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.

Financial Tips, Ideas and Rules of Thumb

All my life, people have been giving me tips. Some were much better than others! Here are some of the more useful tips I have picked up over my years in finance.

#1- Don’t bank at a bank. Bank at a credit union.

Save time, money, and hassle! Be an empowered member of a credit union rather than a powerless customer of a bank. Since credit unions are not for profit corporations, they give their earnings back to their members, not stockholders. Keep more money in your pocket with better interest rates on savings accounts and lower rates when you borrow. Enjoy more available ATM’s than any of the big banks can offer and significantly lower fees than banks charge.

Credit Unions also offer shared branches and ATM’s. When you need to make a deposit and you are not close to your regular credit union, you can go to a shared branch or ATM and make that deposit to your account from virtually anywhere in the nation. If you bank with Meriwest Credit Union you can make a deposit at a shared branch of any other CU! Would Bank of America let you make a deposit to your Wells Fargo Bank account at their BofA ATM? Or inside the Bank of America branch? No way! Only Credit Unions do that.

Don’t pay monthly for something that should be free!  I am talking about your checking account. Your credit union can provide you with a checking account that is free of monthly charges. We specialize in free checking accounts.

General Rules

Save 10% of your take home income. If you are over forty and just starting to save, you might want to up that to 30%. The 10% rule has been around for years. The 30% for over 40 rule is new.

Your emergency fund should equal six months’ worth of income. After college, this is the first thing you save for after landing your first job.

If you are not willing to pay cash for it, then it makes no sense to buy it on credit. If you don’t want to pony up the cash, why would you want to pay interest on it?

When buying a car, add at least 10% on to the purchase price of a new or used car to allow for sales tax, registration, and license. In states with lower sales tax than California, consider your sales tax plus at least 1% of the vehicle’s value for registration.

20/4/10 rule of thumb for buying a car. You should pay at least 20% down, finance for no more than four years, and the payment should be less than 10% of your income. The first part of this rule prevents you from owing more than the car is worth, and the last two parts prevent you from buying more car than you can afford.

No Brainer Retirement Rules

Do not invest more than 10% of your retirement savings in your employers stock. It is a good idea to diversify, no matter how much you love your employer!

Rule of 72: To determine how long it will take an investment to double, divide 72 by the annual return/interest rate. If you’re earning a 7% return, your money will double in approximately 10 years. But if you’re getting 12%, it takes only six years to double up your original investment.

Always accept the employers match on your 401k. It pays to put in at least the minimum to get all the match dollars you can.

Unless you are retired, never touch your retirement savings. Period, end of story. Retirement savings is not for buying a home, a car, an engagement ring, or anything else but retirement!

( Want to learn more about what you can do to improve your chances for a comfortable retirement? Our partners at CU Financial Partners can provide you with the advice you need to retire worry free! An appointment can be set with them at any of our Financial Centers. )

Credit Rules

Always pay off your highest interest rate cards first. There is no benefit in you paying interest to a financial institution. Work to pay off your highest interest rate cards first. After paying them off, take the dollars you were paying on the highest rate debt and add them to the money you are paying on the next highest interest rate debt, and so on down the line until all debt is paid. This process amplifies the speed with which you pay off your debt.

Don’t cosign loans for anyone. Maybe you want to help your kids and that’s fine. You know your kids and whether or not they will be good payers on the debt. It is a judgment call. But, don’t cosign for relatives, in-laws, friends, boyfriends, girlfriends, Baby Mamas, and Baby Daddies!

Refinance your home when interest rates have dropped by 1% from your current mortgage. I have trouble with this rule as every time you refinance, there are costs involved like loan fees, points, title and documentation fees. If I had a 7% mortgage rate, would I refinance when rates dropped to 6%? And again at 5%? Consider the costs of your refi, if the cost is more than 1% of the loan amount, you might wait until rates drop farther to make it a better deal for you.

Don’t take out more in student loans than you can expect to make the first year of your new job. If you are going into social work, your annual pay may be in the vicinity of $35,000. It does not make sense to have a $50,000 student loan bill. $50K in student loans would be more inline with an engineering or computer science degree. The idea here is to give the new graduate a fighting chance at paying off their student loan debt in a reasonable amount of time.

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Meriwest Credit Union
CAR SALE!!!
 November 9th and 10th at the Meriwest Credit Union Main Office 
5615 Chesbro Ave, San Jose CA 95123
Come to see our wide selection of late model, gently used cars offered at bargain prices by our MCU approved dealers.