Q & A with Dottie Herman

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Q1 - I am 22 years old and just graduated college- I had a relative pass away who left me a large sum of money. I am thinking of purchasing real estate since I think now it is a great time to invest. I am very unsure how to even begin my search. Can you provide some advice?

A - Real estate can be a fantastic investment tool. It also can be complex for a first time investor. It would also be helpful if you assembled a team to have you navigate the myriad of decisions a real estate investor is required to make.  This would include an accountant, attorney, real estate agent, and loan officer.

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Q2 - My husband and I are having some financial difficulty and we are afraid we may need to sell our home in a short sale to risk going into foreclosure. Our house would list for about 1.1 million right now, however, we have 2 mortgages and can't make our payments. If we find another home we like for much less money can we get a mortgage? Or is our credit damaged due to the short sale?

A - If you have missed payments on your mortgage and do have a short sale when selling your home your credit will be impacted. Current lending guidelines require one year since your last late payment on a mortgage or a minimum of three years since a short sales or foreclosure before a new mortgage can be applied for.   You will need to wait between one and three years to obtain a new mortgage.  IF your bank releases you form any liability for the unpaid paid of your mortgage and only shows late payments then one year might apply to your situation, if the bank has filed a deficiency judgment against you and this shows as an outstanding debt on your credit report it will impact your credit for 3 or more years.

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Q3 - I am currently looking with my wife to buy a home- we plan on living in this home for less than 5 years- what mortgage would be best for us?

A - For a short term scenario such as yours the best mortgage loans are the "intermediate ARMs'  . These are loans with fixed interest rates for a set period in the beginning of the loan and then they become adjustable rates.  The most common are 5-1, 7-1, and 10-1 loans.  They carry a rate as much as 3/4 of percent lower than a 30 year fixed loan therefore providing a lower payment.  These loans are based on 30 year amortizations so it is just like have a 30 year fixed loan with a lower rate for the initial period that you choose.  Be careful that you do not exceed the initial period by more than a year or so because if interest rates are higher your rate can increase up to 2% each year thereafter.

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Q4 - My husband and I are looking to buy a home and our parents are going to need to help us with this transaction. How much money can they give us without paying taxes and how do they go about doing this?

A - Gifts from parents to children buying a home is very common.  Currently the maximum gift EACH parent can give is $12,000 per year without a tax obligation, so 2 parents can provided up to $24,000 in gift funds to a child, therefore $48,000 for two sets of parents. Please keep in mind that your lender will need you to verify that the money is in your parent's accounts and see the transfer and receipt of the funds into yours.  They are vey script and insist on the paperwork being very clear on this.  In addition your parents will fill out and sing a "gift" letter as part of your mortgage application.  So let your lender know right away if you are using a gift so they can advise you how to gather and present this information.

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Q5 - My wife and I are looking to buy a home. We do not have a lot of liquid money however we have a lot of assets? Is there a loan that would accommodate our situation?

A - A lender is first and foremost interested in know that you have cash flow to make the mortgage payments consistently each month for a long time.  If your assets do produce enough income then a lender will approve you for mortgage loan.  If not there are alternative methods to qualify a borrower with lots of assets but not much income.  One method is called "asset dissipation" which is complicated and used actuarial charts.  Speak to a lender and inquire or if you have a relationship with a bank that holds much of your assets then this would be the best place to start.

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Q6 - I recently put my home on the market. My wife doesn't like people in our home- and she doesn't want to have open houses, she simply wants to make appointments with the realtor for showings. Will that make selling our home more of a challenge?

A - Open houses are a wonderful venue to showcase your home. However, it is only one of the many tools at the disposal of a real estate agent. While having them is helpful, it isn't a requirement of selling your home. Another option to consider is to permit a brokers open house, in which local agents come through your home to preview it for clients. This way, the brokerage community can at least have a firsthand look at your home and report back to their clients.

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com.
 
NOTE: Due to high volume of questions, not everyone can be answered, but she'll do her best.

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