Receiving cash or other boot in a real estate exchange does not defeat the nontaxable provisions of §1031 for the like-kind property involved. If, in addition to the Replacement Property, you receive money or some other kind of boot, you may have taxable gain. But the good news is you are only taxed on gain that comes from the money and other boot received.

As an investor, it is important to secure the right kind of insurance as soon as you take title to the property. Here are 3 scenarios:

1. You are buying the house to live in and will be able to move in “ideally” within 30 days, you would purchase homeowners insurance for yourself.
2. You are buying the property as an investment and it is vacant and may or may not need rehabbing, you need a “vacant” home policy. This is usually written in 3-month increments.
3. You are buying the property as an investment and you have a tenant who will be moving “ideally” within the first 30 days. You need a landlord’s policy.

In all 3 cases, if the house is reclaimed by the former owner during the redemption period and you lose the title of the property, usually you would get a prorated refund on the insurance you would no longer need. Another thing to keep in mind is that some insurance companies do not want to insure properties where the owner has left the property uninsured for a period of time. The best advice for many reasons is to get the property insured as soon as you get the title.

-Lynn McDonald, Allstate Insurance (901) 372-3500

The origination fee on a mortgage is usually one percent of the loan amount. If you are borrowing $100,000 and paying one percent for the origination fee, the $1,000 fee goes to pay for the mortgage company’s lease, utility office supplies, and the loan officer’s commission. If the “wholesale” market interest rate on a mortgage is 3.25%, then the mortgage company will charge 1% origination to pay for their overhead. If you pay a higher rate of 3.5% and this rate is one percent above the “wholesale” rate, then the mortgage company does not have to charge the one percent origination fee because they will receive their profit from the higher interest rate loan. This is an oversimplified way of saying that when the borrower pays points, he pays interest in a lump sum upfront to enjoy a lower rate and payment on his mortgage.

Discount points are the amount you pay in addition to the origination fee in order to get the interest rate below the market rate. Each discount point equals 1% of the mortgage loan amount. If the market rate is 3.5% with a one percent origination fee but you want a rate of 3%, then you will need to pay points to get the below-market rate. If 3% is one percent below the “wholesale” market price, then you would pay 1% origination fee and 1% discount.

Basement foundations and concrete slabs are some of the most susceptible types of construction attracting termites. Since termites only need a small crack in the slab floor to gain entrance into your home, high moisture areas like basements and crawl spaces attract them and can serve as starting points for infestation. Once in, termites can infest virtually any part of your home — wood trim, siding, wallboard, even cabinets, and books. Synthetic stucco on a house can retain moisture, also providing a place for termites to thrive. 

“DU” stands for “Desktop Underwriter,” an automated underwriting computer program used to underwrite loans for Fannie Mae. With this program the lender is able to enter the qualifying information about the borrower and the program will provide approval or it will refer the loan to a manual process. A “refer” status may include suggestions that may make it possible to achieve loan approval.

A title policy contains provisions for the payment of the legal fees in defense of a claim against the property, which is covered under the policy. It also contains provisions for indemnification against losses, which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance.

Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender’s decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

A contract for deed (also known as a land contract or installment contract) is a contract by which the purchase price is paid in two or more installments over two or more years. The purchaser has possession of the property but the seller retains title until the contract terms are completed. If the sale meets certain requirements, a taxpayer can postpone reporting such income by paying tax each year only on the proceeds received in that year.

A mortgage is a security instrument pledging real property. But the word “mortgage” is sometimes used in reference to an amortized promissory note. A term loan is a non-amortized loan for a given period. At the end of the term, the entire principal amount is due.