FHA refund goes to current owner

Q. In 1971 we purchased a HUD home, and had an FHA mortgage from1971 until 1984. When we sold our home the buyers assumed ourmortgage loan. Does this make them eligible for the insurance refundwhen they pay off the mortgage? Or should we have gotten it at thetime they assumed it? Or when they pay it off do we get part of it?

A. Yes, no, and no.

If any refund is due, it goes to the person making the lastpayment.

Q. My in-laws own one primary residence that has no mortgage.About four years ago, they took a $60,000 mortgage on a vacationhome. They rent it one month every year for additional income.

Their accountant told them they will have no write-offs for 1989on the vacation home. My father-in-law insists that Congress isgoing to abolish the deduction for mortgages on second homes. We arecertain he misunderstood. This accountant has made big goofs in thepast. Can you shed any light on this?

A. Your father-in-law certainly can take an income-tax deductionfor interest on that vacation-home mortgage. All interest onmortgages for first or second homes, placed before Oct. 14, 1987, isdeductible.

For loans placed after that time, interest is deductible on upto $1 million borrowed for purchase or improvement of a first and/orsecond home, and up to $100,000 further (equity) borrowing. Some ofthe interest will be listed as an expense against rental income, andthe rest as a deduction.

Perhaps the accountant thought the loan involved personalinterest, on which deductibility is now sharply limited. But if itis a true mortgage, with the home pledged as security, it certainlyqualifies for deductible interest.

Q. I have a certificate of VA eligibility for $8,500. We wantto buy a house priced, of course, much higher. Do you think thecertificate will help toward at least part of a mortgage loan?

A. Currently the VA guarantees the top part of a mortgage loan,up to a maximum of $37,500. That guarantee would allow you to placea no-down-payment mortgage for as much as $140,000 (assuming, ofcourse, that you could handle payments on such a high loan.)

I wonder why your certificate is only for $8,500. Did you usepart of your VA entitlement in the past on some other house youbought for your own residence? And is that loan still outstanding?Or do you have an old certificate from the days when the VA guaranteewas much lower?

In either case, write away for a new certificate. My guess isthat you're entitled to a higher guarantee than $8,500 and it may beenough to let you place a nothing-down loan on the house you want.