On homes and real estate: Low down payment

Posted2/4/2012 12:01 AM

Q. How can I purchase an investment property without putting 20 percent down? I currently own my home.

A. These days, lenders are being extra-careful, and they do require substantial down payments on second homes and rental properties. But I can think of several ways you could buy without meeting their standards:

• If you can, buy for all cash.

• If you can, borrow on your present home.

• If you can, find a property owner who is willing to hold a private mortgage for most of your purchase price.

That last is not impossible. A real estate broker might help you locate, for example, an older investor who is tired of being a landlord. Sometimes it's to a seller's tax advantage to receive the purchase price over a period of years. If your credit looks OK and you make a good impression, a private mortgage sometimes suits everyone's needs.

Q. Unfortunately, the real estate market is not getting any easier. Here's the video story of my client's last closing. Go to YouTube and look for "The FHA Fiasco." A few years ago, there would have been no problems with this buyer.

A. Many years ago, this column was the subject of a feature story in a national magazine because I was doing something revolutionary: inviting readers to contact me via something known as email. And now, another landmark: yours is the first story to come in via YouTube.

Several similar complaints came to me (but by email) just this week. Because banks got into so much trouble with careless lending practices in the past, they are now extra careful to follow FHA requirements. And one new procedure is that last-minute rechecking of all the borrower's qualifications.

Why your buyer needed co-signers, I can't tell, of course. But if you got all the way to loan commitment in just 33 days, that's actually pretty good. As they kept assuring you, it was really a piece of cake!

Q. Many years ago, I rented a house to a family on a land contract, where they were buying the property month by month. They have been faithful about it, and they will soon have it paid off. I have my original deed, and I would like to sign it over to them without a lawyer. Will this work?

A. Selling real estate is not like signing over the title to an automobile.

There is no piece of paper that is the title to a house. In real estate, the word "title" simply means "ownership." That old deed was a document by which someone transferred title to you. That's all it was good for, a one-time happening. You need to sign a new deed by which you'll turn over your ownership to that family. The document should be in proper order to be accepted for entering in your county's public records office, so don't try to do it yourself.

Q. If your mortgage is forgiven in 2012, is it taxable?

A. In the past, if you borrowed money and never paid it back, the IRS would say you'd had taxable income. But in consideration of today's difficult mortgage market, the IRS is continuing an exception through the end of 2012. If the mortgage was against your own main home, the forgiven debt will not be subject to income tax.

Q. For many years, I have owned a duplex, and I live on one side, but I'm about ready to move to senior housing. I have an opportunity to sell the house, and I'm wondering about income taxes on my profit.

A. Half of your profit -- the half that's attributable to your own apartment -- will qualify for the home seller's tax exclusion. You can take a profit of up to $250,000 (twice that if you're married and filing jointly) with no capital gains tax due.

You will owe tax on the other half of your profit -- the sale of the other apartment. Calculating your gain on rental property can be complicated, and you should use a tax professional.

But when you say you "have a chance to sell," I wonder how you're arriving at your sale price. Has the property been tested on the open market? That's the best way to determine its real market value. Or you may want to pay for a professional appraisal. Sometimes when a sale is too easy or too quick, you shortchange yourself on the price.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

2011, Creators Syndicate Inc.