deferring the profit tax by buying a replacement, did I correctly understand that I don't have to reinvest even $1 from my sale into the replacement home? I'm thinking of selling and getting a 100 percent VA mortgage on my new home. Henry W., Washington.
DEAR HENRY: That's right. You can sell your principal residence and keep the tax-deferred cash if you buy a more expensive replacement within 18 months before or after the sale. Your tax adviser can explain further.
DEAR BOB: We plan to sell our home soon and retire to Florida. What is the best way to avoid paying tax on our sale? Jean W.
DEAR JEAN: Without knowing the full details of your sale, I can only list the major ways to avoid paying tax when selling your principal residence. Ask your tax adviser which one is best for your particular circumstances.
(1) The "residence replacement rule" is available to taxpayers of any age who sell their principal residence and buy another. If you buy a more expensive replacement within 18 months before or after selling your old residence, you must defer paying profit tax. If you buy a less expensive replacement, then your sale profit will be taxed up to the difference in the two prices.
(2) The "over-55-rule" $100,000 home sale tax exemption is avialable if you or your co-owner spouse is age 55 or older on the day of title transfer. In addition, you must have owned and lived in the principal residence at least three of the five years before sale and never have used this tax exemption for up to $100,000 of your sale profits before. If you and your husband are both 55 or older, you get only one $100,000 exemption per marriage.
(3) The installment sale method is available on the sale of any property, including your principal residence. To qualify, not more than 30 percent of the gross sales price can be received in the year of sale. The big tax benefit to the seller is spreading out the profit tax over the years of the buyer's payments, rather than being boosted into a high tax bracket in the year of the sale. The seller's security for the buyer's installment payments is a mortgage, trust deed or land contract. Retirees especially like installment sales due to the safe, high-interest income.
DEAR BOB: How long should I save the receipts involving our house? We bought it in 1951 and still have the closing papers in our safe deposit box. We also have the receipt for a swimming pool we installed about 12 years ago. Is three years long enought to save these receipts? Mrs. E. R. McLean.
DEAR MRS. E. R.: No. Save your receipts forever, even after you sell your home. If you use one of the tax deferral rules, you may need those receipts after you buy and sell your next home.
DEAR BOB: As a real estate broker, I find the realty business changing so fast it's hard to keep up. What do you think of the new proposed "rollover mortgages?" The look like a consumer fraud to me, or am I missing something? Mrs. E. R., Rockville.
DEAR MRS. E. R.: I agree that the proposed "rollover mortgages" are a consumer rip-off. The idea, proposed by the Federal Home Loan Bank Board, is basically sound. What is missing are adequate consumer safeguards such as a) a fair, objective standard for changing the interest rate every five years, b) no prepayment or due-on-sale-clause penalties and c) continued guarantee of availability of fixed-interest-rate home mortgages for borrowers desiring them.
At a recent press conference in Las Vegas, Jay Janis, chairman of the Federal Home Loan Bank Board, defensively answered my questions about rollover mortgages. He gave the impression such loans are great for lenders, but offer no borrower advantages. He talked as if he were running a trade organization for lenders but he apparently has forgotten his job is to protect borrowers, too.
Theoretically, rollover mortgage interest rates would be "renegotiated" every three or five years. But realistically, how much barganing power does the borrower have?
Many mortgage lenders already have variable-interest-rate mortgages available, yet many lnders don't use them because smart borrowers are re sisting them. The same thing will happen to rollover mortgages unless the borrower is given significant benefits over today's fixed-interest-rate mortgages.