A. I have bad news. Your taxable profit will be the $130,000 difference between your $220,000 adjusted (net) sales price and your $90,000 adjusted cost basis. To make matters worse, you have an ``excess mortgage'' of about $70,000 ($160,000 minus $90,000) which is money you received when you refinanced, but you will owe tax on it at the time of sale.
Although you may save money by renting an apartment, the huge $36,400 tax of at least 28 percent on your $130,000 profit, considering you will only receive about $60,000 of net cash from the sale, makes the sale of your home without buying a qualifying replacement an undesirable situation. Before you sell, please consult your tax adviser.
Q. I owe about $7,000 on my auto loan, $14,000 on various credit cards and around $12,000 on a personal unsecured bank loan. My home mortgage is at 9.75 percent fixed interest, but I have about $60,000 equity in my residence. Do you think I should refinance my first mortgage or get one of those home equity loans to pay off my various little loans?
A. You have a very desirable first mortgage, so I would leave it alone. A home equity credit line could serve you well. You can use it to pay off all your personal loans. Since the total is well below the $100,000 home equity loan limit, you will be able to deduct the interest from your federal taxes. The nice thing about home equity credit lines is you get a checkbook and can borrow or repay as you wish.
Q. I am supposed to close the purchase of my first home next month. A mortgage broker quoted me a 10 percent fixed interest rate, 95 percent mortgage, which sounded good. Like many yuppies, I have good income, but virtually no savings for a down payment and closing costs.
However, last week the mortgage broker called to say the interest rate on my mortgage is now locked in at 10.75 percent, but he could only get me a 90 percent loan, so I will have to come up with an extra 5 percent down payment.
What recourse do I have against this dishonest mortgage broker who assured me I would have no trouble qualifying for the original 95 percent mortgage at 10 percent interest?
A. Welcome to the game of bait and switch. Unfortunately, it is very skillfully played by some mortgage brokers who quote attractive loan terms and then tell the borrower, shortly before the scheduled closing date, that the promised loan is not available.
Lenders like yours give mortgage brokers a bad reputation. Unless your original loan terms were quoted by a mortgage lender, the loan broker's promise was worthless. Mortgage brokers are middlemen between borrowers and lenders. Some are very, very good. Others, like yours, are very, very bad.
A. Maybe. Your first step should be to get a copy of the life estate document. It might specify the life estate terminates if the resident vacates the house. I'm sure you are aware the life estate ends when the life tenant dies. Although he is only 42 and has a long life expectancy, when he dies, your rights to use the home would terminate. He could have a heart attack or die in an auto accident any day so don't pay too much.
Paying just $10,000 for his life-tenancy rights could be a bargain if you can rent the house for a substantial rent. Chances are, you are the only interested buyer for that life estate so don't be afraid to bargain hard. You might also want to contact the remainderman to see if you can buy out his rights which have very little value until the life tenant dies. Once you own the life tenancy and the remainder interest, you own the property. Ask a real estate attorney to explain further.
