Unmarried? Buying a Home Together? Read This!!!

Buying a home means making a number of decisions with your money, investment planning (remember, your home is an investment), and we must consider how to accept title in our new home as part of our estate planning. Generally,  California is a community property state. In California, a 50/50 division of community property between a married couple is strictly mandated by statute, meaning that the focus then shifts to whether particular items are to be classified as community or separate property. If one owned property prior to the marriage, that property can be vested as “Sole and Separate Property,” meaning that it belongs entirely to one party in the marriage.

Typically, in the absence of a Living Trust, married couples in California take title to property as joint tenants or as community property. But what if you are not married? What if you are cohabitating with someone and you decide to buy a house together?

Unmarried couples have many of the same decisions to make as married couples when it comes down to home purchasing. One of the most important is how to take title of the home. This can determine what can happen in the case of a dissolution of the relationship or a death of one of the parties to the home’s purchase. Let’s take a look at the different vestings available to unmarried couples and some of the details involved with each particular vesting.

To be sure, I am not an attorney. The information I provide here is rather basic so for additional details, please consider consulting with a Realtor, a lawyer or an investment adviser who can help you with some estate planning.

Individual vesting: In this case, only one individual of the unmarried couple owns the property and owns 100% of it. The other individual has no ownership involvement or rights. If the owner dies, the surviving member of the couple is out of a home unless the beneficiaries selected by the decedent (dead) owner allow him or her to continue living in the home with a rental agreement. The owner can bequeath the property to their unmarried partner in a will but that opens up a can of inheritance taxes and Legal issues.

Tenants-in-Common: This vesting is most common for investment properties with multiple owners. In the case of unmarried couples, some people like to retain what is theirs or at least have a dividing line to say this part is mine and that is yours. This is particularly acute when one party to the transaction provides a larger portion of the down payment of a new home. Tenants-in-common allows each borrower to delineate their ownership percentage of the home. If two people have equal down payments and will share 50/50 in the mortgage, the percentage could be set at each owning 50%. If the down payments are unequal or one party will be paying a significantly larger portion of the mortgage, the couple must work out who owns what percentage; 40/60? 30/70? Also, in Tenants-in-common each can leave their portion of the home to their own selected heirs. Their ownership does not automatically revert to the surviving tenant or tenants. You can leave your ownership interest to the dog if you want! This creates some sticky situations if the decedent tenant leaves their portion of the home to someone with whom the surviving tenant does not get along.

Joint Tenants: In Joint Tenancy, the owners own 100% of the property together. There is no delineation of who owns what percentage of the home. Joint Tenants must both sign documents when transferring the property or using it as a security for a loan. Joint Tenancy is often written on title documents as “Joint Tenants with right of survivorship,” meaning that when one tenant dies, the other tenant inherits the property and owns 100% of it. That tenant now owns the entire home and has the right to select his or her own beneficiaries for the home in the case of their own death.

Community Property (with right of survivorship): This vesting is intended for married persons or domestic partners. Similar to Joint Tenants, the tenants own 100% together. There is no delineation of ownership percentages. Since all such property is owned equally, both parties must sign all agreements and documents transferring the property or using it as security for a loan. Adding the “with right of survivorship” may add some tax advantages. On the death of an owner, the decedent’s interest ends and the survivor owns all interests in the property.  

Trusts: Unmarried people may also take ownership in the form of a trust. The trust documents will determine each parties’ (trustees) ownership percentage and will determine what takes place upon the death of a trustee. In this case, funds could be left to the surviving trustee or decided in advance who will inherit the ownership. They can also designate who would manage the trust (successor Trustee) in the case both owners perish at the same time.

If you are unmarried and thinking of buying a house, this is a great time to do it. Despite the lack of inventory in some areas, interest rates remain historically low. There is a lot to take into consideration when purchasing a home such as the neighborhood, schools, transportation availability, shopping,  down payments, loan terms, and how you will take ownership; your vesting.

When the time comes to purchase your new home, don’t forget to check your credit union’s mortgage rates. Judging from the volume of home purchase loans we are doing today, our interest rates and loan terms must be very competitive!

Link for additional information: http://www.clta.org/for-consumers/consumer-holdingtitle.html

This link is to the California Land Title Association's website for vesting information.

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Credit Myths & Credit Repair
Wednesday, May 28, 2014 - 6:30-7:30 p.m.
Chesbro Financial Center

5615 Chesbro Ave, San Jose, CA

Your credit is one of the most important things you need to know the FACTS about. Protect your credit by learning about credit Myths vs. Facts.

Should I pay off my Home's Mortgage?

Is paying off your home necessary? There are some who say that paying off your home mortgage is the best thing you can do and others who say your regular monthly home payment pays you some important financial dividends. Who’s right? They both are. You just need to decide which course is right for you.

What are your benefits if you continue making your regular monthly payment on your home loan?

·         You will continue to have a tax write off of the interest and property taxes you paid on your home. This can save you on your taxes provided the deduction is more than the U.S. IRS standard tax deduction.

·         Money you might add to your payment to pay off your loan early can be dedicated to retirement investments. Enlarging your account and improving your overall retirement plan.

Recent surveys show that 50% of seniors aged 65-74 still have a mortgage or other loan on their homes. This debt can be difficult to pay off if one no longer has earned income. There is a lesson we learned during the last recession; adjustable mortgages and fixed incomes do not mix.

Important Tip: If you are approaching retirement and still have an adjustable mortgage, it is time to refinance and get a fixed rate loan as soon as you can. A one percent increase in a $300,000 mortgage can make the monthly payment go up well over $200! Can your retirement income survive an increase such as that?

Many of us think about paying our home off early. Homeowners often dream of the day they can have a mortgage pay off party where neighbors and family come for the ceremonial burning of the deed papers. What are your benefits in making larger payments during your peak earning years on your mortgage?

·         You will pay less interest for your home over time.

·         After the home loan is paid off, you will have more liquid money available to you on a monthly basis. These are funds that can be dedicated to IRA’s and other retirement programs.

·         If you remain in the home when you retire, you will not have a monthly mortgage payment so your retirement money will go farther and your home will still have equity. This gives you greater financial security.

·         You will still get to write off your property taxes provided the standard deduction is less than your total tax deductions for your income level.

·         Should you need it in your future for personal care as a senior, your home equity is available for a reverse mortgage.

For seniors who have owned their homes for many years, the income deduction on their home may be minimal and, even with property taxes, inadequate as a tax deduction. It may be time to start thinking about your time horizon. When will you retire? Would you benefit most from a mortgage payoff or would maintaining your mortgage be a better plan?

If you have a specific time horizon in mind for paying off your loan, go to an amortization calculator on the web, (we have them at www.meriwest.com/calulators) enter your principle and interest rate and the term in which you wish to pay it off and the program will return a monthly payment for you. That payment will make it possible to pay off your loan within your time horizon if it is maintained throughout the remaining term of the loan.

Remember that any additional money you include with your payment will always be applied to your principle balance. You can do this on a regular monthly basis or apply a lump sum annually to reduce your principle amount. Either method will pay your loan off faster.

Please be aware of any prepayment penalties that may be included in your loan paperwork. These can make it difficult to pay a loan off early as it charges you a penalty amount for paying off your loan prior to maturity or a certain time period, such as the first five years of the loan.

For many, the only acceptable home loans are those that do not have prepayment penalties for early payment of principle. These penalties can prevent you from paying off your mortgage and prolong the pain of paying interest to the funder.

Interest expense is the largest single expense we have in our home purchase. It will be more than our downpayment. Often, if you pay your loan for the total of the thirty year term, you will pay out an interest amount more than the original amount of the first mortgage. This is dependent on the interest rate.

As homeowners, we need to decide if paying interest after retirement makes sense for us in regard to our personal tax and income situation.

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Would you like to learn more about retirement planning? Cetera Advisors LLC* have formed a partnership with Meriwest Credit Union to offer a complete array of financial investment options and personalized financial planning designed for your specific personal needs. Comprehensive financial planning, long-term and short-term investment strategies and retirement planning are available to all of our members on a confidential basis.

You can discover your options by meeting with one of the registered representatives in the convenience of any of our Meriwest financial centers or by calling (408) 866-1002.

* Security and advisory services offered through Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency), member FINRA/SIPC. Cetera is under separate ownership from any other named entity. The products offered are not insured by the NCUA, NCUSIF or any other regulatory agency, are not deposits or obligations of, nor guaranteed by the credit union or any affiliated entity, and may lose value.

Adustable vs. Fixed Rate Home Loans

Are you thinking of diving into the market and buying a new home? Home Loan Rates are at a historic low point. Fixed 30 year rates have just gone below 4.00% and could go lower if the real estate market stays slow for now. Interest rates are not effected by gravity so when they go down, they will not stay down. They will go up when the economy heats up. That could be by the end of 2012 or it could be a year or two away. The economic situation is very fluid right now.

This brings me to my point; rates don’t have very far to fall but they have a lot of headroom to rise. On a loan taken out today, an adjustable rate can go down a little bit over the near term, but those who have a new adjustable rate mortgage need to be conscious of the movements of the market and be prepared to refinance to a fixed rate loan quickly. The best bet is to grab a fixed rate mortgage now. At 4% a borrower is borrowing at one of the most significantly low rates in recent U.S. history!

The Fed says that rates will remain low for a while. If there is a fix to the EU Debt Crises and our economy heats up, rates can go up fast. We have seen it repeatedly since 1978. Each time a recession has ended, lending rates went up quickly. Those with adjustable loans were hit the hardest as their loans are tied to the Fed rate, LIBOR, or the prime rate. Those rates can be very volatile in a heated economy. The Fed controls the money supply with interest rates. If the Fed governors feel there is too much easy money or because of the easy money they are seeing inflation, they can put the brakes on the economy and slow it down with a rate increase.

One last thing to keep in mind is a lender’s spread; the amount of interest he makes on money he lends vs. what he is paying for savings accounts. Typically, the spread should be about 2% or greater between the average interest rate being paid on savings vs. the average overall loan rate. Right now, financial institutions are paying less than 1% on savings accounts. There is room for rates to go down a little bit so that may make an adjustable loan more attractive. Many adjustable loans can go up 2% in one year. Thus, one can go from 3% to 5% on a mortgage loan in about a year. That would cause the payment to increase pretty dramatically. I think this is a good argument for a fixed rate loan. 

Our next financial education workshop is:
 Free Financial Education Class: Auto Financing 101
Wednesday, June 20, 2012 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA