Trick Is Making Payments When Home Buyer Puts Nothing Down

QUESTION: Is it really possible to buy a home for nothing down? I ask because recently I saw a late-night TV show where a promoter talked about how to buy real estate for nothing down. But he wanted $179 for his books and tapes, which I can’t afford. Please tell me how to buy a home for my family without any cash, if that is possible.

ANSWER: As I’ve said many times, yes, it is possible to buy real estate with little or no cash, but the hard part is making the monthly payments. For example, if you or your spouse is a qualified veteran, you can get a VA home loan for 100% of the home’s purchase price. However, there will be closing costs to pay.

If you are not a qualified veteran, you can buy a home by assuming an existing assumable VA or FHA mortgage and get a motivated seller to carry back a second mortgage for the balance of the purchase price.

Another nothing-down technique is to get a friend or relative to make the down payment and you can make the monthly payments. This method is called “equity sharing,” as authorized by Internal Revenue Code 280A.

Still other little- or no-down-payment home-buying methods include FHA mortgages for about 95% of the purchase price, PMI (private mortgage insurance) loans for 90% and 95% of the purchase price, assuming an assumable mortgage and borrowing the down payment, and getting a motivated seller to finance all or most of your purchase price.

Several years ago Robert G. Allen wrote the best-selling book “Nothing Down,” which I highly recommend you read. In it you will find at least 50 ways to buy real estate for little or no cash. But remember, the hard part is making the monthly payments.

Investing Far From Home Not Advisable

Q: What do you think of investing in real estate in Dallas or Houston? I hear the prices there are making a comeback.

A: I recommend only investing close to home, preferably within a half-hour drive from your home. When real estate losses occur, they usually happen because the investor was not familiar with the area or did not keep an eye on the property. If you don’t live in Dallas or Houston, I suggest you don’t invest there.

Home Warranties Praised by Reader

Q: Thank you for recommending that home buyers obtain a one-year home warranty from their seller. When we bought our home we asked the realty agent about such a warranty. She was reluctant to discuss the subject. But when I persisted, she wrote it into the purchase contract.

I learned later that the seller refused to pay, so the agent got stuck with paying about $300. About two weeks after we moved into our home, the furnace went out. The firebox was cracked and couldn’t be repaired, so we got a brand-new furnace from the warranty company. Why don’t you emphasize home warranty policies more?

A: Thank you for giving me the opportunity to discuss one-year home warranty policies. They pay for repairs to plumbing, wiring, heating and built-in appliances during the year after home purchase.

However, they have many exclusions, such as roof leaks, foundation and structural problems and plumbing problems outside the home’s boundary. When the buyer can get the seller or realty agent to pay the cost, as you did, a one-year home warranty policy is a very good deal.

Home Buyer Wants to Force Seller to Vacate

Q: I listed my home for sale with a realty broker. Within six weeks she found a buyer who offered close to my asking price and I accepted. My agent knew I was selling only if I could find a suitable apartment to move to. As I am in a wheelchair, I have not been able to find an apartment designed for wheelchairs. So I canceled the sale.

Now the buyer’s lawyer has served me with legal papers for “specific performance.” He also notified me of recording a “lis pendens” against my title. I contacted a real estate attorney, but she says I have no grounds for canceling the sale and the buyer can force me to complete the sale. What should I do as I have no place to move?

A: I sympathize with you, but do not understand why you unconditionally accepted the buyer’s good-faith purchase offer. You could have accepted it on the condition you find a suitable new residence within 60 days. I agree with your attorney that you have no grounds to cancel the sale. Perhaps your realty agent can help locate a suitable place to move.

Watch Out for Scams in Home Improvement

Q: A few weeks ago two nice young men knocked at my front door. They said they were college students home trying to earn money for college by painting houses during the summer. As my house needs painting, I thought their price of $580 was very reasonable. They asked me to pay $150 in advance, so they could buy the paint. They promised to start work the next day.

I foolishly gave them a $150 check which they immediately cashed at my bank. When they didn’t show up the next day, I called the police who told me dozens of other homeowners also were fleeced. I just thought you should warn your readers about quick-buck home painters whose price is too good to be true.

A: Thank you for sharing your unhappy story. This is the season for quick-buck home improvers who work similar scams. Your situation shows the importance of doing business only with reliable contractors after you check their references. If the deal sounds too good to be true, it probably is.

No Sale, But Seller Still Owes Commission

Q: I am a frustrated real estate agent. What would you do in my situation? I worked over three months to sell a very difficult house which I listed on an exclusive right to sell. The seller was extremely troublesome. Finally, another agent in my office found a wealthy out-of-town buyer who fell in love with the house and offered to pay the full asking price, all cash. But when we presented the offer to the seller, she said she changed her mind and doesn’t want to sell. The buyer was very upset. My broker suggests we sue the seller for the sales commission, but she is leaving the decision up to me. What do you advise?

A: You earned the sales commission by bringing a full price all cash purchase offer. Too many real estate brokers are reluctant to sue for fees they earned, because they think lawsuits are bad public relations. That is nonsense. If I were in your situation I would sue for the sales commission even though the seller changed her mind about selling. Please consult your attorney for further details.

Good Claim Service Needed for Insurance

Q: I think you should warn homeowners to shop carefully for their homeowners insurance policy. Like many people, I bought the cheapest policy I could find. It is from an out-of-town insurer who offered rock-bottom rates. However, last October we had a major electrical fire in our home that caused about $40,000 damage. The insurance company operates through local adjusters who have no authority to pay us. Everything has to go to the insurer’s home office.

Our insurance agent is also of no help because he can’t get the insurer to pay promptly either. They are arguing about the extent of damage. We finally hired a “public adjuster,” who is making progress but he will take part of our settlement.

Now we realize we should have paid a little more and bought from a company with a good reputation for claims settlement. Why don’t you warn your readers about this problem?

A: Thank you for calling this insurance difficulty to our attention. I couldn’t agree more with you. I have all my insurance policies with one agent who gives me top quality service both on claims and policy paper work.

I know I could buy slightly cheaper insurance but my agent has never let me down when it comes to fair claims settlement. Prompt and fast claims payment is far more important to me than saving a little on insurance premiums.

Is Low Down Payment Always the Best Way?

Q: Over recent months I noticed you often advise home buyers to make the smallest possible down payment. Our problem is if we make a small down payment our monthly payments will be very high. What is the reason you continually suggest low down payments?

A: Uncle Sam makes me do it. The tax law changes, effective in 1988, allow home buyers to deduct interest only on their acquisition mortgage plus up to a $100,000 maximum home equity loan. The unfortunate tax result is if you make a big home down payment and later realize your mistake, it is then too late to change your mind. If you refinance, you can deduct interest on only up to $100,000 of additional home financing. Please consult your tax adviser before you make a big mistake by making a big home down payment.

Property Deed May Be Invalid After Death

Q: I have three grown sons. Two are wonderful, very successful with nice families. But one is a homeless bum. I have tried many times to help the unsuccessful one, but he refuses to be helped. As I am 78 and a widower, I have decided to leave my assets to my three sons equally. However, their needs are very different. I want to leave my properties to my “good sons” because they are in real estate and will know how to manage them. I have set up a trust account for the “bum son” so he will always have the money he needs. However, the bad son is very crafty. I am worried he will get a greedy lawyer to challenge my will. Can I deed my “good sons” my properties now with instructions to record the deeds when I die?

A: To be valid, a deed must be unconditionally delivered during the grantor’s lifetime. Delivery of the deeds to your “good sons” on the condition the deeds not be recorded until after your death would make them invalid. However, unconditional delivery of the deeds to your attorney or other trustee for recording after your death might be valid. Please consult an attorney now before you make a costly mistake.

Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent to the Real Estate Section, Los Angeles Times, Times Mirror Square, Los Angeles 90053.