DEAR BOB: My husband died a year ago and my children are encouraging me to sell my house and move to a retirement home. I don't want to sell as I'm very happy here, close to all my old friends. But the house does need some paint and repairs. At my age (83), in good health, should I spend about $3,000 for the repairs or should I sell? Helen M., Washington.
DEAR HELEN: Don't sell without a very good reason. Your home is your best inflation protection. Spending $3,000 for necessary painting and repairs would be a very wise investment. Unless you are unable to care for yourself, stay in your home as long as possible.
DEAR BOB: Thank you for encouraging us to buy a home. All our friends told us to forget about buying a house this year due to high mortgage interest rates. But after reading your recent article about bargains and seller financing, we started going to weekend open houses. Fortunately, we found a real estate woman who understands how to buy homes without getting an expensive new mortgage. She found us a modest-size house that we bought for only 10 percent down. The seller agreed to finance the balance on a 10-year "wrap-around mortgage" at 10 percent interest. Keep telling your readers to buy now. Here's my question. Is it true that we cannot deduct our closing costs for legal and title fees? Jergen M., Rockville.
DEAR JERGEN: Congratulations. Persistence pays when buying a home, as you found out. Anxious property sellers are offering outstanding financing terms, thereby creating excellent bargains. Now that you've bought your first property, why not buy another for investment? When mortgage money becomes affordable again, the bargains will disappear and sellers will again be in the driver's seat.
As for your closing costs, it's true legal and title fees are not tax deductible. They should be capitalized and added to the cost basis of your home. However, if you paid prorated portions of property taxes or mortgage interest, those costs are tax deductible. Your tax advisor has details.
DEAR BOB: We have always wanted to live in the country on a few acres of land. Our real estate agent recently found us a rural house that met our desires exactly. The seller accepted our purchase offer, which included a contingency clause canceling the purchase if we couldn't get a new mortgage. We applied at one bank and four savings and loans for a mortgage. All turned us down even though my wife and I have combined annual income over $42,000. With good income like that, isn't there some way we can buy this house we want? Jackson M., Wheaton.
DEAR JACKSON: Yes. But you probably aren't going to buy that house with the help of a new mortgage. Although you didn't indicate the purchase price of the property or the amount of your down payment, I presume you couldn't qualify for a new mortgage because your housing costs for mortgage payment and property taxes would be over 30 or 35 percent of your gross income. pMost mortgage lenders won't exceed those limits.
At interest rates of 16 to 18 percent, few prospective borrowers can qualify for a home mortgage. For example, at 17 percent interest a 30-year $90,000 home mortgage has a monthly payment of 1,283.11. That same loan at 12 percent interest (obtainable just a few months ago) has a more affordable $925.76 monthly payment. While you could easily qualify for a loan at 12 percent, the 17 percent interest rate is beyond your range.
Your best alternative is to go back to the property seller, explain mortgages are virtually unobtainable and ask the seller to carry the mortgage for you. Such mortgages can be excellent investments for the seller and, if less than 30 percent of the gross sales price is received in the year of sale, the seller can get installment sale tax benefits too.
If the seller refuses to take back the mortgage for you, since your offer wisely included a financing contingency clause, your deposit must then be refunded.
DEAR BOB: I've been reading your articles about the difficulty people are having selling their homes due to the mortgage money shortage. While you say this is a good time to buy, because of the terrific financing terms sellers are offering, does this mean today is a bad time to sell? Dave F., Oxon Hill.
DEAR DAVE: Not necessarily. Home sellers can get top dollar if they are willing to carry all or part of the buyer's mortgage financing. But if you need an all-cash sale, today is a horrible time to sell.
By offering financing, you can get high interest rates and good terms for your home. Contrary to popular myth, there are buyers available. But it's definitely a "buyer's market" so package your house attractively to get it sold in today's market. Of course, list with the best realty agent in town to maximize your sale benefits.