DEAR BOB: My wife and I can barely qualify for a home mortgage. We are immigrants and can’t believe after just three years in the U.S. we are on the edge of buying our first home. As you often suggest, we applied for mortgage pre-approval before looking for houses. The mortgage company offered us pre-approval for either an adjustable-rate mortgage or an interest-only mortgage (which has an adjustable interest rate). When we find a house we want to buy, which type of mortgage should we get? – Mario T.

DEAR MARIO: Congratulations on almost buying your first home after just three years in the U.S. Your situation shows how virtually anyone can buy his/her own home.

Purchase Bob Bruss reports online.

It’s amazing how you quickly discovered the home ownership opportunities here, whereas many U.S.-born residents complain they can’t afford to buy a home.

There is no right or wrong answer to your question. If you plan to stay in your first home less than 10 years, you might prefer an interest-only mortgage, which will keep your monthly payments at a minimum. Another advantage is 100 percent of your mortgage payments will be tax-deductible interest.

However, if you expect to stay in your home more than 10 years, then an adjustable-rate mortgage might be better because you will be gradually paying down the mortgage balance and slowing building equity from paying off your mortgage balance.

NO WAY TO “ROLLOVER” RENTAL HOUSE SALE PROFIT INTO HOME MORTGAGE

DEAR BOB: At age 76, I’m tired of what you call “tenants and toilets.” Over the last few years, I’ve been gradually selling off my rental houses. They were great investments, but now I’m ready to take life easy. However, I have one rental house left. But it’s a big problem. If I sell, I will have a capital gain about $200,000. My tenant wants to buy it and pay me all cash. How can I sell for cash, use that money to pay off my home mortgage, and not owe capital gain tax? – Maxie H.

DEAR MAXIE: Sorry, you can’t accomplish your goal without paying capital gain tax. Just be thankful the federal capital gain tax has been reduced to only 15 percent.

The only way to avoid capital gain tax on the sale of investment property is to make an Internal Revenue Code 1031 tax-deferred exchange. However, you said you are tired of “tenants and toilets” so an exchange isn’t right for you. My best advice is pay the capital gain tax and enjoy your profits. For more details, please consult your tax adviser.

The new Robert Bruss special report, “Pros and Cons of Foreclosure and Distress Property Purchases,” 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
).

***

What’s your opinion? Send your Letter to the Editor to newsroom@inman.com.

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