Real Estate Questions and Answers

Ask Realty Times
by Peter G. Miller
Realty Times


Question: Is it possible to buy a house that costs $570,000 with a 5 percent downpayment? I have excellent credit. What other requirements would I need to buy a house using a 5 percent downpayment. Is it worth it or should I save for a bigger downpayment.

Answer: It's entirely possible to buy a house with 5 percent down and even nothing down -- but the downpayment is only one part of the transaction.

Imagine that you bought with 5 percent down ($28,500). You would instantly need additional funds for closing, moving, etc.

Your mortgage would be $541,500. At 6.5 percent interest over 30 years the monthly cost for principal and interest would be $3,423 a month. Taxes and insurance would be extra, as would repairs and utilities.

So, while you might have excellent credit, do you have enough dollars each month to comfortably carry such an expense? If yes, is this the house you really want?

Question: I found a home that's very cheap. It's advertised as having two extra bedrooms upstairs. These bedrooms have no heating ducts or built in closets. Can they advertise these spaces as two bedrooms?

Answer: A home with radiators, radiant floors or baseboard heating would have no heating ducts. Older homes which are sold today often do not have closets. The real test for a bedroom is whether it meets building code requirements: Usually that means it's a contained space (not a passageway) with privacy and a window. There may be a requirement that the window must be a given number of inches above the ground. For details, speak with the local building inspector.

Question: Do you think housing sales in high-cost markets has peaked because of all the interest-only loans out there? I think there are a lot of sellers and less buyers now because all the buyers bought during the boom and now need to sell because the interest-only portion of their loans run out. Do you think this is correct?

Answer: Interest-only loans have increased the pool of potential buyers by allowing individuals to acquire homes with financing that would not have been available several years ago. And yes, there are certainly an unknown number of buyers who will be forced to sell because they will not be able to afford higher payments as such loans become self-amortizing.

However, I do not think we have seen the impact of these loans yet. Relatively few are old enough to require self-amortizing payments. In the next few years however, a visible percentage of owners with interest-only and option ARM financing will face steeper monthly costs as their loans begin to require self-amortizing payments. As more interest-only and option loans convert to self-amortizing status, I expect that a significant number of borrowers will begin to offer their homes for sale. Those additional homes on the market will increase supply while financial sanity in the mortgage field will reduce the number of interest-only and option ARM originations, thus reducing demand.

Some lenders vehemently disagree with this view; and for everyone's benefit let us hope they are right.

Question: I need to know what I need to do before going ahead and buying a house. How many credit cards should my husband and I have between us? Our credit is good. We pay everything on time and a little more on the amount due than they ask. Should I get rid of some of our cards? Between us we have 10 credit cards, the highest credit limit we have is $700. What should we do? Do I have to close any of our accounts or just have zero balances?

Answer: You do not need zero balances -- but given the hideous interest rates charged by credit card companies zero balances make the most economic sense.

Do you really need 10 credit cards? If not, dump the ones you don't use and pay down (or pay off) the rest.

Also, do you have a growing level of savings? If not, then you can be assured you're spending too much.

Question: We have been having problems with the neighbors about their diseased trees. They're planning on selling their house and we think they will be passing the tree problem onto the new owners. Must they disclose the condition of these trees to a potential buyer?

Answer: Are the trees visibly damaged? That is, can buyers plainly see the trees and their condition? Do the sellers think the trees are diseased?

As a condition of the transaction, buyers looking at the trees may want to obtain an inspection by a professional which must be satisfactory to them. You can send a letter by certified mail to the owners asking that the trees be examined and noting that you'll hold them responsible for any damage to your property if the trees come down -- but don't expect to be invited to the next block party.

Question: Is negative amortization tax deductible?

Answer: Negative amortization is deferred interest added to a loan's outstanding balance. Until it's paid, it's not deductible. As the IRS explains, "Generally, home mortgage interest is any interest you pay on a loan secured by your home."

For details, check the Form 1099 sent by your lender and see a tax professional.

Question: Two people, "A" & "B," want to buy a condominium for investment. "A" agrees to put up most of the down payment, which will be one third of the total sales price. Since "A" lives outside the country, "B" will manage the closing, find a tenant, collect the rent, and manage the investment every year and pay any cashflow shortage. What's an appropriate way of apportioning the ownership between "A" & "B"? Is 50-50 fair? What if "A" only puts up 20 percent of the purchase price as the down payment?

Answer: There is no "fair" split. This is all negotiable. Whoever wants the deal more gets less.

Question: I'm trying to get an appraisal on one property that has two separate homes. The problem is that the appraiser says that I cannot use the second home as part of the appraisal. If the property has two homes why wouldn't the appraisal reflect that?

Answer: The value of property is determined by the land and the improvements on the land. It's hardly unusual for one property to have two houses -- think of a farm or a suburban home with an accessory apartment over a detached garage. Please speak with another appraiser.

Question: I listed my home with a broker four months ago. One week after it was listed we had an offer from clear across the country. We negotiated, agreed on a price and signed a contract with a contingency which required the sale of their house and some repairs to our property.

The catch: The sale of the buyer's house fell through, so we granted an extension. After one month, we granted another extension with a kicker clause that said they were out if we got another buyer.

So we got a second buyer who wanted us to make some repairs to the air conditioning system. We said yes -- but now find that the repairs will cost us some $10,000.

So, the first buyer gets back his deposit, the second buyer gets a $10,000 discount and the brokers all get their fees. We already know we made a mistake in investing in a new property, when we had not closed on our home.

We are the losers, not the real estate brokers, and not the buyers. Where is the protection for us as sellers? We went with a real estate broker instead of going "for sale by owner" for the "protection" element of listing with a realty professional.

Answer: Who says you would not have done worse if you had attempted to sell by yourself?

What you seek is a guaranteed result but there's always risk in the marketplace. You took a risk by accepting and then extending the agreement with the first buyer, you took a risk by buying a replacement property when the first one had not closed and you took a risk agreeing to repairs without a cap.

It may well be that your local market or your particular property made the offer from the first buyer attractive. In many markets, however, a contingent offer from a distant buyer would have been treated differently: Either it would not be accepted or there would have been a 72-hour kick-out clause required from the start.

Published: March 3, 2006