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[return to Real
Estate Tips]
Buying Your
Home
How to Buy
Negotiating & Closing a Good
Deal
[part 1][part 2][part 3][part 5][part 6]
- Are
there government programs for rehab?
- Can you
deduct the cost of home improvements?
- How do
you qualify as a first-time buyer?
- How do
building codes work?
- What
are some resources for info on home improvements?
- Are
there any special tax breaks for historic rehab?
- Do I
have to disclose a parent's gift?
- How do
some of these low-down programs work?
- Who do I
call for a low-down-payment loan?
- What
kind of home insurance should I get?
- Are there government
programs for rehab?
The U.S. Department of Housing
and Urban Development's Section 203 (K) rehabilitation loan program is designed to
facilitate major structural rehabilitation of houses with one to four units that are more
than one year old. Condominiums are not eligible.
The 203(K) loan is usually done as a combination loan to
purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a
temporary loan to buy the property and do the rehabilitation. It can also be done as a
rehabilitation-only loan.
Plans and specifications for the proposed work must be
submitted for architectural review and cost estimation. Mortgage proceeds are advanced
periodically during the rehabilitation period to finance the construction costs.
For a list of participating lenders, call HUD at (202)
708-2720.
If you are a veteran, loans from the U.S. Department of
Veterans Affairs also can be used to buy a home, build a home, improve a home or to
refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily
available with other kinds of loans. To qualify for a loan, the first step is to apply for
a Certificate of Eligibility.
Another program is the Fedeal Housing Administration's Title
1 FHA loan program.
Resources:
- "Rehab a Home With HUD's 203(K)" brochure, U.S.
Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.
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- Can you deduct the cost of
home improvements?
What you spend on permanent
home improvements, such as new windows, can be added into your home's cost basis, or
amount of money invested in a home, which reduces capital gains when it comes time to
sell. Capital gains are determined by the difference in price from the time a home is
purchased and the time it is sold, minus the cost of any permanent improvements.
However, the 1997 tax changes virtually eliminates the
capital gains tax for most homeowners (the exemption is $250,000 for single homeowners and
$500,000 for married homeowners.).
Still, it is worthwhile to save all receipts for permanent
home improvements just in case. They also can be useful documentation when it comes to
marketing your home when you sell.
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- How do you qualify as a
first-time buyer?
In general, lenders define a
first-time home buyer as someone who has not owned any real estate -- whether a personal
residence, vacation home or investment property -- during the past three years.
Lenders verify an applicant's status by examining their
income tax returns, checking to see that the individual did not take any deductions for
mortgage interest or property taxes.
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- How do building codes work?
Building codes are established by local authorities to set out minimum
public-safety standards for building design, construction, quality, use and occupancy,
location and maintenance. There are specialized codes for plumbing, electrical and fire,
which usually involve separate inspections and inspectors.
All buildings must be issued a building permit and a
certificate of occupancy before it can be used. During construction, housing inspectors
must make checks at key points. Codes are usually enforced by denying permits, occupancy
certificates and by imposing fines.
Building codes also cover most remodeling projects. If you
are buying a house that has been significantly remodeled, ask for proof of the permits
involved before you purchase to avoid future liability for fines.
Resources:
- "The Ultimate Language of Real Estate," John Reilly,
Dearborn Financial Publishing, Chicago; 1993.
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- What are some resources
for info on home improvements?
If you're getting
ready to embark on a home improvement project involving contracting help, "Ready,
Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" lays out a
road map for selecting the right contractor, obtaining competitive bids up to what to
include in a contract. There also is information on consumer rights, liens and financing.
The book is available for $9.95 through Consumer Press and
Women's Publications, Inc., Dept. SR01, 13326 Southwest 28th St., Fort Lauderdale, FL
33330-1102; (954) 370-9153.
Resources:
- Profiting From Real Estate Rehab, Sandra M. Brassfield, John
Wiley & Sons Inc., New York; 1992.
- Remodeling magazine's annual "Cost vs. Value
Report", available for a nominal fee from the magazine; call (202) 736-3447 to order
a copy.
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- Are there any special
tax breaks for historic rehab?
Qualified
rehabilitated buildings and certified historic structures currently enjoy a 20 percent
investment tax credit for qualified rehabilitation expenses. A historic structure is one
listed in the National Register of Historic Places or so designated by an appropriate
state or local historic district also certified by the government.
The tax code does not allow deductions for the demolition or
significant alternation of a historic structure.
Resources:
- National Trust for Historic Preservation, Washington, D.C.;
(202) 588-6000.
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- Do I have to disclose
a parent's gift?
Having generous parents is
nothing to hide. An estimated one-third of first-time buyers purchase their home with a
loan or a money gift from their parents.
Lenders will ask for a gift letter stating that no repayment
of the "gift" is expected. In addition to the letter, a lender can ask for two
or three months' worth of statements for the account where the down payment funds are
located. If the money was recently placed into that account, the lender may ask where it
came from and request verification of that source as well.
Resources:
- "The Homebuyer's Survival Guide," Kenneth W.
Edwards, Dearborn Financial Publishing, Chicago; 1994.
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- How do some of these
low-down programs work?
Most of the private and
government low-down loan programs have special requirements. These rules range from
requiring borrowers to be first-time home buyers to limits on family income.
In general, cities and counties require that borrowers earn
no more than 100 percent to 120 percent of the county's average household income. However,
some programs such as the Federal Housing Administration have no income restrictions and
do not require the borrower to be a first-time buyer.
Many private low-down loan programs insist borrowers have
good credit and also that they obtain private mortgage insurance, which is a small monthly
insurance payment that insures the lender against default. Some of the city and county
programs are available only in targeted neighborhoods where local leaders are trying to
spark reinvestment or increase the homeownership rate.
Resources:
- "Unlocking the Doors to Homeownership," Freddie Mac
publication 183; call (800) FREDDIE.
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- Who do I call for a
low-down-payment loan?
Here are seven popular
programs available to home buyers, along with the appropriate telephone numbers for more
information:
- The Federal Housing Administration has programs which require
as little as 3 or 4 percent cash down. FHA loans are originated and serviced by private
lenders. Check with local lenders to find the best source for your loan.
- Veterans who qualify can buy a home with no money down through
the U.S. Department of Veterans Affairs. Call 1-800-827-1000 to find out more.
- Both the VA and FHA offer foreclosure properties for sale,
some requiring as little as $100 down. Anyone interested in a VA foreclosure can call
1-800-827-1000 to request a current listing. For FHA-insured properties, call your local
U.S. Housing and Urban Development office for more information.
Fannie Mae helps buyers who can put down as little as 3 percent of their own money. To see
if this can work for you, call 1-800-732-6643.
- Many cities and counties offer special housing loans in order
to promote the benefits of home ownership in their communities. To find out what funds may
be available to you, inquire at your local housing department.
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- What kind of home
insurance should I get?
A standard homeowners
policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft
wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight
of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage
and water damage from plumbing, heating or air conditioning systems, according to the
Insurance Information Institute, a Washington, D.C.-based nonprofit group for the
insurance industry.
Such policies are "all-risk" policies, which cover
everything except earthquakes, floods, war and nuclear accidents.
A basic policy can be expanded to include additional
coverage, such as for floods and earthquakes and even workers' compensation for servants
or contractors. Home-based business-coverage, an increasingly popular rider, does not
cover liability associated with the business.
Insurance experts recommend that homeowners obtain insurance
equal to the full replacement value of the home. On a 2,000-square-foot home,for example,
if the replacement cost is $80 per square foot, the house should be insured for at least
$160,000.
For personal items, homeowners can increase their coverage
beyond the depreciated value of items such as televisions or furniture by purchasing a
"replacement-cost endorsement" on personal property.
Some experts recommend an inflation rider, which increases
coverage as the home increases in value.
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© 2008 Century 21 Real Estate LLC. CENTURY 21 © is a registered trademark licensed to Century 21 Real Estate LLC. Equal Housing Opportunity. Each Office is Independently Owned and Operated.
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Last modified Saturday, June 14, 2008 |
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