First timer, need to be creative - Posted by Alex Marszalowicz

Posted by Alex Marszalowicz (NJ) on September 08, 2003 at 19:08:40:

Thanks for the warm welcome Ron! I hope not only to join you as a homeowner but soon enough as an investor too.

Just to clarify, there are 2 price levels, a high one for “target areas” and a lower one for non-target. This neighborhood was just re-classified as non-target (which is probably valid, though they picked a poor time to catch on). The date is definitely past, I only just found out because the state agency didn’t proactively notify the lender. My mortgage agent is looking into loopholes.

Also, my concern was that if I structure the extra 16k outside the home purchase as a separate bill of sale, they wouldn’t get the cap gain exclusion.

But you’re absolutely right, I have to look out for number 1 first. And I hadn’t thought about the appraisal part, which I will keep in mind.

Thanks again,


First timer, need to be creative - Posted by Alex Marszalowicz

Posted by Alex Marszalowicz on September 08, 2003 at 15:24:59:

Hi all,

I’ve going through the process of making my first time purchase. Although this will be for my own personal residence, I would like to look to more investing in the future and wanted to learn as much from the wisdom on this site. I didn’t, however, think I’d need to do anything too creative.

I had discovered a first-time buyers program through the state of NJ ( that would get me a superb rate on a 30-yr fixed. (4.75% as of this moment.) However, the state just changed their designation of “target” areas and therefore the allowable purchase price for the property dropped below the rate at which we just signed.

We agreed at $259,000. I need to get down to $243,000 to get this rate. I’m still in the attorney-review period and I have an acceptable-mortgage out clause anyway so I can amend the contract if necessary.

I guess the catch is figuring out a way to get the sellers the extra $16,000. I could, say, buy the hallway mirror from them for $16,000. That would cause them tax implications, so I’d be willing to up that payment to make up for that. But of course I want to minimize it.

Any tips on this? If I pulled out all the included appliances from the contract into a bill of sale, it still wouldn’t add up to enough to eliminate a capital gain, but it seems to me it would reduce it. (And wouldn’t this be a l-t 15% capital gain?)

As the rate difference is about 1.5%, I think it’s definitely worth my while to pursue this. I have the extra cash on hand to do this or anything similar if necessary. I greatly appreciate any help I can get on this.


Alex Marszalowicz

Re: First timer, need to be creative - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on September 08, 2003 at 17:10:25:

Alex Marszalowicz–(NJ)-------------------

Nice to meet you. So you will be joining us as a homeowner soon? Welcome to the club.

First, it sounds strange to me that the allowable price would go down. Usually I would expect it to go up. Try to find out why this has happened. Is it that property values are dropping in the area and you and the seller have not taken this adjustment into account? Maybe you have to buy at a lower price. The original agreement can be altered if necessary to make the deal work for you. Just think of the added time and effort that the owners will have to go to to get a new buyer in. Each added month just means more expense to them. A somewhat lower price on the existing sale may not be too bad for them. Even if it does not sell for below the ceiling price, perhaps some reduction there will allow you to do other things to make the deal work for you.

Then, check the effective date of the change. Perhaps it is after you will close. Also, it is possible that any purchase contracts signed when the old ceiling was in place are allowed to go through escrow on the old rules, so you don’t have to fool around at all. Check this one out cloasely. Maybe you could even get an exception to the new rules because of this circumstance, even if there are no written rules in this regard. Especially if there are no written rules AGAINST it.

Also, find out if the special loan can be gotten even if you have a seconed loan from the seller. If so, you get the seller to take the top part of their money over time with a note and second mortgage. Even if you don’t have to do this, it is probably a financially good thing, reducing the amount of your money tied up in the house. This gives you more to buy other properties.

Now I certinaly understand that you are studying the situation and trying to understand the consequences for the sellers, such as their tax issues. That can help you help them do a better job of selling. However, there is a danger, I think, in going too far to help them. I’m not saying you are at that point, but you might want to watch it. Remember who comes fisrt in this deal–you, right? If the sellers suffer a little bit because of changes necessary to get you what you need, you leave that to them to handle. Don’t be so emphathetic that you hurt yourself.

Also, if this is their home, the capital gains exclusion probably applies and they will not have much tax to pay, perhaps none.

Anyway, having to lower the selling price because of problems with an appraisal for the financing is common. If you have not had the appraiser in yet, be there when he or she does the appraising and mention the ceiling of the loan. No insistence that the appraisal come in below the ceiling. Just a mild concern expressed that it not come it too high.

Good InvestingRon Starr***