Month: June 2014

Should You Buy a Home Before or After Marriage?

All lovebirds need a nest, and nowadays you and your significant other don’t need to wait to tie the knot before you purchase a place to roost together. About one in four married couples between the ages of 18 and 34 purchase their first home together before their wedding date.

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Yet, not all couples are suited to joining the pre-wedding, home-purchasing flock. Here are four tips to help you and your partner decide whether signing on the dotted line before or after you sign your marriage certificate is in your best interest.

1. Consider Credit Scores

If you are committed to purchasing a home with your partner, the decision to do it before or after you are married could hinge on finances. Banks generally view married couples as one unit. Unmarried couples are assessed as individual applicants even if they are applying for a loan together.

If you are not married and both you and your significant other have good credit histories, your chances of qualifying for a mortgage loan increase when you apply as a couple.

If you apply jointly for a mortgage and one of you has bad credit, it can affect your ability to secure a loan, or to secure the loan amount needed to buy your desired home. In that case, having only the individual with good credit apply for a loan on his or her own before the marriage might be a good option. With only one person applying for the loan, however, their individual income may lower the loan amount from what your two incomes could otherwise qualify for.

Another option is to wait to purchase a home until after you have been married for a few years and the person with bad credit has time to boost his or her financial score.

2. Add Up Savings

In addition to securing a mortgage, a home purchase will require a down payment and payment of closing costs. Combining income and savings may help you qualify for a bigger loan and allow you to put down a larger down payment to reduce the amount of your monthly loan payments.

Many couples, whether married or not, try to contribute equally to the home purchase. If you are making unequal cash contributions and are not married, you would be wise to note the details in writing, just in case you part ways before your nuptials and need to divvy up equity in the property.

3. Title Matters

Whether you are married when you purchase a home affects how you take title of the property, because it determines legal ownership and how courts will transfer property ownership in the event of death.

Some states only allow married couples to hold title as community property. If a spouse dies, then only half of the property can be transferred to the decedent’s heirs. If only the deceased person was on the title, the surviving spouse still can acquire a community interest in the property. Some states require married couples who want to own real estate separately to sign a quitclaim deed from one spouse to the other.

If you are unmarried and sign the title as tenants in common, both of you have ownership in the property. If one person dies, the decedent’s ownership does not automatically transfer to the other owner, unless that person is named in the will. Joint tenants, however, will automatically pass their interest in the property to the other person in the event of death.

If you intend to buy a house with your partner before marriage, experts advise that you both sign a legal agreement to avoid altercations down the road. Should any snags occur in your relationship when you are not married, you and your partner do not have the same legal protections as married couples, and breaking up co-ownership of a house can be a messy ordeal. A legal contract between an unmarried couple should fill in the blanks as to who is responsible for expenses, the mortgage, taxes, capital gains, property title and more.

4. Prepare for Commitment

Eighty percent of all married couples who bought a home together said the purchase strengthened their bond more than any other purchase they made. That makes sense, according to Robi Ludwig, a psychotherapist and Coldwell Banker Real Estate LLC lifestyle correspondent, because couples who purchase a home together must be frank about their finances, career aspirations and future family plans as they affect the location, size and price of the home they buy,

“Even the closest couples are still two separate people with two separate ideas and agendas,” but searching for a home together can bring up a couple’s different priorities and ideas about life, Ludwig said. “They learn how to be practical with each other and compromise … it bonds two people together and makes them family.”

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Trouble Saying Yes? Here’s How to Commit to Homeownership.

You’ve saved for a down payment. You’ve pored over the local listings for months. Touring open houses has become part of your weekend ritual. But months, perhaps years, have passed and you are still in your rental.

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For many first-time homebuyers, pulling the trigger on a purchase can be a frightening experience. Will you be happy there? Will you like your neighbors? Will you be tied down—house rich and cash poor? What if you lose your job? Will you hate your commute? In short, your fears stem from the unknown.

Meanwhile, your current home is familiar. You’ve come to accept its shortcomings—the loud neighbors, the leaky ceiling, the scant street parking. It has few surprises. Your family, friends and co-workers took the leap and are reaping the benefits. Give these steps a try and you could be one of them:

Firm Up Your Finances

Anticipate the new costs that you will incur, such as taxes, homeowners insurance, utility bills and commuting. This will help determine the maximum price you can spend on a house. If your daily budget will change with a new home, consider a trial run living on that budget for a few weeks, to make sure you can. Enlisting the help of a financial expert will give you an objective view of your finances. Remember, the first year is the most difficult. After that you will begin receiving tax benefits.

Partner With an Agent

Even though the Internet gives you access to endless amounts of market information, don’t be tempted to go it alone. Instead, interview several real estate agents and find one you like who listens to you. He or she can line up properties to view, answer many of your questions and make connections for you in your new community. Agents often have the inside track on new properties just coming on the market.

Accept Some Risk

Realize that there is uncertainty in everything, but no matter what happens, you will deal with it. Ask family and friends about their experiences and learn from them. Be sure to keep some cash reserves in the bank as a safety net. And remember, you have homeowner’s insurance for a reason.

Fine Tune Your ‘Must-Haves’

Is there a community that you absolutely must live in? Are you adamant about a garage, a fireplace or a finished basement? Make your list of what’s vital. You may find that you are willing to sacrifice one feature if the rest are fabulous. If you are not crazy about the house, don’t bid. It’s important that you love it at the outset.

Be Ready to Bid

Regardless of the market, great houses do not stay available for long. One open house can lead to three offers. If you love it, be ready to make your best offer. If you are wavering, ask yourself, “How will I feel if I don’t get this house?” You might just get it, and if not, at least you will know you tried.

Reap the Reward

Owning a home can be one of the most exciting and satisfying things you will do in your life. It’s an investment that can pay you personal dividends as well as financial benefits.

How to Fulfill Your Fantasy With a Custom Home

If you dreamed as a child of someday owning a home with your own dance studio and ballet barre, or a personal game room with a Skee-Ball machine alongside an indoor putting green, then a custom home may be your best option to making that dream come true.

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While buying a home fulfills a big part of the American Dream, building a home to your specifications elevates the experience. Before you begin to make decisions about your future home, you will need to spend significant time learning about the custom-home building process.

Organize Your Financing

Building a custom home isn’t necessarily more expensive than buying a newly built or existing home since it’s possible to build a small custom home, but sourcing all materials on an individual basis rather than in bulk can raise the price above production homes. The important thing to understand is that your decisions about the land you buy, and the design and quality of construction you choose will impact the final price.

Financing a custom home requires a construction loan, something not all lenders offer. If you don’t already own land, you will have to finance the land purchase and then the construction. Often you will have two closings, each incurring settlement fees.

Since building a custom home is considered risky by lenders, you typically need excellent credit and a down payment of at least 20% to 25% to qualify for a construction loan. In addition, lenders typically require more cash reserves for borrowers who are building a custom home to ensure that they have funds in place for any glitches that extend the construction period.

Make sure you check into appropriate insurance, too, during the construction period.

Interview Architects and Builders

If you already have a sense of the type of home you want to build, you can begin searching for architects in your area who design similar residences. Some custom-home buyers opt to find a builder first who can then recommend an architect, while others choose to hire an architect first. There are also design/build firms that handle the entire project. No matter which route you choose it’s important to check references, interview potential partners and visit examples of their work to see the quality before you finalize your choice.

Start With Land and a Plan

If you already own land, you should meet with potential builders and architects at the site so you can discuss potential issues and plans. If you don’t own land, some builders can help you find a site or they can direct you to a REALTOR® who can help. It’s essential that your home design and land plan match: You wouldn’t want to design a residence and then find that the site you’ve purchased can’t accommodate it.

Your builder should walk the property with you and determine how much preconstruction work is required, such as the placement of utilities, a septic system and a driveway.

Consider the Neighborhood

Most people who build a custom home believe they will never sell it, but eventually you may want to move to a different area or even build another custom home. It’s always wise to consider resale value when building a home. In particular, you want to match the price range and general size of your custom home to others in the neighborhood so that your house doesn’t stand out as oversized or overpriced.

Avoid Delays and Cost Overruns

Planning your home from the foundation to the roof and every single item in between can save you time and money when you are building a custom home. Your decisions about every detail in your home should be made before construction begins so you can reduce the possibility that materials won’t be available when needed, or that you will need to rip out things already built to accommodate a change order.

Good planning and hiring a good team can make the custom-home experience as easy as dreaming.

Don’t Forget These Costs When Buying a Home

You’ve crunched the mortgage calculators, estimated your tax payments, and taken a realistic look at how much house you can afford. You’ve stuck within your range when scouring the listings, being careful not to bust your budget.

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But there are more expenses involved in home buying than just the property costs. And those additional payments, if you don’t factor them in, can be high enough to derail your conscientious planning.

Here’s what to keep in mind:

Buying Costs

You’ve got your mortgage pre-approved, but that’s not all you will need to fork over to get the keys to your new place. Services that need paying:

  • Your buyer’s agent fee
  • An appraisal to confirm a reasonable market price for the property
  • Inspections of structural, mechanical, pest or other potential issues
  • A real estate attorney to review all contracts (depending on the state)

Property taxes vary widely, up to 4.2% of a home’s value in some states, according to a CNN map published in 2013. Depending on when you buy, you may owe the previous owners for property taxes they have already paid. You may also need to pay fees to a local association, such as a condo homeowner’s association.

Moving Costs

Moving into a home can involve major expenses for packing, storing and transporting your possessions and yourself. If you are moving across the country, the costs could be significant. Even moving across town can cost more than you planned for truck rental, movers and equipment.

Utilities

Setting up your telephone, electricity, gas and water—did you budget for these expenses? They could cost more at your new place, especially if you’re moving to a larger home or from a rental.

New Stuff

You may need to purchase appliances or furniture for your new home. Some items, like your old particle board bookshelves, may not be worth the cost of moving. Again, if you are sizing up, you face the potentially fun, but possibly financially draining, challenge of filling the new place.

Maintenance and Renovations

Trees fall on roofs. Gutters need cleaning. Driveways need repair…. A standard rule of thumb is to budget at least 1% of your home’s purchase price each year for home maintenance costs.

Maintenance can include things such as painting, replacing roof shingles, fixing or upgrading plumbing and wiring. The amount you will need to pay for maintenance can depend on the age of the home, the previous owners’ upkeep and the climate.

Homeowner’s Insurance

You won’t be able to obtain a mortgage without homeowner’s insurance covering both the property and its contents. However, the standard insurance may not cover natural disasters such as floods, tornadoes and earthquakes. Depending on where you live, you may want to consider taking out additional insurance to cover such risks.

Private Mortgage Insurance and Title Insurance

If the down payment on your home was less than 20% of the purchase price, you will have to pay for Private Mortgage Insurance. PMI protects your lender in case you default. It’s standard, and fees vary. The rules are complicated, but usually once you have paid down the mortgage so you owe less than 78% of the purchase price, you can drop the PMI payments.

Title insurance offers protection for you (and your lender) if you later discover that someone else could lay claim to the title, and therefore ownership, of the house.

Even if you are lucky enough to avoid paying for PMI, you find a low-cost attorney you can trust, and you have a modern, energy-efficient house, these expenses can still add up to thousands of dollars. That prospect should not scare you away from homeownership, but it always helps to be prepared.

The Home-Buying Pitfalls for Unwed Partners

Married couples have a large body of law to protect their rights if their unions dissolve. For unwed or domestic partners who want to own property but who don’t want to (or can’t) get married, the law is less clear.

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This includes same-sex couples, who face a ragtag quilt of laws and rights when it comes to ownership and inheritance, depending on the state they live in.

Paper Trail

It may seem pessimistic, but hiring a lawyer to help the two of you craft a written agreement or contract can save a lot of headache. Don’t leave it to chance. If your relationship has a solid foundation, this agreement should come easily to you.

The agreement should include how much each party pays for:

  • The purchase price
  • The mortgage
  • Taxes, utilities and maintenance

Include how much equity each partner will receive in the event of a sale. And be sure to state who will own the home in the event of the other partner’s death. By doing so, you protect the surviving partner from losing the home to a relative of the deceased partner. If a woman dies, her home could go to her closest living relatives—her parents, for example—leaving her longtime partner little recourse.

You might also want to consult an accountant. For example, it might be worth putting the house entirely in one partner’s name for tax purposes—another reason to put down on paper everyone’s responsibilities toward paying for that new roof over your heads.

Brace for a Breakup

No one wants to see this happen, but let’s be real. Married or not, settlement issues become more complicated if one partner decides to remain in the home after a breakup.

Some questions to consider:

  • Does the person moving out have a stake in the home as an investment?
  • Can one partner buy out another?
  • Does the partner who moves out keep paying part of the mortgage?

If a home is sold, the division of proceeds won’t always be a 50-50 split. For example, if only one partner made the down payment, he or she may be entitled to a greater share.

If agreements aren’t in hand, the parties must rely on an appraisal of the property to determine its value before a buyout can take place. Partners in that situation should ask their loan company to remove the name of the departing partner from the mortgage. An alternative is to refinance the loan under the remaining partner’s name.

It’s difficult to sell a jointly owned home for its full value when the housing market is in decline. In such cases, separating couples may wish to temporarily continue to own the home together. Or they might prefer to sell and divvy up the proceeds.

Financial Disclosure

If you decide to take out a home loan in both parties’ names, each will need to make a full financial disclosure. If you haven’t shared your full credit history with your partner, do so. If either partner has problems that will lower their score from one of the major credit bureaus—Equifax, Experian, TransUnion—they should take steps to correct any errors on their report and improve their score before applying for a mortgage.

No one can accurately predict the success of a relationship. So if you buy a home with another person, enter the partnership with your eyes open, hope for the best, and have a detailed plan for how to proceed if the relationship ends.