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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Free Financial Education Class:
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.

Understanding Biz Credit Cards

Here is a special bonus for our readers; the Credit Union Guy gets real about Business Credit Cards with Erica Sandberg of CreditCards.com.

You have your high school diploma. Now what’s next?

You got your diploma, went to grad night, and stayed out until morning. What are your plans? You may have plans for college locally or away. You may have a job lined up for the summer. That’s what’s next for you, but what’s next for your money?

1. Have you opened a checking account? Was it at a bank or a credit union? If you opened your account at a commercial bank, you must enjoy paying fees to the bank. If you don’t enjoy paying fees to a bank, you can open your checking at a credit union and keep more of your money. It is not that credit unions don’t charge any fees, they just charge fewer of them than the banks do. Are you required to have a minimum balance in your bank account to avoid monthly service charges? Are you required to have direct deposit for a free checking account? If you don’t maintain these things, how much is the monthly charge? $10? $15?

Generally, at credit unions that is not the case. Most credit unions often offer checking accounts that are free of fees. There are no monthly service charges or minimum balance requirements. Direct Deposit is encouraged but not a requirement for a free account. Credit unions believe it is better for their members to keep their money than to take it from them in the form of banking fees.

2. Are you working? Then you should be saving money. Save what you can afford. If you have a car, you will thank yourself for saving some money. Cars don’t take care of themselves. Tires will go flat, batteries will go dead, hoses will spring leaks, and belts will break, all costing you money. Put some money away for that inevitable day when something goes wrong with the car. Just to tow your car five miles may cost you $100! Do you have $100 in your savings today? If not, you should have that as a minimum start amount and keep saving.

While we are working on savings, let’s talk about an emergency fund. As time goes by, an emergency fund will be important to you. A general rule of thumb for an emergency fund is six months worth of income. The emergency fund exists to fill gaps in your budget when unexpected expenses arise. Not just for fixing your car, but for emergencies such as getting transportation to visit sick family members, or your own emergency medical bills, or paying for your insurance deductible after a car accident are just some examples of good uses for your emergency fund. That emergency fund exists in case we find ourselves unemployed. That six months income in the fund may be what we need to bridge our income gap between jobs! So what’s the best way to save? Try allocating a portion of your check into a savings account as part of an automatic deposit or transfer. Think about it. If you get paid twice a month, that’s 26 checks in a year, if you only took $10 per check and had it automatically deposited into your savings, that’s $260. Now what if you doubled that to $20 per check? That’s $520 you’ve saved! And since it’s being automatically deposited, you probably won’t even notice it coming out of your check.

3. Do you have credit? Pay your bills on time so you don’t incur any bad credit and to help build strong credit. An unpaid bill can become a collection and hurt your chances to access credit. A cosigner can be very helpful in accessing credit such as a car loan or credit card. The cosigner is on the loan with you so they would suffer if you fail to pay on time. The cosigner is essentially putting their good credit at risk to help you. This should be treated with great respect. You must stay on top of any credit commitments made with a cosigner.

Are you more independent? Don’t want a cosigner? Perhaps a secure Visa or Master Card is in your future. Meriwest Credit Union (as well as many other CU’s) offers a secure Visa card that can be started for as little as $300. Send a $300 check with your application and, if approved, your will receive a $300 Visa credit card. Want a higher credit limit? Increase your security deposit. Your incentive is that if you don’t manage the card well you are putting your savings at risk. If the card is not paid on time, it could be closed and paid off with your secured savings. You would receive whatever is left after pay off. Be aware that these cards usually have an annual fee as well.

Whether you initiate credit with a cosigner or through the secured route, it will take some time to get yourself established. Rome was not built in a day and we don’t build a credit history in three months! Check CreditKarma.com to see your credit score and watch it grow as you manage your credit.

4. Do you have a car? Do you have adequate car insurance? There are a lot of car insurance companies that advertise very low rates and for good reason! They mainly quote the cost of the California Minimum Insurance. What are those minimums?

$15,000 for injury/death to one person.

$30,000 for injury/death to more than one person.

$5,000 for damage to property.

Let’s say you bought this exact amount of insurance. It is very inexpensive. Why? You have very little insurance. Let’s suppose you hit a new Mercedes Benz E-Class sedan from behind and the owner gets a neck injury like whiplash. If the car is totaled, it will cost you over $50,000 to replace it. How much do you suppose the hospital bills would be for whiplash? $100,000? $250,000? Whoa! More than that? Yep.

In this case, your insurance company will give the victim $5,000 for the damage to their car and $30,000 for the hospital stay. You are on the hook for the rest of it and it could be in the hundreds of thousands of dollars. If you don’t have hundreds of thousands of dollars in your emergency fund, you might want to budget for adequate insurance. It may cost you more than the super cheap minimum insurance, but it will help you sleep at night knowing you are not at risk of filing bankruptcy for a car accident.

These four things, opening a checking account, starting your savings, establishing your credit and properly insuring your car can make your financial life so much easier and put you ahead of the game. Many college graduates are not ready for their lives financially when they leave college. If you start your post high school planning with these four simple ideas, you can build a financial foundation that will serve you and your future family for the rest of your days.

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All About Business Credit Cards
On Wednesday May 14th at 10 am PDT the Credit Union Guy, Meriwest CU's Community Relations Manager, Greg Meyer, will take part in a Google+ Hangout with the team at Credit Cards.com to talk about understanding Business Credit Cards. It's fifteen minutes that will bring you up to date on the differences and the proper uses of a business card. Here is the link to watch: http://bit.ly/1i20MX4 .

Free Credit and Identity Theft Workshops

Preventing Identity Theft
Wednesday, May 21, 2014 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

Identity theft is on the rise. After the Target Store breach, what more can we expect and how do we protect our hard earned money from these thieves? We share some answers with you.

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

Do you know all there is to know about credit? We review the top ten myths of credit and explain how paying bills, collections, credit inquiries, and divorce can effect your credit standing.