| by Nita Baranowski |
Poor Gary! He’s M.O.M.S. regular real estate columnist. He quit smoking three weeks ago. Anyway, when Just For You editor Spencer Betz called Gary to tell him the deadline for getting his column in, he shared that he is really struggling with not smoking and can’t stay focused on anything! We don’t want to add to his misery, stress and trauma on him than he is already suffering, so we asked former single mom and real estate agent Nita Baranowski to step in for Gary this issue. I hope all of you understand and support Gary in his mission to quit smoking.
I was a single mom and believe me, even if or when you remarry you never forget the hardships, lone decisions or frustrations that you experience as a single parent. It is in that frame of mind that I address the possibility of purchasing a home, townhouse or condo.
The question is: Should we buy a home? Or should we continue to rent just in case the “right” person comes along? Maybe the person we're dating will turn out to be the "one." Maybe they will want to buy a place together! What's the best thing for single parents to do?
First, I am an absolute believer in home ownership. Whether it be a castle or a starter home, ones own home is important. It's a great feeling not to worry about the rent being raised or the landlord serving you with a notice that the kitty our child has fallen in love with, can't live with us because there's a no pet policy.
And decorating? How many rentals allow us to wallpaper and use the color of our choice on their walls? Landlords tend to get a little upset if you knock out a wall to make a room bigger or brighter. It's hard to add personal touches other than color of towels or furniture to a rental. We should love coming home. Our home should be a sanctuary from the world. Our home should give us the opportunity to express ourselves and share who we are with friends. It's our special place to make lifetime memories. It's a security blanket, not only for us but for our children.
A home can also be a great investment. Rather than build your landlords financial future-Why not build our own? Plus it's much more logical to put money into our home versus giving it to Uncle Sam. Home ownership has many rewards. Eventually renters blues will get to you. And when it does, I want to make sure that you have the knowledge to make intelligent and sound decisions. Let's look at a few scenarios that could apply to us.
Rob and Cindy live together. They plan on marrying, eventually. Having received notice of a rent increase they decide that they will pool their resources and buy a house together. It sounds great. And they are going to be getting married someday anyway, so why not?
Or:
Tina and Jody are best friends. Both are sick of renting. They hang out at each other's place all the time, baby-sit for each other and their kids get along great. So Tina and Jody decide to purchase a home together. Tina has enough money saved up for the down payment on a house and Jody makes a lot more money than Tina. The two figure that this will work out perfect!
Both of these situations might work out beautifully. However there are always pitfalls to these and other similar situations that we might avoid if we look before we leap. As single parents we have learned about looking and leaping, even if we haven't learned anything else!
First, when two or more people purchase together married or not, the lender looks at each individuals income and credit report as well as the amount of down payment that the buyers have available. This information determines the maximum sales price that can be qualified for. Hopefully the lender will, at that point, start the pre-qualifying process. This means verifying income with employers, collecting pay stubs, copies of bank statements (last three months) and possibly a copy of Income Tax Returns. It’s possible that the lender may even send out a form to the current landlord asking if rent has been paid timely.
All of this information is turned over to an underwriter who will evaluate the loan package. The underwriter may issue an approval of a loan. If so, pass go collect $200 find the perfect dream home and move in!
OOPS! Jody just received notice of a job transfer and needs the money that she has tied up in the house. Or Jody's boyfriend has finally proposed! They're getting married and need the money to buy their own house. The OOPS and the OR’s are limitless. The bottom-line? Now what? How to settle matters.
One put up the down payment and both contributed equally to the mortgage payment. However, Jody paid for a lot of labor and material to upgrade the house and she feels that she has as much out of pocket and invested as Tina does with her down payment contribution. Tina doesn't agree. It was her life savings and Jody wants half of it! Okay, after much negotiation the two come to an agreement that Tina is going to buy Jody out and each of you can go your merry way. A quit claim deed, quitting all claim to the property has been signed, notarized and recorded. The two can forget they ever knew each other right? Not necessarily. Just because one quit claims or deeds in some other fashion, title to the property doesn't mean that one is off the hook for the mortgage loan.
Rob and Cindy break up. Rob goes to buy a new BMW convertible (On the rebound, of course) and is told he can’t qualify because he is over extended with his huge house payment. Surprise! Rob gave up title to the house, let Cindy buy him out for just his minimal investment and he finds out that he's still on the hook for the amount of the loan. So, Rob calls Cindy and asks her to refinance. Meanwhile, interest rates are up and Cindy can’t qualify on her own so there isn’t any chance of refinancing to remove Rob’s name from the loan.
Do you think the lender will hear Rob and Cindy’s or Tina and Jody’s story and remove the CO-borrowers name? Not a chance! Lenders are in the business of making money and if they think they are putting themselves at risk the answer will be no, no way, sorry, this ain’t Burger King so you can't have it your way!” Not to mention that if Cindy or Tina are having a hard time making payments and have made a payment more than 30 days late, Rob, Cindy, Tina and Jody will all have a ding on their credit.
Lenders will generally not count the house payment if it can be proved and validated that the property is no longer in the name of the original purchasers and that the titled person has made the payments on time for six months or longer. However this does require the original buying parties to communicate, and that may not be easy.
I think by now the point I have been trying to make is pretty obvious. People of all walks of life, buy real estate together every day without the benefit of marriage. If one is prepared it can be a pleasant and financially rewarding experience. If not, well, Arnold Schwarzenegger, would be a vague memory of a nightmare compared to what this could turn into.
Buying a home is for most, the biggest investment one makes in their lifetime. Before choosing to pool resources with anyone, we should have an idea of things that can go wrong and discuss the issues before we become emotionally involved in a house. Communication is the key to every relationship, business is no exception to this rule. An agreement between borrower and CO-borrower can save a great deal of grief and legal wrangling if things should go awry. Of course it is impossible to anticipate and prepare for every possible thing that can go wrong, but hopefully by being aware of and addressing as many issues as possible in advance a decision to buy alone or with someone will be a good one.