On homes and real estate: Prequalified vs. commitment

Q. Can you please explain the difference between being prequalified for a mortgage and having a mortgage commitment?

A. When you have a mortgage commitment, the lender has agreed to make the loan you applied for in order to help you buy the specific house you’re already contracted to purchase. It’s pretty much the last step before closing, the day you finally become the owner.

I think you may be asking about the difference between prequalification and preapproval. Those usually happen before you even start looking for your house.

When you’re prequalified for a certain amount of mortgage debt, the lender has said, “It looks as if you could handle a loan of this specific amount.” There’s no real agreement to lend you the money, but you do have a dollar guide to use in your house hunting.

When you’ve gone through the more rigorous process of getting a mortgage commitment, you have a binding promise to lend you a certain amount. You can count on the loan. The only requirements will be that the property is worth enough to serve as security for the debt and that no last-minute changes occur in your employment or finances.

Q. My mother is going to sell her 1940s ranch house that has no grounded wiring to most outlets. If a home inspector pointed this out to a prospective buyer, would they care enough for it to affect the price substantially? I’m trying to decide if I should bring it up to code myself before listing.

A. Yes, a home inspector would pick up on outlets that weren’t grounded. But I can’t predict how a buyer would react. It’s not that expensive to have the work done. Get a couple of estimates from electricians, and you’ll be in a better position to decide.

Q. We inherited some farmland in 2004 and own it with three other relatives. The land has been for sale — cheap — since 2005 with no takers. There was a fund set up for tax payments on this land, but it is almost exhausted. The taxes seem high for vacant land.

What are our options in lieu of a tax lien when the fund runs out? Will a tax lien hurt our credit? None of us have enough money to pay the taxes on our own.

A. It’s my understanding that a tax foreclosure is against the land and not against the owner, and that it should not show up on your credit reports. But I’m not a lawyer or an accountant, so you’d better double-check.

Is the land in the hands of a broker? Has the asking price been regularly dropped? You say it’s “cheap,” but if it really were inexpensive, someone would have come forward and bought it by now. Has someone contacted the adjoining landowners to see if they’d be interested, and at what price?

Have you gone to the assessor’s office to protest that it’s assessed too high — with your failure to sell as proof?

That’s about all I can think of. Good luck to you.

Q. If I submit a full price/terms offer, can the buyer refuse the offer?

A. I think you mean “can the seller refuse.” Yours is a fascinating question, and there have been court cases about just that situation.

Some lawyers hold that listing a property for sale constitutes an offer. And if you accept it as is, you have a binding contract. Other lawyers point out that there could always be an out for the seller who wanted to refuse — you had stipulated an unacceptable closing date, for example. So, my answer is a firm “I don’t know.” Better ask your own attorney.

Q. My husband is 82 and I am 75. We have two married sons. Our house is paid for and worth about $100,000. We are trying to decide what to do to prevent the boys from paying a lot of taxes on the house when they inherit it. Any tips?

A. Federal estate tax rules are likely to change by 2013, so it’s difficult to plan with any certainty. I don’t think, though, that your sons would have any tax liability if they inherited your house and sold it, now or in the future.

As it stands today, they would get a new “stepped-up” cost basis for the property value — as of the time they inherited it. If they sold for about that amount, they wouldn’t have any taxable gain. Right now, this stepped-up rule covers up to a million dollars’ worth of profit, so it should more than take care of your house.

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 email her at www.askedith.com.

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