DEAR BOB: My father, age 75, is considering a reverse mortgage on his home. However, your letters always seem to be about $400,000 homes. His is worth only about $130,000. He will not be getting a lot of money. Is it worth it? What if he lives to be 85 or 95 years old? – Karen Z.
DEAR KAREN: Your father’s situation is ideal for an FHA reverse mortgage if he needs additional income. He can use the funds for added monthly lifetime income no matter how long he lives.
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Or he can use his reverse mortgage for lump sums for big expenses, such as a new roof or a new car. Perhaps he just wants a credit line for emergencies. Any combination of these three choices is available.
Senior citizens with expensive homes should also consider the higher-limit Fannie Mae and Financial Freedom Plan reverse mortgages.
To find a reputable reverse mortgage lender in your father’s vicinity, go online to www.reversemortgage.org. More details are in my special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
HOME SELLER UNLIKELY TO SUE BUYER WHO FORFEITED DEPOSIT
DEAR BOB: I decided to buy a home and made a purchase offer with a deposit, which was accepted. When I applied for the mortgage, my income was not enough. My mother agreed to be a co-borrower and signed the loan application. But she did not see the house before signing. When she finally inspected the house, she didn’t like it and refused to show up for the sale closing. The day before the closing, I notified the seller’s real estate agent. I understand the sellers will keep my deposit. Can they sue me because they already made a purchase offer to buy another house and put a deposit on it? Do I have the right to buy another house that I can afford? – Lidi M.
DEAR LIDI: That was an expensive lesson for you. It is very doubtful the sellers will sue you for breach of contract damages, especially since they are keeping your forfeited deposit.
I presume your purchase offer contained a contingency clause making your purchase contingent on qualifying for a mortgage. If it didn’t contain such a clause, your realty agent wasn’t looking out for your best interests. Be sure to re-read the contract. Maybe you are entitled to refund of your good faith deposit.
The reasons the sellers probably won’t sue you for breach of contract are (1) proving their exact damages is very difficult (especially if they find another buyer for their home), (2) most attorneys would not take such a case on a contingency because chances of winning are poor, and (3) keeping your deposit indicates the sellers accept that amount as their liquidated damages.
As for buying another more affordable home, you can go ahead and do so. But before shopping for a home, please get a written pre-approval letter or certificate from the actual lender. Just a mortgage broker’s pre-qualification letter means nothing.
However, a lender’s written mortgage pre-approval makes you a strong buyer because you’ll know what price range home you can afford without a co-signer.
HOME STEPPED-UP BASIS MORE IMPORTANT THAN $500,000 EXEMPTION
DEAR BOB: My dear husband passed away in July 2004. Our home is worth about $700,000. If I don’t sell by the end of 2004, I am told I lose the $500,000 home sale tax exemption. What should I do? – Julie B.
DEAR JULIE: Presuming you inherited your husband’s half of the house, you received a new stepped-up basis to market value as of the date of his death for at least 50 percent of the home’s value. If you live in a community property state, then you probably received a new stepped-up basis for 100 percent of your home’s market value.
This new stepped-up basis valuation is far better for you than rushing to make a home sale by the end of 2004 to take advantage of the Internal Revenue Code 121 principal residence sale exemption of $500,000.
As of Jan. 1, 2005, your exemption drops to $250,000 but you will have the new stepped-up basis benefit. For full details, please consult your tax adviser.
The new Robert Bruss special report, “Everything Homeowners Need to Know About the New $250,000 and $500,000 Home Sale Tax Exemption Rules,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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