Let home-buying decision remain personal

Dear Bruce: I am writing to gain some professional advice for my sister and brother-in-law. They are being pressured by my sister’s in-laws to purchase a house. My sister is 32, my brother-in-law is 35, and they have a 2-K-year-old daughter. The in-laws feel they are at the age when they should own their own home. I do not buy into these timelines of when you should be married, have kids, buy a home, etc. Everyone’s life situations are different. They are being pressured to buy in an area of the Midwest that is deteriorating rapidly in terms of crime rate, unemployment, etc. They both have decent jobs. My sister works for the county and my brother-in-law for a small local business. I cannot see the values of the homes increasing with the crime rate going through the roof, the largest employers laying off hundreds and businesses closing daily. What advice can you share with me so I can stop them from making a huge mistake in buying a house? ¬– T.S. in Florida

Dear T.S.: Buying a home anywhere is a very area-specific and individual proposition. There are people who would do well to buy a home now and others to avoid it. Your point is completely valid. There are no timelines when you should or should not buy a house. They are being pressured to make a decision that is ONLY important to the two individuals involved.

Very often renting is the best bargain, freeing up money to be invested elsewhere. On the other hand, there are those people who are not comfortable unless they own their own homes. It seems to me the best solution would be to have the in-laws and you stay out of it! Let these people make up their own minds. The idea of putting pressure on someone because it’s “time” to have a child or buy a home is unconscionable – well-intended, but nonetheless unconscionable.

Time for a fixed-rate mortgage?

Dear Bruce: Two years ago, when interest rates were very low, I got a seven-year fixed-then-adjustable-rate mortgage. The loan was originally for $226,000, and I have paid it down to $203,000 by overpaying every month. I bring home $3,700 a month on my teacher’s salary, but I am paying $2,000 to $2,500 a month for my loan. Sounds insane, but I get $2,600 a month for about two more years in Social Security income for my teenage kids (ages 13 and almost 16), so I have the extra money to pay on the loan now. In four years, I won’t have the extra cash. Should I refinance now with a 30-year fixed loan, even though I have another four-and-a-half years on my loan before it becomes adjustable, or should I wait and take my chances? I know I’ll still be in this house in 10 years because I teach right down the street. – S.B., via e-mail

Dear S.B.: You say you have a low-interest rate, but you didn’t tell me how low. You mentioned you are paying off your loan with Social Security income that will not continue forever. The troublesome part of that equation is, if you have this low-interest loan, you could probably do better investing the Social Security money and using it to pay off the loan at a later date.

If you plan to live there for a long period of time, I would bite the bullet and examine fixed-rate mortgages. Then compute the difference between what the additional costs will be during the next four years and what you anticipate the adjustable-rate mortgage will cost after the four years. I know this requires a lot of hypothecation, but if you are going to be there for a long time, as you indicate, I think now is the time to apply for that fixed rate. It’s a shame you didn’t do this a year ago, but 20/20 hindsight is a wonderful thing. Good luck!

Half-million-dollar home needs hefty coverage

Dear Bruce: My wife and I recently bought a home for half a million dollars. Our insurance agent suggested a liability policy for twice the value, $1 million. We are worth about $3 million, and we can afford to pay the premium to increase it, but is it necessary? – Reader, Las Vegas

Dear Reader: Not only is it necessary, I think it’s inadequate. It would seem to me that you should have a standard liability policy in your homeowners insurance, and then you could add at least $2 million or $3 million with an umbrella policy. You might say it would be difficult to get into circumstances where the liability would go that high, but trust me – it happens every day. The difference in $1 million and $3 million is not enough to get excited about. The difference in coverage, as you can see, is enormous.

Title insurance may clear ‘cloud’

Dear Bruce: Two decades ago, I bought a piece of property that has a cloud over the title. At that time, the previous owners did not get title insurance, and it seems as if the man they bought it from was granted ownership to it illegally. It had to do with his divorce. A title insurance company insured it for the purchase price, but I was advised to upgrade it as I improved the property. Did I screw up? I am desperate, as this has caused a fight between my husband and me. – M.T., via e-mail

Dear M.T.: As long as you are able to cover it with title insurance, it would seem to me that your interests are protected. They may, however, be charging you a premium because there is this problem. Why not hire an attorney to have the title cleared? The problems you have outlined in your letter in detail are not insurmountable, although there will be some costs involved. Given the fact that you have no reason to sell the property now, this would be the appropriate time to straighten out the title.

There is no reason for you and your husband to squabble over this. What is done is done, and it’s not irreparable.

PMI costly but necessary for some

Dear Bruce: What is private mortgage insurance, and at what point can you get rid of it? P.M., via e-mail

Dear P.M.: PMI is an insurance company’s guarantee for the first 20 percent of your loan, or whatever fraction is not covered by your down payment. At such a time that your interest in the home exceeds 20 percent, you can apply to the lender to have the PMI eliminated. (The exception is FHA-insured mortgages, where PMI stays in place for the life of the loan.) This will require that you pay for an appraisal and some other minor expenses, but it is certainly worthwhile. If possible, you are much better off trying to avoid the PMI to begin with. This could mean a loan from a parent or some other loved one or possibly a co-signer on your mortgage.

PMI does serve a useful purpose. It allows folks who otherwise would not be able to purchase a home to do so. The cost, however, is significant.

Living person beats Turbo Tax

Dear Bruce: I have a question about taxes. I am a second-year Realtor. My first year was mildly successful, but my second is shaping up to nearly triple last year’s production. There should be even fewer expenses. I am seeking your advice on whether to incorporate, as well as suggestions on taking care of quarterly taxes. I am fairly computer literate and wonder if Turbo Tax is the way to go? Or should I leave such an important task to a professional? – K.M., via e-mail

Dear K.M.: Congratulations on your success. Let’s hope it increases every year from this point forward. I have no problem with Turbo Tax as such, but I am generally of the opinion that, when you start to get into decent-size numbers, you’re better advised to deal with a living person who specializes in tax matters. You might wish to back up what that person tells you with the computer program. So many variables have to be considered. All things considered, I would count using a professional as a necessary and deductible expense.

Home inheritance should be simple

Dear Bruce: My mother, who is living with me, wants to sell her house to my sister with part of it as her inheritance (for example, $60,000 for the house, with $20,000 as the inheritance and my sister only paying $40,000).

The term is that my sister will relinquish any further claims on my mother’s estate. How can we do this legally and also avoid my sister having to pay taxes on the $20,000? – E.D., via e-mail

Dear E.D.: Not a very complicated proposition, if it is spaced into two separate years. Your mother is allowed to give $11,000 per year without any tax consequence. That should not be a problem.

As to no further claim on the estate, in reality, your mother can handle that issue with her will. She is not required to leave anything to your sister. An attorney will likely counsel her to make reference in the will that, because the sister has been otherwise taken care of, she is not sharing in the residual estate. If your attorney recommends it, you might want some kind of document from your sister; that’s up to your mom.

Too late to avoid taxes on home

Dear Bruce: My mother put my sister and me on the title of her home in 1997, a few years after my father passed away. She died in March 2005, after living in this house since 1951. On April 7, 2006, we sold the home for $60,900. After closing costs, title search, etc., we received $54,857. The loan closer told me that each of us has to claim $30,450 on our taxes, plus pay capital gains. My sister turned 65 in January. I am 58.

We are both married and retired. Can you please tell me approximately the amount we’ll have to pay? I am hearing so many different opinions; some say you can deduct this, that, etc. I would appreciate any information you can provide me. I do plan to visit my tax person soon. – G.V. in Michigan

Dear G.V.: Any competent tax preparer can calculate the amount you will have to pay. The troublesome part of this whole equation is that there didn’t have to be any tax at all.

If the house was left in your mother’s name until such time she passed away, it would have passed to you and your sister totally tax-free.

I would put all the facts before a competent tax accountant and have him prepare the appropriate additions to your personal taxes.

The taxes will not be severe, but, as I mentioned, they could have been avoided completely if it had been done properly in the first place.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.