These Days, First Time Home Buyers are Primed to Cash In
By Ilyce R. Glink with Samuel J. Tamkin
Reprinted from the Washington Post
Saturday, March 21, 2009; F05

In the nearly 16 years that I've been writing this column, I've never seen a better market in which to be a first-time home buyer.

The rising tide of foreclosures has pushed down home prices significantly over the past 18 months. Homes, relative to income, are about at the historic norm, which means they're more affordable than they've been in at least a decade.

Beyond that, if you buy a foreclosed property, you might wind up spending even less, as lenders struggle to process all of the foreclosures and short sales that are piling up. (If there were no more foreclosures in Florida, it would take the courts nearly two years to process all of the foreclosures on the docket today.)

Not only have homes come down in price significantly, but 30-year fixed-rate loans are at about 5 percent. Some first-time buyers are getting 15-year rates at 4.5 percent or lower. These are historically low interest rates that will seem downright cheap if rates rise above 7 percent, which they will probably do several years from now.

Spending less to finance a property means you can get more for your money or save more for retirement or other purposes. With interest rates so low and home prices falling, homeownership becomes affordable to many first-time home buyers.

Also, first-time home buyers (defined as those who have never owned a home or have not owned a home in the past three years) who close on a home purchase by Dec. 1 can get up to an $8,000 tax credit on their 2009 income tax return. If you bought a house after Jan. 1, you can file for the credit on your 2008 tax return.

This year, about 4 million people will buy a new or existing home. If you want to make sure the house you buy this year is a smart financial move, follow these quick tips:

-- Get preapproved for your loan before looking for a house. That means the lender has to pull a copy of your credit history and score, you have to apply for the loan, and the lender has to approve your application. Make sure you shop around for the best lender and loan before putting in an application.

-- Once you know what you can spend, find the right neighborhood for the next seven to 10 years. Over that time, you've got a good chance of at least breaking even on the sale, plus you'll have built up a decent amount of equity by paying down your mortgage each month. Remember, it'll cost you about 10 percent of the sales price to sell that home.

-- Don't go for flash -- buy what you need. You can always add granite countertops to a kitchen. It's a lot harder to buy the size house you need in your school district of choice. So, buy something a little faded and dated and upgrade over time as your budget allows.

-- Make sure you have cash in reserve. Houses always need something, so when you're calculating your budget, make sure you allow some extra cash for upkeep and maintenance.

-- Buy a home that you can afford and suits your needs now and for the long term. In the past I have written about overbuying -- that is, buying a bigger and better house than you need. Good planning in the purchase of your home should go hand in hand with good financial planning for your future.

Q: My now-ex-spouse and I purchased a property before we were married, but since the plans were to get married, I added her to the title. She did not put any money toward it. Things didn't work out between us, and she demanded that I pay her to quitclaim the property back to me.

I went after her using my attorney and the courts. She finally just sent in the quitclaim, and this deed has also been recorded in the county's clerk office, after which they sent me the original quitclaim document.

Is there anything else I need to do to protect myself? Once the quitclaim deed is recorded, does the recorders' office make updates to the title of the property showing only my name? And if so, how long does it take for them to complete the update? Will they mail a copy of the new deed to me, or is the filing notice all the paperwork I need?

I'm wondering if I can terminate my lawyer's services or if I have to wait for any other updates.

A: It was a mistake to retitle your condo before you were married. You might not have had to change the title to the property at all because it was an asset you purchased prior to your marriage. You could have simply changed your will to reflect your wishes that your wife inherit it.

To your question: Once the quitclaim deed has been recorded, the title to the property should effectively be in your name. Unlike with car titles, you won't get a document showing you holding title to the home.

You can go to the recorder of deeds office and check the records directly. You will find a long chain of documents that will trace ownership of your home, including the document that transferred title from your seller to you and the deed that placed your ex-spouse on the title. Many offices also make the documents available online.

If you got divorced, you should be done with any legal issues relating to your ex-spouse. One issue that might remain relates to any judgments or tax liens that may have affected your ex-spouse. The act of transferring title back to you by quitclaim deed or other means would not terminate any third-party creditor rights against the property.

If your ex-spouse had no liens against her when she quitclaimed the property back to you, you received all that she had. In that case, you most likely should be fine. If you need more information, talk to a real estate attorney.

Q: My credit score is 639, and I am a government retiree who met retirement qualifications at 55. My income is $40,000 annually, and I would like to purchase a condominium because I don't want to worry about yard upkeep and I live alone. Should I contact a developer or the Federal Housing Administration to inquire about purchasing a property?

A: Neither. You need to figure out what neighborhood you want to live in and then find a great real estate agent who understands what is happening with home values there.

The agent you choose to work with should be a great listener and work with people who are around your age and earn what you do. Your agent should be your eyes and ears in the neighborhood, so look for someone who has been working in your neighborhood of choice for some time and is well positioned to help you find a great deal.

Once you find a great agent, you'll want to put together other parts of your home-buying team, including a good mortgage lender. Talk to a loan officer at a credit union (if you belong to one or can join one) because credit unions typically offer great deals on mortgages and car loans. You should also talk to a national lender and a local mortgage broker. By shopping around, you should get the best deal available.

Before you go out looking for a condominium to buy, you should understand that your credit score is relatively low. In past years, having a low credit score may not have been an obstacle to purchasing a home, but nowadays your score may mean you have to pay more to close the loan and pay a higher interest rate on it.

You might want to try to figure out why your credit score is so low and work to improve it. Once the score is higher, you might find that the costs of owning will be lower.

Start by checking your credit report at http://www.annualcreditreport.com and trying to figure out why your credit score is low. If you have too much debt, too many outstanding bills, missed payments, collection issues or bills that you are paying over time, you should try to clean some of these issues up.

You can also sit down with a good mortgage lender and work through some of your credit issues. If you know what your issues are, you might be able to improve your score over six to nine months by paying off debts or paying down credit card balances.

Once you know how much you can spend on the condominium and what it will cost to finance the property, and once you figure out what neighborhood you want to live in and find the right agent, you'll be ready to start looking for a home to buy.

Q: My friend and I own a home together as joint tenants with rights of survivorship. If he should die before me, I realize, the home becomes mine. But what happens to the interior furnishings? Do his three children have a right to come and remove their father's half of the furniture?

A: The furniture is not part of the house. It is considered to be the home's "contents" or "personal property" (as opposed to real property). Personal property gets distributed to heirs in the manner provided by state law or as designated by a will. If your friend has a will, he can designate what items of personal property will be yours and what items of personal property will go to his children. If there is no will, state law may provide that all of his personal property goes to his kids.

While it would not legally binding, your friend can also write a letter to his children asking them to respect his wishes and allow you to keep certain items. In the case of sentimental items, that same letter may ask you to return certain items when you move from the home, when you no longer need them or upon your death.

If you'd want to keep the furniture, you and your friend could write out an agreement that allows you to either keep the furniture outright or buy his share in the furnishings from his children. If you and your friend don't have a written agreement when he dies, you can ask your friend's children to allow you to make them an offer to keep certain pieces. But if anything seems valuable or memorable to them, be prepared for them to turn you down.

There are quite a number of ways to handle your situation, but only a properly drafted will can achieve your friend's and your wishes.

Q: My mother put my brothers and me on the title to two properties in two states. My mother's lawyer recently told her she has no claim to the properties -- they belong to the three of us.

One brother is living in one of the properties, but my other brother and I did not agree to that. We want to sell the properties but are certain that he will not agree to this.

What are our rights as far as selling the property or at least being able to use it? Can we force him to sell or at least buy us out?

A: If you and your one brother wish to sell the property, your first course of action would be to negotiate a solution with the other brother. If you can't do that, you can bring a lawsuit to force him to sell. You would need to hire an attorney with experience in partition suits -- that is, suits to partition properties and force their sale. You effectively go to court and ask the judge to settle the dispute for you. If the judge sees that no resolution is possible, the parties can request that the judge order the sale of the property.

A partition suit, as with any litigation, will cost time and money. During the litigation, you can also force your brother to pay his share of expenses for the home that he has failed to pay over the years. His share of the property expenses can be deducted from the total he is due before it is paid.

A second alternative is to swap properties among the three of you. Since there are two properties involved, you might be able to trade his interest in the property he does not live in for his interest in the property he does live in. If the two properties are roughly equal, this might not work unless you attach some additional money to the deal.

Your question really points to the dangers of parents putting property into their children's hands before they die. Your mother was probably trying to either minimize estate taxes or protect these properties from having to be sold to pay a nursing home bill down the line.

Please talk to a real estate attorney for other options and an explanation of how you would proceed legally, if you choose that direction.

Q: I own a condominium worth $110,000 to $119,000, but I owe $125,000 on it. I'm the only person on the loan, but the property is deeded to my ex-wife and me as joint tenants with rights of survivorship. I want to take possession of the property solely so that I can sell it and clear it off my credit history.

Unfortunately, I am unable to move ahead with this plan because my ex-wife is attached to the property and will not agree to let me sell it. I will gladly give her sole possession of the property if she wants to refinance it into her name but she refuses.

She doesn't reside in the property. It is being rented below market value to a friend of hers. Is it possible to get a court order to have her refinance the condo into her name only? And if she is unable to refinance the property for any reason within a certain amount of time, does she sacrifice her right to the deed?

A: Talk to your divorce attorney. The issue of this property should have been settled in your divorce agreement. If your ex-wife was given half of the property as part of the settlement, then you will have to buy her out or risk letting the property fall into foreclosure, hurting your credit score and hers.

If the tenant is paying a below-market rent for the property, you might insist that your ex-wife make up the difference or rent the property out to a tenant who will pay market rent. If she won't cooperate, your only option may be to get the lawyers involved again.

However, you might want to convince your ex-wife that paying the lawyers money that could otherwise go to paying for the expenses of the home would not be the best course of action. It's in both of your interests to settle this amicably. Litigation should be your last resort.

Q: My mother passed away and left a house with a mortgage. The house has not sold, and the value has declined because of foreclosures in the area. The bank is pursuing foreclosure and naming my mother's heirs as defendants to terminate our interests in the property.

We have few resources, and my mother's estate was exhausted by the cost of repairing and maintaining the property while trying to sell it.

Is it more cost effective to go through foreclosure and add a statement to our credit reports explaining that the mortgage was not ours, or should we pursue a deed in lieu of foreclosure?

A: The bank's action is against the bank's borrower: your late mother, not you. If your mother was the only borrower on the original loan to the bank, you and your siblings or other heirs should not be personally responsible for the loan. Your mom's estate is responsible for repaying the mortgage.

If the estate has insufficient funds to pay off the lender, the lender has the ability and right to foreclose on the home. But that foreclosure should not affect your credit history or the credit histories of the other heirs.

The bank shouldn't have your Social Security number or any documents from you obligating any of you to repay the loan. In that case, the loss on the loan is taken by the bank and reported against the borrower -- your mom.

If you decide to pursue a deed in lieu of foreclosure, you and the other heirs would be relinquishing any right to the home. But that documentation should not have anything to do with the original debt taken out by your mother.

You and the other heirs shouldn't be penalized by the current lender when you are placed in a position of owning a property you did not buy and for a loan you did not enter into. While you tried to keep up with the expenses of the home, if you found that it was too much and then couldn't sell it and failed to make the loan payments, the lender remedy is to foreclose on the property.

For more details, and to make sure you are protected in any dealings with the bank, you may wish to speak to a real estate attorney.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, www.thinkglink.com and www.expertrealestatetips.net.