DEAR BOB: We want to buy our first home but are having trouble qualifying for a mortgage. Our agent found us a two-bedroom house that would have been perfect. We offered a 10 percent cash down payment. The offer was conditional upon our getting a new first mortgage for at least 75 percent of the sales price and the seller taking back a second mortgage for the remaining 15 percent.

Every bank and savings and loan in town turned us down. They said our total monthly payments would take almost 40 percent of our income. I know this is high, but my wife and I have few other expenses and our incomes should go up at least 10 percent this year. Is there any way we can buy a home? Lennie R., Rockville.

DEAR LENNIE: Yes. There are dozens of ways to buy a home with little or no cash. But forget about getting a new mortgage from a bank or savings association -- their interest rates are too high and their qualifications rules too inflexible. Instead, let your seller provide your financing.

First, work with an agent who understands creative finance. Ask the agent if he or she has read Robert Allen's best-selling book "Nothing Down" (published by Simon and Schuster). It details more than 50 creative ways to finance your home purchase with little cash.

Second, look at houses and condos with big, existing assumable mortgages. VA and FHA mortgages are assumable without change in interest rate. Try to find a motivated seller who will take back a big second mortgage to help finance your purchase.

Third, don't worry if your monthly payments take up to 40 percent of your income. While that's higher than is normally recommended, with your rising income and small expenses, stretching your budget temporarily should prove worthwhile and profitable.

For a year or two, you may have to take your vacation in your new home, drive an old car and forget about buying new furniture. But as your home appreciates in value, that equity increase will more than compensate for your sacrifices.

DEAR BOB: Mhusband wants to retire on next April 1. But according to the IRS and our lawyer, he can't. Since we will then have only lived in our home for three years, they say we can't qualify for the $100,000 home sale tax break. But your recent article implies that we don't have to own our home for five years to qualify. Please explain. Claire H., Fairfax.

DEAR CLAIRE: To qualify for the "over 55 rule" $100,000 home sale tax exemption, you or your co-owner spouse must (1) be 55 or older on the title transfer date, (2) have owned and lived in your home at least three of the five years before sale and (3) never have used this rule before.

Internal Revenue Code 121(2) says you qualify if "during the five-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as his principal residence for periods aggregating three years or more."

Please notice that there is no requirement for five years of ownership, as is commonly misunderstood. If you have owned and lived in your home for the last three years before sale, you can qualify. For more details, find a new tax advisor. It appears your lawyer doesn't fully understand this tax law.

DEAR BOB: Two years ago my parents paid $124,000 cash for their Florida condominium. Due to high medical bills, most of their savings have been used. The local banks won't loan to them on a mortgage because of their low income. Any ideas? Mary Jane K., Annandale.

DEAR MARY JANE: I repeatedly suggest that home buyers, especially retirees, conserve cash for investments and emergencies by getting the biggest mortgage available. As your parents have found out, it's often difficult to borrow later when a financial need arises.

I suggest that your parents contact mortgage brokers in their area. These lenders often have less demanding loan standards than do conservative banks and savings associations.

DEAR BOB: In a recent article you mentioned the value of "installment sale tax benefits." Please give details. Palmer MacD., Washington.

DEAR PALMER: Installment sale tax deferral can be a major benefit of selling property. The big advantage is the seller's profit is spread out over future years, thus avoiding a boost into a high tax bracket in the year of sale.

Other installment sale advantages include (1) easy, quick sale (since no outside financing need be obtained by the property buyer), (2) top dollar price due to the built-in financing offered to the buyer and (3) excellent, safe income at a high interest rate, secured by a first, second or third mortgage on the property being sold.

To qualify for installment sale tax deferral benefits, the seller cannot accept more than 30 percent of the property's gross sales price in the year of sale.

The buyer's down payment plus any principal payments made to the seller in the year of sale on the installment mortgage counts toward the 30 percent limit. In addition, if the buyer takes over an existing mortgage that exceeds the seller's adjusted cost basis (book value) for the property, this "excess mortgage" counts, too. For further details, see your tax advisor.

DEAR BOB: My parents plan to retire and move here. Can they live rent-free in a rental house I own (with me absorbing the upkeep) as long as I don't declare the property as income property? Thomas T., Washington

DEAR THOMAS: The Irs is on the warpath against family and below-market rate rentals. The general rule is that mortgage interest and property taxes are always deductible. But for family and below-market rentals, any excess deductions exceeding rents collected are disallowed.

In other words, you couldn't deduct depreciation if you aren't collecting rent from your parents, but interest and taxes for the rental house would still be tax deductible. For details, see your tax advisor.

DEAR BOB: Our home has been for sale since April. The agent has presented us with two purchase offers, but both provided for us to carry back a large second mortgage for the buyer. We couldn't do that since we need $40,000 cash for another house we have already contracted to buy. Our existing VA loan is assumable. How can we get a cash sale? Lannie O., St. Charles, Md.

DEAR LANNIE: Few all-cash home sales are being made today. It's much easier to make a sale with seller financing. Even though mortgage interest rates have dropped, it is still difficult for most home buyers to qualify for a new mortgage.

Although you didn't give the price of your home, if it is below $125,000, you might consider advertising it with GI financing. You would have to pay the loan fee for the buyer's new VA home loan, but it would give you an all-cash sale.

To get your home sold, you've got to wrap it in an attractive financing "package." Here's one that might solve your problems.

Suppose your house is worth $100,000. Have your agent offer it as follows: (1) seller to obtain a refinanced first mortgage for $75,000, (2) buyer to pay $15,000 cash down payment and (3) seller to take back a $10,000 second mortgage. Be sure that the first mortgage is not due upon sale. The cash from refinancing the old mortgage, plus the buyer's down payment, will probably give you the $40,000 cash you need.

You may be able to use that small second mortgage as part of your down payment on the house you are buying. If necessary, you could probably sell it at a discount to raise cash. To get your home sold, work with a real estate agent who understands creative finance, because that's how houses are sold today.

DEAR BOB: We own an old house which was rented to the same tenant for 14 years before he finally moved out. Now we want to sell the house. But it needs considerable repair work which would cost at least $4,000. Would it pay us to spend this money before putting the house up for sale or should we let the buyer do the repair work? Alred M., Washington.

DEAR ALRED: Fix-up houses appeal to a very limited market of potential home buyers. Most home buyers want a house in tip-top condition. If your house is basically sound and in a good location, spending the $4,000 for its repair will probably return many times that cost in added sales price.