Question: I have a paid-off home. I would like to buy a replacement property. Should I buy the second home before selling the first?

Answer: As the first home is paid off you can consider getting a "bridge" loan to help purchase the replacement property. The bridge loan will then be paid off as soon as the first home is sold and settled.

The real question, though, concerns your local market. Is it reasonable to believe that the first house will sell for roughly the asking price within a reasonable period of time? Will it sell for enough to fully repay the bridge loan? All markets are different, so speak with several local brokers for their views.

Question: My new home builder is marketing units in my subdivision as a lease-to-own properties. What will be the impact on the value of my home value? The builder has quite a bit of inventory and got caught up in the housing sales slump, so now he's advertising our community as lease-to-own.

Answer: The builder is doing you (and him) a favor. Here's why: The builder has unsold inventory. While the properties may be unsold, they are not cost-free -- think of the interest expense for each one, property taxes, etc. If he did sell at this time for a low price such values would be shown in local records and would reduce the current market value of your home. Alternatively, if the properties do not sell they could lead to financial difficulties for the builder.

However, with lease-purchase arrangements the builder may be able to get higher prices in the future and at least today he has income to off-set his current costs.

Question: What's a money merge program? A company has contacted me claiming to have a software system that will allow me to pay off my mortgage in only a few years by paying extra and paying certain times before interest is calculated. Doesn't make sense to me so I'd love to hear your take on it.

Answer: The general concept works like this: You refinance your home and, often, credit card debt, into a new loan -- this assumes you have sufficient equity to make this work. Someone, for a fee, sets up a bank account for you. All of your income goes into the account. At the end of the month any unspent dollars are applied to reduce your mortgage balance and the process starts all over.

In essence, you're making prepayments. You don't need a third party to do this and you don't need to pay any fees to anyone else to prepay a mortgage. Also, any fees paid to refinance and for third-party services represent money not going directly to reduce your mortgage debt.

If you want to prepay your mortgage most lenders have a space on the monthly payment coupon which allows you to make an additional payment. For prepayment specifics, contact your lender.

Question: I'm 26 years old and looking to invest in real estate. Now seems like the time to invest considering current market conditions. My main goal is to start with one property and work my way up to own several.

Capital is a little tight, however everything else is in good order. As a first-time buyer what type of house would you recommend? (single family, duplex, owner occupied duplex, condo,) What about foreclosures? Would foreclosures be too intricate for first property? Also what type of loan would be a good option? Interest-only is appealing because I don't plan on holding the property for long term. I want to maximize cash flow and appreciation as does everyone. Any suggestions here would be greatly appreciated.

Answer: You're smart to look into real estate. Interest-only mortgages are precisely the type of toxic financing forcing so many people into foreclosure today, a mortgage to be avoided. Why? You don't know that you'll be able to sell in a few years, or at what price.

As to the type of property, you have to consider what's available in your community and potential rental rates. If you can buy a four-unit property and live in one unit you can generally qualify for low-cost owner-occupant financing -- meaning you'll have a lot of income to off-set your expenses.

Before going any further take the basic licensure class in your jurisdiction that's needed before you can take the basic real estate licensure test. Such classes tend to be inexpensive and they can give you a good background before you enter the marketplace -- and perhaps an additional source of income or even a new career if you want to take the licensing test.

Question: Is it true you can all deduct the interest paid on your mortgage from your income taxes? Or is that just for the first year of homeownership?

Answer: The first year of ownership does not provide any special benefit when it comes to writing off mortgage interest. The good news is that you can generally deduct interest on new mortgage financing used to acquire a prime residence plus $100,000 in home equity financing. That said, there are exceptions if you're married and borrow more than $1 million ($500,000 if filing separately) or if the initial loan amount is greater than the fair market value of the property at the time the mortgage was originated.

Interest write-offs have become more complex over the years, so read IRS Publication 936, Home Mortgage Interest Deduction and speak with a tax professional.

Question: What makes something a single-family detached home versus a single-family attached?

Answer: Imagine driving by a suburban subdivision where all houses have their own lots. These homes are examples of single-family detached houses.

Now imagine that you drive past a townhouse subdivision or row houses in a metro area. In this case all the properties are single-family homes and all are attached to at least one other property. Each of these homes is an attached single-family residence.

Question: Can you explain the difference between a "home warranty" and homeowner's insurance?

Answer: A "home warranty" is typically a promise by a builder or manufacturer to make repairs or provide replacements in the event a product or system doesn't work. Such warranties are inevitably "limited" warranties, meaning the builder or manufacturer is only taking on so much liability. When looking at warranties always ask about dollar limits, deductibles, fees and charges to make a claim and the length of the warranty period.

Homeowner's insurance is the fire, theft and liability coverage required when you get a mortgage and which all homeowners should have. There are varying levels of protection, but you at least want enough coverage to assure the full replacement of the property in the event of disaster. For specifics, speak with an insurance broker in your community.

Question: How are property taxes assessed? If I make upgrades to the inside of my home -- do I have to notify the county?

Answer: In most jurisdictions properties are assessed every one to three years by local governments. Assessments are typically based on recent sales of like properties in your neighborhood.

I have never had an assessor enter a property and cannot imagine that a homeowner would have to report improvements to a local government. However, if you have a major project which requires a building permit -- say a property addition or second kitchen -- then the assessor would be able to check such public information.

Question: Where could I look for information on what kind of landscaping adds the most value to my home?

Answer: Landscaping can plainly add value to a home, but not all landscaping is equally valuable. You want improvements that work with your neighborhood and the style of your home. For specifics, ask local real estate brokers what landscaping improvements they think would add the most value to a property.

Question: I bought a house as a single woman in late 1998. I married in 2001. My husband moved in and we have been living in this house all our married lives. We plan to sell this house in a few months. Do I have to pay capital gains as this is the first house I've owned?

Can the new house my husband and I are building as a married couple be excluded from capital gains if we sell it in the future, as my husband has never bought a house on his own?

Answer: Whether you are a first-time owner or have owned many times is not an issue when considering federal capital gains taxes. The key question is whether you have lived in the property for two of the past five years. As the IRS explains:

"To exclude gain," says the IRS, "a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The ownership and use periods need not be concurrent. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use, but longer breaks, such as a one-year sabbatical, do not. The taxpayer also must not have excluded gain on another home sold during the two years before the current sale."

For specifics, please see a tax professional.

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