Proceeding With Your Purchase
300 | A Legal guide for Lesbian and Gay Couples If You Are Married or State Registered (continued) 3. Exiting the Home Ownership. Whether you are exiting through death, dissolution, or merely the sale of the house, the legal, tax, and financial rules may be different if you are married or registered. If the house is one of your assets and you are breaking up, the Family Court probably will have jurisdiction over the house, even if only one partner is on the title. Any claims of excess monetary or labor contribution will be resolved according to marital law, not property law. If one of you dies while you are co-owners, the rules for who gets the house may be different if you are married or registered. And finally, because the IRS doesn’t recognize our partnerships as legal marriages, none of the favorable tax treatments for selling your house will apply. Yes, you can each take the residential exemption, but probably only if you are both on the title. And you won’t be able to postpone the sale on the grounds that your divorce decree forced you to wait a while longer to sell it. Once again, these rules are changing quickly, and your real estate agent or accountant may not be aware of the new rules, so you may need to consult a knowledgeable attorney in your area. Proceeding With Your Purchase Once you find the house you want to buy that is in your price range, you will need to take care of a few details before you actually buy it. Inspections Any contract to purchase a home should allow you a few weeks to make all necessary inspections. A buyer usually pays for inspections, but it may be possible to negotiate to have the seller pay a portion. Inspections routinely include termite, electrical and plumbing, and a roof inspection. In addition, you may want a soil engineer to check the foundation or a general contractor to do a full inspection of the house. Your purchase contract should be contingent upon these experts reporting that the chapter 9 | Buying a Home Together (and other Real Estate Ventures) | 301 house either is in good condition or can be repaired for a reasonable price, and you may want to negotiate for a price reduction if the repairs will be extensive (or expensive). Financing That White Picket Fence After you’ve conducted the inspections and reached a firm agreement on price and terms, you will have to come up with the money. Usually, your obligation to buy is contingent on your finding financing for a specific amount at a specific interest rate. Obviously, you don’t want to sign a contract to purchase a home and then not be able to find a loan you can afford. Tip In really competitive real estate markets, it’s best to have a firm commitment. Ask your lender to give you a letter committing to lend you a specific amount at a specific rate, so that you can make a bid without the financing contingency. When sellers receive multiple bids for their property, the most attractive will be the bid with the fewest contingencies. Few of us can pay all cash for a house. We borrow money from a lending institution, family member, the seller, or a loan shark, and accept whatever conditions the lenders impose. Most often you’ll borrow from a bank. In exchange, the bank will require you to sign a note promising to repay the money plus a healthy interest. Your promise to pay, standing alone, however, won’t be sufficient security for the bank; it will also require you to sign a document giving it the power to foreclose on the house if you default on your payments. This document is normally called a mortgage or a deed of trust. A few lenders admit that they view lesbian and gay relationships as inherently unstable and therefore consider it too risky to lend to lesbian and gay couples. Unfortunately, this kind of discrimination is legal in most places. To avoid it, you will need to present yourselves as sophisticated buyers. Do your homework. Know the interest rates from 302 | A Legal guide for Lesbian and Gay Couples several other lenders before you walk in the door. Get familiar with fixed rate loans, adjustable rate mortgages, special 15-year mortgages, points, closing costs, and the rest. Provide information showing that you’re both on your jobs for the long haul (get letters from your supervisors) and are up for a promotion or a raise. And then be persistent. Having a hardworking loan broker on your side might be very helpful. To the extent it’s possible, try to be creative in your financing. You may be able to “assume” a seller’s loan, or the seller may be willing to finance some portion of the purchase. If the seller doesn’t need all the money at once, you might get a second mortgage. Example: Wendy and Alice love a home that is on the market for $180,000. Their savings, plus borrowing from parents and friends, total $36,000. They need $144,000 more (plus $9,000 for closing costs). The seller has owned the home for a few years and has a $90,000 mortgage at 6% interest. Here are several possible methods of financing their purchase: • Plan A $36,000 down payment $144,000 at current bank interest rates. • Plan B $36,000 down payment $90,000 by assuming the seller’s old mortgage at 6% $54,000 loan from the seller including interest at 7%, with a final (balloon) payment for whatever balance is due in seven years. (The monthly interest payment rate and the time of the balloon payment will be negotiable.) • Plan C To make it more attractive to the seller, an offer of $2,000 above the sales price $36,000 cash down $90,000 by assuming the seller’s old mortgage at 6% $56,000 loan from seller including interest at 7%, with a final (balloon) payment for whatever balance is due in seven years. chapter 9 | Buying a Home Together (and other Real Estate Ventures) | 303 Escrow and Closing Costs In a house purchase, paperwork and money must eventually change hands. The common practice is for parties to open an “escrow,” which means that an escrow holder, usually a title company, will hold the buyers’ money and the sellers’ deed to the property until the time comes for the property to change hands—after all inspections are complete, the papers are signed, and financing is arranged. Then, escrow closes, the deed is recorded with the county, the buyers receive the deed establishing that they now own the house, and the seller gets the money. Closing Costs and Loan Fees Closing costs and loan fees can add up to 5% to your mortgage. Some fees are paid to the bank when you apply for the loan, but most are paid the day you close escrow. Not all lenders and escrow holders require the same fees (some are waived as part of special offers). When escrow closes, you’ll receive a statement with an itemized list of the closing costs. Typical closing costs and loan fees are: Application fee: Loan application fees (typically $200–$350) cover the lender’s cost of processing your loan. Appraisal fees: Most lenders hire an appraiser to be sure the property is worth the sales price. Appraisals usually cost $250 to $500 for a regular singlefamily home, and somewhat more for a very large or multiple-unit building. Assumption fee: Typically 1% of the loan balance to assume the seller’s existing ARM; to assume an FHA or VA loan, the fee will range from $50 to $100. Credit report: It can cost up to $75 to check each partner’s credit. While standard credit checks with scores cost $8–$15, for home loans, lenders check two credit reporting agencies’ files and the county records for judgment and tax liens. Escrow company fees: An escrow company that is not a title insurance company may charge a nominal fee for doing the escrow work. Garbage fees: Real estate business slang for a number of small fees, including notary, courier, and filing fees, which typically run from $150 to $250. Loan fees: This includes points (one point is 1% of the loan principal), a fee the bank charges you for the privilege of making a loan, and an additional 304 | A Legal guide for Lesbian and Gay Couples Closing Costs and Loan Fees (continued) fee, usually between $100 and $450. Lenders also often charge $150 to $250 to complete the loan paperwork. Physical inspection reports: Inspection reports may add several hundred dollars or more, depending on how many are requested. Prepaid homeowners’ insurance: This varies depending on what the lender requires and on the house’s value, coverage, and location. Prepaid interest on the loan: You’ll be asked to pay per diem interest in advance, from the date your loan is funded to the end of that month. The maximum you’ll be charged is 30 days of interest. Prepaid property taxes: You’ll be asked to pay property taxes for the period between the closing date and your first monthly mortgage payment. Private mortgage insurance (PMI): This insurance protects the lender in the event of a foreclosure, in case the property is worth less than what you paid for it. For a loan with less than 10% down, the total PMI you will pay is about 1.6%–2% of the loan. In the first year, you’ll pay approximately 0.5% of the total loan. For each year you renew your PMI policy, you’ll pay about 0.35% of the outstanding loan. PMI on FHA loans costs 3.8% of the loan. Most lenders require the first few payments to be made up front. Recording and filing fees: The escrow holder will charge about $100 for drawing up, reviewing, and recording the deed of trust and other legal documents. The total escrow and title fees can amount to 0.5% of the loan. Survey fee: If the house has easements or is in a rural location, a survey may be needed to establish the precise measurements of the lot. A survey will run as much as $400 or more. Tax service fee: This fee is for a service that will notify the lender if you default on your property taxes; it usually costs about $60 to $100. Title search and title insurance: Not all buyers have to pay all of the title costs. Most lenders require title insurance for the face amount of their mortgage or for the value of the loan. Title insurance is a one-time premium that costs about 0.075% of the cost of your house. The title search confirms that the seller of the property is really the legal owner. Transfer tax: Tax assessed by the county when the property changes hands. This tax may be split with the seller if you negotiate an agreement, and costs about 55 cents per $1,000 of value transferred. Many cities also charge transfer tax; it varies city to city, but can be as much as 1.5% of the purchase price.