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Unsecured loan/cap gains on house
Old 04-30-2006, 12:23 PM   #1
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Unsecured loan/cap gains on house

Hi all - I'd appreciate your comments

I am switching my checking and savings to USAA. By doing so, I'm able to receive a 25000 unsecured loan, repayment 438 a month for 60 months at 2% interest. My plan is to pay off my vehicle loan (5.75% interest per month, $10200 total remaining) and put the rest into a CD paying 4.65% APY.
My question is, is this a smart move? More specifically - because it's an unsecured loan, will it hurt me when I go and apply for a home loan?
I am currently in the process of selling my place in HI and will receive a large sum of money for that property. Which brings me to my second question. I've lived in the condo for 2 of the past five years - the tax officer on post told me that for military, it's 2 out of the past 15 years. Will I pay capital gains on this property if I don't reinvest immediately? I am going to be deployed very soon, and only plan to rent when I pcs, because I don't see the point in buying a place, paying homeowner's insurance, association dues and a mortgage payment when I won't even be there.
On the other hand, if I did buy a place, most likely I'd only have about a 60k loan, as the rest will be paid out of money I made off of the HI place. Initially though, I might have to just put down 5-10% and wait until the HI place closes and frees up the money.
My other option, as I said before is to just rent, and put that large chunk of money into something safe and buy when I return.
I currently have about 60k in savings, although 10k is truly liquid (the rest is in retirement savings, and other mutual funds which I refuse to withdraw money from).
Thanks for the comments
Virginia
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Re: Unsecured loan/cap gains on house
Old 04-30-2006, 01:11 PM   #2
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Re: Unsecured loan/cap gains on house

There is no longer any requirement to reinvest the capital gains from the sale of a home into another home. So you can sit on the money, spend it, or whatever.
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Re: Unsecured loan/cap gains on house
Old 04-30-2006, 04:19 PM   #3
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Re: Unsecured loan/cap gains on house

Also remember, the tax-free treatment for home sales is only for the first $250K of capital gains (for single payers) or $500K (for marrieds). So. it depends on how much the "large" sum of money is you will get for the property.
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Re: Unsecured loan/cap gains on house
Old 04-30-2006, 05:49 PM   #4
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Re: Unsecured loan/cap gains on house

Quote:
Originally Posted by virginia
I am switching my checking and savings to USAA. By doing so, I'm able to receive a 25000 unsecured loan, repayment 438 a month for 60 months at 2% interest. My plan is to pay off my vehicle loan (5.75% interest per month, $10200 total remaining) and put the rest into a CD paying 4.65% APY.
My question is, is this a smart move? More specifically - because it's an unsecured loan, will it hurt me when I go and apply for a home loan?
Financially it seems to be a no-brainer, especially when your mortgage application would show the ~$15K in your CD against the $25K loan. Credit seems pretty loose these days and you have plenty of assets to cover the loan if necessary-- if you even got a question then you could respond with your plan. And exchanging the car loan for a 2% loan seems like it could only raise your credit score, which means that the mortgage company might not care at all. Especially if you get the mortgage from NFCU or USAA.

Quote:
Originally Posted by virginia
I am currently in the process of selling my place in HI and will receive a large sum of money for that property. Which brings me to my second question. I've lived in the condo for 2 of the past five years - the tax officer on post told me that for military, it's 2 out of the past 15 years. Will I pay capital gains on this property if I don't reinvest immediately?
As long as you've racked up a total of two years in the place during the past five years, then you're fine. The military rule is intended to give you more slack than you appear to need.

Keep in mind that if the condo was rented out then you'll have to pay depreciation recapture on the depreciation taken during the rental period. (Recapture has to be paid even if you didn't actually take any depreciation.) Once you're out from under that burden then you can subtract your condo's remaining cost basis from the sales price. The cost basis would be not just the price you paid for it but also all closing fees you paid to both buy & sell the place, as well as any home improvements you made during the time you owned it. (However if you deducted home improvements on Schedule E as a rental property then you can't use them a second time to reduce your cap gains on the sale.) The goal of the exercise is to reduce the cap gain to less than the $250K single-filer limit. If you get your cap gains under that $250K then you'll never pay tax on them ever.

Quote:
Originally Posted by virginia
I am going to be deployed very soon, and only plan to rent when I pcs, because I don't see the point in buying a place, paying homeowner's insurance, association dues and a mortgage payment when I won't even be there.
Absolutely rent. When I was in your situation I'd put the vast majority of my stuff in the PCS orders' long-term HHG storage, try to live in the BOQ or even shipboard or else rent month-to-month from a flexible friend/landlord, and then deploy without having to pay a mortgage or rent.

I doubt that the price of home ownership will go up during the next six months. You have the ultimate arbitrageur's opportunity to sit on the sidelines without having to pay for your housing! All that plus liberty ports, tax-free income in a combat zone, and a paycheck too...

Guess I'll be calling USAA tomorrow. But not the Navy recruiter.
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Re: Unsecured loan/cap gains on house
Old 05-01-2006, 09:24 AM   #5
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Re: Unsecured loan/cap gains on house

Great - thanks for your comments.
Nords - the loan was a "precommissioning" loan - so you may not qualify I was able to get it after the fact.
I know I should just put everything in storage, and that's prob'y what I'll do. I just hate to do that, because by the time I get back, my things will have been in storage for 2 and 1/2 years! Crazy!
But - a good way to save money. - and let's you know how little you can live with.
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Re: Unsecured loan/cap gains on house
Old 05-01-2006, 11:25 AM   #6
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Re: Unsecured loan/cap gains on house

Quote:
Originally Posted by virginia
I know I should just put everything in storage, and that's prob'y what I'll do. I just hate to do that, because by the time I get back, my things will have been in storage for 2 and 1/2 years! Crazy!
But - a good way to save money. - and let's you know how little you can live with.
At least you're not paying hundreds a month for that storage. And when you know that you can live under conditions that would have most convicts screaming about cruel & unusual punishment, you can easily handle the occasional extreme home improvement or "quaint fixer-upper" real estate owner occupancy.

Here's a couple other ideas that might not be for everybody.

When I was still a single guy I bought a Charleston SC condo. I really hit it off with the realtor-- spouse of a submariner and very good at her job. She used to host weekend home searches where the RE company would pay the hotel bills of young submariners who'd fly in from somewhere (usually Submarine School in New London CT), spend the weekend on a house-viewing blitz, and then put in an offer on their way back home. She used to complain that some househunters needed more time but the company wasn't willing to put them up for longer than a weekend.

I used to know my patrol schedule to the day so I'd turn the keys over to her before I left for my 108-day business trips. She'd rent my place out as a furnished 2BR apartment, mostly to young househunting officers, and take her cut for "managing" the place. I pocketed $1000-2000/year between 1984-6. Otherwise I would've been paying a mortgage to store my stuff while hoping that no one broke into the place or set it on fire. If I was really on top of my game I'd find someone who wanted to rent my beater Plymouth Champ for $10/day for the duration. I'd occasionally return to Charleston and be homeless/grounded for a few days while people wrapped up their affairs, but a hotel was a luxury after the submarine and I usually didn't need to do a lot of running around that first week. Made it a lot easier to sell the place when I transferred, too.

Spouse and I knew many JOs who'd rent or sublet a multi-bedroom house of three or four occupants. At least one of them would be deployed at any time (usually two) so the remaining occupants would have a bigger home for less money. Of course the property could come to resemble a snakepit frathouse but carefully choosing roomates usually avoided that and it worked out very well for the owners who hardly ever had a vacancy.
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