DEAR BOB: We made a $1,000 earnest money deposit on the purchase of a home. The realty agent assured us that getting a new mortgage was no problem. It was. We couldn't qualify so we lost the $1,000. Is this tax deductible? Norman V., Annandale.

DEAR NORMAN: No. Forfeited deposits on the purchase of your personal residence are not tax deductible. However, if you were buying the property as an investment, then the forfeited deposit is tax deductible as a business expense. For details, see your tax advisor.

P.S. Next time, be sure to include a mortgage contingency clause in your purchase offer so your deposit will be refunded if you can't quality for a mortgage.

DEAR BOB: When do you think home mortgage interest rates will drop back to affordable levels? My wife an I want to buy a home but there is no way we can qualify for a new mortgage at today's outrageous interest rates. Joel D., Washington.

DEAR JOEL: Mortgage interest rates are unlikely to drop much anytime soon. There are too many upward interest rate pressures, such as the millions of dollars of T-Bill and "jumbo" certificates at 12 to 17 percent interest issued by savings associations, the nation's largest home loan lenders.

Home buyers and home builders are bearing the brunt of the nation's credit crunch. Little is being done to change this. The solution won't occur, in my opinion, until Congress exempts savings accounts from taxation, thereby creating affordable mortgage money availability.

But don't let this bad news stop you from buying a home today. Thousands of people buy homes daily. They are getting some fantastic bargains, usually by using "creative financing" ideas suggested by their real estate agents. If you wait to buy until new mortgages become more affordable, you'll find home prices rapidly rising due to increased buyer demand then.

Working with a good real estate agent, you can buy a home now without having to get a new mortgage. Ideas to consider include (1) lease now with option to buy later, (2) land contracts (called contracts for deed, contracts of sale, installment land contracts, and agreements of sale in some states), (3) wrap-around mortgages, financed either by the seller or a conventional lender, (4) seller financing on a second mortgage and (5) purchase of a new home with a below market interest rate mortgage arranged by the builder.

DEAR BOB: We are thinking of investing $10,000 to buy a home where we would eventually like to retire. The seller is willing to carry the rest of the financing on a "wrap-around mortgage." His old VA home loan is paid down to only about $18,000. Since we can't move into the house for at least two years, do you think we should buy now and rent the house to tenants? Homes in the area have gone up in value about 15 percent per year, but I'm worried they will appreciate only 10 percent this year. John G., Fairfax.

DEAR JOHN: When buying a home, look at it as an investment. Although you didn't indicate the value of the home you are considering buying, let me presume it is only $50,000. If it is higher, the figures come out even better.

Suppose you buy for $10,000 down with a $40,000 wrap-around mortgage for the balance. If the home appreciates in value 10 percent in the next year, you'll have a $5,000 "profit." That's a 50 percent return on your $10,000 investment. Where else can you do so well? Buy now before more people realize homes are still the best investment.

DEAR BOB: We sold our home in 1979. We would like to buy several acres out of state at a more expensive price and purchase a mobile home to live in on the property. Would this satisfy that IRS "residence replacement rule?" Susan D., Alexandria.

DEAR SUSAN: Probably, but you should consult your tax advisor for details.

As you know, the "residence replacement rule" requires that to defer paying your profit tax from the sale of your principal residence, you must buy a more expensive replacement within 18 months before or after the sale. Mobile homes, condominiums, cooperative apartments, and even houseboats can qualify. Included in the purchase price can be a "reasonable amount" of land surrounding the principal residence.

If you bought a 100-acre farm, the value of the farm land wouldn't count toward the purchase price of your replacement residence. But the cost of a few acres probably could. Each situation depends on its facts so consultation with your tax advisor is essential.

DEAR BOB: We used to live in Washington, where we first started reading your articles. About five years ago, you suggested that people buy one or two investment properties each year. We took that suggestion and scraped together enough cash to buy six properties in the last four years. I thought you'd want to know that we just completed the sale of these six properties, plus our home, and are now happily retired in Florida. We got top dollar for all these properties, made quick easy sales, and will now have excellent secured retirement income from the mortgages we carried back. Thanks for helping make our retirement possible. Jake M., Naples, Fla.

DEAR JAKE: Thank you for sharing your success. While you owned your properties they probably gave you excellent tax shelter for all or part of your otherwise taxable ordinary income. Now in your retirement years, the mortgages should give you a secure income. Congratulations on your successful results in such a short time.