| Your Situation | 8 items found |
Your Situation
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Homeownership is not age dependent, but the purchase of a home, whether it is a condominium, single family, town home or second home, can be a reflection of the stage a person is in life. Because your home is an integral part of your life, it’s important to manage your mortgage and your finances through life’s many changes. | Common life situations, such as marriage, living together, an addition to the family or buying a second home, can dramatically change your priorities, so it’s important to carefully review your financial picture at all stages. Your spending patterns and the type of home you could afford when you were first married may be totally different once you have children, or when you are preparing to send your children to college. Divorce or separation, an injury that affects your income, or inheritance due to the death of a spouse brings changes to income and the original requirements you may have used when purchasing your home. In an effort to help you keep on the right path, this section of Home Loan Learning Center provides information about buying and owning a home and managing a mortgage during many major life situations and challenges that people encounter when circumstances change.
Single
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Many single people prefer to buy a home and build equity for themselves rather than pay rent to someone else. If you've been at the same job for a while and anticipate staying in the area you currently are living, buying a home is a great way to invest in yourself. Here are some tips for getting started: | Budget yourself Figure out how much take-home pay you have each month. Add up your expenses. If you are spending more than you earn, cut back on extras like lunches and dinners out, cappuccinos and new clothing. Find a way to set aside savings each month, even if it’s only $100 or $200. Did you borrow money for college? Work towards paying off debt from student loans. Do you owe money on your credit cards? Make those payments on time. Work toward paying more than the minimum due on your credit cards -- or you’ll never get that balance paid off. The calculators at www.choosetosave.org can show you how long it will take to pay off your balances. If you make a double payment, remember that you still owe the next month’s minimum payment by the due date. Save for a home and retirement If you find it impossible to save money, trick yourself by having the savings automatically withdrawn from your paycheck or bank account. Tell the human resources officers where you work what you’re saving for (retirement or a home) so they can set up the right savings plan. Or ask your bank to automatically transfer money from your checking account to a savings account or investment fund each month. Establish credit How is your credit? You can get your free credit reports (they are free once a year) and order your credit scores (a small fee is charged) from all three national credit reporting agencies at www.annualcreditreport.com. If you have little or no credit, start building good credit by applying for a credit card where you bank. Make small purchases and pay the entire bill before the due date. Are you a chronic late-payer? Have the credit card issuer set up automatic payments from your checking account. If you pay even one month late, your credit score will fall. The lower your score, the more interest you may need to pay when you borrow money for a home or a car.
Living Together
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Many single people purchase their first house with a friend; both parties can benefit from the investment in homeownership and reduce the financial burden and risk. Friends who buy houses together need to legally protect themselves from life's changes. They may not be friends forever; one person may need to move away for marriage or other reasons, so before friends buy together, they should visit an attorney together to write a property agreement. | For tax reasons, it is important to keep good written records about who came up with the downpayment, who makes the monthly payment and who pays for upgrades and repairs, or how all the financial obligations to owning a home are split between the owners. Just because you are not married does not mean you can't go through the same headaches as married couples who divorce. If you decide ahead of time how you will handle a break-up and put that in your property agreement, you may save yourself a lot of arguing and attorney fees if a break-up occurs. You may decide that if either one of you wants to sell, the other has 60 days to get a mortgage to buy out the other person's half of the house. If you disagree about the value of the house, each of you can hire an appraiser and you can average the two appraisers' estimates of your home's value. If you and a friend are joint tenants and the other person dies, you get the house. If you are tenants in common, the partner can Will half the house to someone else – someone who may force you to move out and sell the house. You can Will each other a life tenancy, so that your partner's heir has to wait until you both die to collect the inheritance. Make sure you know what happens if you both die and you Will the property to different people. And while joint tenancy may help keep probate costs down, you may still owe state or federal taxes after the death of your house partner. In a handful of states, registered domestic partners automatically inherit, but having a Will or a living trust is a surer bet. Other states allow community property, where you each own half the house and your Will says what happens to your half when you die.
Married
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Even if you’ve talked to your spouse or future spouse about children, politics and sex, can you tackle the really difficult subjects like money, credit and finances? When you marry someone, you marry his or her credit history too. Unless you earn enough to pay for houses, cars and other big-ticket items on your own, your spouse’s credit will be “married” to yours when you apply for a home loan or credit card. | Review Your Finances Before you say “I do,” it’s a good idea to get a copy of each other’s credit history, which you can do at www.annualcreditreport.com (free once a year). Use the reports to talk about the debts you each bring to the marriage and how you’ll pay off those charges. Don’t kid yourself into thinking that a future spouse with bad credit won’t taint your financial life. If your fiancé has unpaid child support or court-ordered judgments, his or her creditors may try to take joint assets, such as a home you own together. If your fiancé has poor credit and you pay your bills on time, try to convince him or her that you should be in charge of all bill paying. If you both have poor credit, sit down and plan your post-wedding monthly budget, and don’t add to your money troubles by financing an expensive wedding. Is this your second marriage? Ask an attorney to set up a pre-nuptial agreement and a trust for assets you want your children to inherit, otherwise your spouse's children may inherit the assets if you die before your spouse. Even if one of you covers the mortgage and all the home-related bills, your home may still become a joint asset in a second marriage. If you each have a home, consider turning one of the houses into a rental property instead of selling it when you move in together. Owning a rental property can help balance your savings portfolio, and since rental income usually rises over the years, a property can be a good source of extra retirement income. For a bit of extra insurance, have the house you bring to a marriage appraised just before the wedding, and tuck the appraisal away should you need to prove the home’s value in case of divorce. If you have two houses and decide to sell one, consider the capital gains consequences. You will not pay capital gains taxes on your home sale profit (up to $250,000 for singles and $500,000 for married couples) if the home has been your principal residence for two of the past five years. So you may want to sell first and marry second. You can then move into your new spouse’s house, wait two years and qualify for the capital gains tax rule again if you want to sell. Married couples usually own their homes as tenants by the entirety, meaning that if one of you dies, the other automatically inherits the house without having to go to probate court.
Divorced or Separated
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Divorce is hard enough without having financial troubles added to your marital troubles. To guard yourself financially in a divorce, you need to immediately put an end to joint credit, including your mortgage and credit cards. | No one can kick you out of your own house, including a spouse who wants to divorce you, although courts typically give the house to the parent who has the children during the week. If your spouse wants to keep the house, insist that he or she refinance the mortgage so you’re no longer responsible for the payments. If he or she doesn’t refinance and pays late, your credit will be blemished. When you try to buy another house, your lender may count the mortgage on the old house against you. If you agree to wait to sell the house until the kids leave for college, talk to your accountant about the tax situation. Get a full credit report for each spouse from each of the three credit reporting agencies at www.annualcreditreport.com (free once a year) so you know exactly how much you both owe. Once you decide who is paying which debts, close each account and move those balances to new accounts that are not joint accounts — in case one of you pays late. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), you may be responsible for your spouse’s debt even if it’s not a joint account. Cancel all joint credit cards and lines of credit immediately and have your mail sent to a mailbox that locks to ensure your spouse doesn't have access to pre-approved joint account offers that come in the mail. Write to each of the three credit reporting agencies (www.experian.com, www.transunion.com and www.equifax.com) to let them know you are divorced or separated. In community property states, you each keep what you brought into the marriage, things you inherit, court awards, and pensions earned before you married, so gather any documents that prove what you had before you wed.
Injury and Disability
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Unexpected illness or injury can quickly drain a family's savings. Personal savings rates in the United States have steadily declined since 1980 — when the average savings rate was 10.4 percent — to a rate of 0.5 percent in 2005, according to the U.S. Department of Commerce, Bureau of Economic Analysis. To put the savings decline in perspective, Americans now spend more than they earn, and that has not occurred since the Great Depression. | It is the lack of savings and the absence of a financial cushion in case of unexpected loss of income that contributes to mortgage delinquencies and foreclosures when a family suffers an unexpected illness or injury. In the case of a serious injury that prevents a homeowner from working, the first step should be to see the lender immediately to start a dialog. Don't wait for that first missed mortgage payment to occur. Be prepared to provide your lender with any requested documentation, and if the injured person is entitled to receive some disability income or worker's compensation, don't assume it will just arrive in the mailbox. Follow up with the providers to ensure the income is provided and tell your lender how much it is or will be. The more diligent you are in your efforts to pay your mortgage or part of your mortgage, the more willing you may find your lender in helping you manage your family crisis without having to worry about losing your home. While working through the steps of purchasing a home, financial planning for injury or illness usually does not enter into the home purchaser's mind. However, not planning for the unexpected can be what leads to loan delinquency, foreclosure and ultimately bankruptcy. In a 2005 Harvard study, nearly half the respondents cited that they filed for bankruptcy due to medical reasons, and more than 25 percent said they filed for bankruptcy specifically because of illness or injury.
Retirement and Estate Planning
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This section's goal is provide resources to people who are beginning to think of the financial implications of retirement. It does not provide estate planning advice. However, it does provide insight into some common questions people have about retirement including: will I have enough savings or retirement income; how do I plan for unexpected long-term healthcare costs; what is a reverse mortgage; why should I have a will? There is a wealth of information on the reverse mortgage loan product, which is gaining in popularity, but similar to other loan products isn't a fit for everyone. | House rich, cash poor If you’ve got a home that’s valuable and you need monthly income but don’t want to sell your home, you may want to consider a reverse or home equity conversion mortgage (HECM). A reverse mortgage pays you something from the equity in your home every month and you can continue to live in your home until your death. View a list of Reverse Mortgage Loan Myths. Retirement income Will you outlive your retirement savings? How much will your expenses be? To find out, check the calculators at www.choosetosave.org. The longer you put off retirement, the longer your savings will last, and the more equity you will have in your home. Long-term care expenses If you or your spouse can no longer live at home, you’ll find that long-term care costs range from $55,000 to $100,000 in urban areas per year, with home care agency rates averaging from $18 for a home health aide to $37 or more for a licensed practical nurse. Consider purchasing a long-term care insurance plan to protect your assets. Read about long-term care at the American Association of Retired Persons (AARP) Web site, http://research.aarp.org. Buying a retirement home After your children leave the nest, you may decide to move to a single-story home or a retirement community. If you’ve lived in your home for two of the past five years, the first $250,000 (for singles) and $500,000 (for marrieds) of profit from your home sale is tax free. Instead of tying up that profit in your retirement home, you may want to consider setting it aside for emergencies and using a mortgage to purchase your next home.
Second Home
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Second homes are great investments, but buying and owning one is a bit different than owning a home you live in all the time. In general, it’s harder and more expensive to get a loan for a second home than for your main home. Expect to put down at least 10 percent and to pay an interest rate that is one-quarter to one-half of a percent higher and possibly more if the property is a condo rather than a single-family home. | Insurance will also be more expensive and could be more difficult to find if the property is vacant, as most second homes are some of the time. The Internal Revenue Service will look at your second home differently too if you rent it for 15 days or more. You can read the tax rules for second homes at the IRS Web site: www.irs.gov/publications/p527/index.html . What qualifies as a second home? If you can sleep, cook and go to the bathroom in something, it can be a second home – whether it’s a cabin, a boat or even a recreational vehicle. Wonder how much second home you can afford? Use this calculator from Smart Money to find out: www.smartmoney.com/home/secondhome/index.cfm?story=howmuch2 . | |||||||||||||||||||||||||||||||||||
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