ABOUT REAL ESTATE: New FHA program gives edge to homebuyers over investors

The Federal Housing Administration will now favor buyers who plan to live in one of its foreclosed homes, rather than rental investors looking for a big profit.

DEAR DAVE: Do you have any details about the federal government’s new program to help homebuyers purchase a house that has been foreclosed by the FHA?

ANSWER: Sure. Perhaps the most important part of the new program, announced by the Federal Housing Administration in early May, is that it essentially gives someone who will promise to live in the home priority over investors who would instead buy it and then rent it to tenants.

The program gives a proposed owner-occupant a 30-day window to make an offer on a newly foreclosed FHA home before bidding is opened to investors. If a buyer makes an offer that the agency will accept inside that 30-day period, the home will be sold without the buyer having to get into a potentially costly bidding war with those who would simply purchase the house as an investment and then rent it out until selling later.

The FHA says the change is to support the Biden Administration’s goal of ensuring that more single-family properties go toward homeownership than to “house flippers” or long-term investors who would turn the homes into rentals with the hope of selling for a big profit.

To participate, buyers must provide a written statement that they intend to use the property as their principal residence. It’s unclear what consequences they might face if they break their promise.

Interestingly, the program also gives some purchasers a break if they come down with a sudden case of “buyer’s remorse” or some unforeseen problems arise. For example, the program gives buyers a minimum of 15 days after the sales contract is ratified to cancel the purchase if there is an issue with the property’s physical condition, or seven days if there is trouble with the property’s title.

Officials at the FHA promise that more details of the program will be released soon. Meantime, you can read about the basics of the program by visiting the website of the agency’s parent organization, the U.S. Department of Housing and Urban Development (www.hud.gov).

REAL ESTATE TRIVIA: Though many Americans don’t fully understand how the FHA works, it’s pretty simple. Loans are made by independent lenders to (mostly) low-down-payment buyers, the borrower pays a fee to FHA for a government-backed loan-insurance policy, and the bank can then tap the policy to cover any of its losses if the borrower later defaults.

DEAR DAVE: My husband and I have about $100,000 equity in our home. If we refinance our mortgage now and take out $30,000 in cash to pay off our higher-interest credit cards, would the money be taxed by the Internal Revenue Service?

ANSWER: No, you wouldn’t owe taxes on the $30,000 in equity that you pull out. The IRS does not tax borrowed money.

Although rates on home-equity loans and other types of mortgages have climbed over the past few months, borrowing against your home’s equity today to pay off your higher-interest debt can still be a terrific idea — provided that you don’t quickly run those card balances back up again.

DEAR DAVE: I’m pretty smart when it comes to real estate issues. Can I sell my friend’s home as his real estate agent, even though I don’t have a real estate license?

ANSWER: Perhaps, but you might be treading into some murky legal territory.

It might be OK for you to sell your friend’s home, assuming that you have his written consent and those of any co-owners.

However, you definitely cannot suggest to a potential buyer or others that you are a licensed sales agent or real estate broker.

“Anyone who wants to sell real estate as a salesperson, real estate agent or real estate broker must first obtain a license to do so from the state in which they live,” notes legal internet website criminaldefenselawyer.com. “State real estate license requirements differ slightly from state to state, but all usually require that an applicant complete a minimal amount of real estate education, submit an application to the state real estate governing organization, and pass a written examination.

“Only after you have received a state license can you act as a real estate salesperson or agent. If you don’t have a license and attempt to buy or sell real estate as an agent, you have committed the crime of practicing real estate without a license.”

Penalties for breaking the law can be stiff, from thousands of dollars in fines to even years in prison.