On homes and real estate: Financing mortgage as a seller a risky investment

Q. What are the pros and cons of holding a mortgage on a house I’m selling?

A. Pros:Ÿ Your property may sell more easily because buyers are attracted to #147;seller may finance.#148;

Ÿ Your buyer will save on many of the closing costs associated with an institutional mortgage.

Ÿ The building won#146;t have to pass a bank#146;s inspection or appraisal.

Cons:

Ÿ Will borrowers make the monthly payments? Why do they want to find seller financing? If they can#146;t qualify for a regular institutional loan, should you take a chance on someone that banks consider too risky?

Ÿ If you had to foreclose, there#146;s no telling what shape the house would be in if you got it back. You don#146;t know how much your legal expenses would be, how long the occupants might remain there without paying or how much in back taxes might be owed.

Ÿ Perhaps, the money you#146;ll have permanently invested in that mortgage could earn more elsewhere when rates go up in the future. Right now, they#146;re pretty low.

Ÿ If the property presently has a mortgage, you#146;ll have to pay that off in cash when you sell.

Depending on your situation, some other considerations could be good or bad:

Ÿ You#146;ll have a fixed-income investment, collecting a specific amount each month. That may or may not suit your needs better than a lump sum.

Ÿ Your money will be tied up for many years, again that may or may not be a good idea.

Ÿ If you#146;re selling your own home and qualify for the home sellers#146; tax exclusion, you probably won#146;t owe any capital gains tax. Otherwise, you#146;ll pay tax on your profit #8212; bit by bit as you collect it each year. That may be better than one big hit. On the other hand, tax rates are likely to go up in the future.

Precautions to take:Ÿ Have your own lawyer and CPA help you analyze would-be borrowers#146; credit reports.

Ÿ Negotiate as large a down payment as possible. That cash represents some safety for the loan. Borrowers hesitate to walk away when they have their own money invested.

Ÿ Rely on your attorney to draw up the documents, but make sure the buyers use a lawyer, too.

Q. I will be paying cash for a little central Florida duplex. I do have an agent working on this. Once the inspection is approved, the bank wants to close on Feb. 21. Is this date #147;written in stone#148;? I intend to be there, but I can#146;t be there by the 21st. Also, if it has to be Feb. 21, can this be done by mail?

A. I haven#146;t seen your documents, but with most sales contracts, the closing date is simply a target. Florida real estate agents and banks must be used to dealing with out-of-staters who need to adjust travel dates or set up long-distance settlements. I#146;m sure they#146;ll arrange things for your convenience.

Q. I bought my home in 1978. In looking through my papers, I can#146;t find my certificate of occupancy, which would have been issued in 1978. Is it important that I retain this document? And would it be required if I ever sold the home?

A. The local government issues a certificate of occupancy after its building inspector finds the property meets standards and is fit for human habitation. In some areas, it#146;s required for the selling of a multiple dwelling, while it#146;s required for every residential sale in other places. Just about everywhere, it#146;s needed before a newly constructed house can be occupied.

In any event, a new one would have to be issued after a fairly current inspection. No point in worrying about an old certificate of occupancy, which would have long since expired.

Q. We need help in deciding if we should add on to the house or remodel using the existing space. We plan to sell in five years, and we need advice on how to improve our house and get the best price out of it when we sell.

A. Few improvements actually pay for themselves at resale, and no one answer is right for every situation. I#146;d need to know how your house presently compares with its neighbors, just what you#146;re planning, how much it might cost and the like.

You#146;ll get better information by tapping the expertise of local real estate brokers.

Don#146;t hesitate to call a few nearby firms and ask for free advice.

Most agents welcome the chance to offer services and make friends.

Ÿ Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.

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