Ask the Real Estate Lawyer - August 16, 2009
By Ilyce Glink and Samuel J. Tamkin

Q: I have a 30-year mortgage at 7.5 percent with only nine years left on my mortgage. There is a lot of equity in my home. Do you think I should refinance at a lower rate or stay with my current rate? My mortgage company would give me a 15-year loan. I have an FHA loan.

A: When you refinance a mortgage, you want to lower the interest rate, lower the monthly payment and cut the number of years remaining on the loan. If you can do all three, the refinance is a no-brainer.

At this point in your loan, you're paying mostly principal and you might not benefit from a lower interest rate. If you took a new loan now for 15 years, you would pay an extra six years of interest on that loan and have several thousand dollars of refinance costs up front. I'm not sure that will be worth it.

But FHA may agree to do a streamline refinance for you. For a nominal sum, FHA may simply adjust the interest rate on your mortgage. (This option is available for VA loans as well.) Contact your mortgage servicer and see if this is available for your loan.

Another option is to see if you can get a home equity loan for the remaining amount of your mortgage. You may be able to get a home equity loan with a fixed 10-year payout at a lower interest rate that will be at a lower interest rate. Figure out what the closing costs would be and how long it would take you to pay off the closing costs with your savings. If it will take more than a year, you may be bettor off simply keeping the loan you have.

But your first stop should be your servicers to see if you can get a streamline FHA refinance. You can also contact a HUD-certified housing counselor. Find one through HUD.gov.

Q: I understand the $8,000 first-time buyer tax credit program excludes house purchases made from a family member. Does that include a purchase made from a trust that has as its executor my father-in-law?

Here's the short version of the story: My wife's mother passed away last fall. My wife's father has purchased a second home. My wife and I are purchasing the old home from a living trust set up in the name of my father-in-law. Would we be eligible for the $8,000 credit if all other criteria are met? We are purchasing the home at fair market value.

A: You have a problem on your hands. The first-time home buyer program allows people who have not owned a home as a personal residence (if you owned a second home or an investment property you would still be considered a first-time buyer) within the last three years to purchase a home and receive an $8,000 tax credit on their federal income taxes.

There are additional restrictions on this tax credit, including an income restriction. The tax credit phases out if more than $75,000 (or $150,000 if you are married), and if you make more than $95,000 (or $170,000 if you are married) you are not eligible for any tax credit.

Also, the tax credit is limited to $8,000 or 10 percent of the price of the home, whichever is less. If you buy a home for less than $80,000, you won't get the full $8,000 credit.

Now, if you qualify on all of these issues, the IRS has thrown another curve ball for some homeowners. The IRS says that you can't qualify for the tax credit if you "buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild."

And here is where it gets tricky. You would be buying your home from a trust. But that trust owned your father-in-law's and mother-in-law's home. The IRS has certain rules regarding related parties and how they view corporations, companies, partnerships and trusts. It's most likely that the IRS would take the view that your intended home was owned by a close relative and therefore disqualify you from receiving the first time home buyer tax credit.

(Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink's latest book is "100 Questions Every First-Time Home Buyer Should Ask: With Answers from Top Brokers from Around the Country" If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce's Web site, www.thinkglink.com.)

 

 

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Samuel J. Tamkin is a Chicago-based real estate attorney.

Ilyce R. Glink's latest ebooks are "Save Your House From Foreclosure" and "The Clutter Collector: How to Get Rid of Clutter Everywhere In Your House," which are available at her Web site, www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 am-1 pm EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022

 

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