Can Non-Married Couple Get Home Mortgage?

QUESTION: My friend and I have lived together for the last three years and are now considering buying a house. She has a better credit record and more job security than I do, since I am a free-lancer with a pretty ragged income flow. We are worried about how a lender will consider such an arrangement.

ANSWER: You wouldn’t believe how lenders attitudes have changed, compared to, say, 30 years ago. At that time, they not only didn’t want to talk to you if you weren’t a conventional, married couple but they could, and frequently did, deny credit to two-income families if the wife were in her child-bearing years. Questions about birth control measures were considered quite proper.

The law, as well as our attitudes, have changed drastically. Today’s lender, for instance, knows full well that non-married relationships have every bit as much longevity as many marriages. Today’s divorce rate is about one in two.

No, you shouldn’t have any trouble with your lender on that score. By combining your cash and monthly incomes, you should be able to swing the deal even though one partner’s clout is heftier than the other’s. Each of you will sign the loan documents and assume responsibility for the debt--if one fades out, the other is responsible for the whole.

What you must do, however, is approach it as a legal partnership, with a written agreement that would cover the provisions for selling, the right of first refusal of the sale by one partner and how expenses are to be shared. Don’t draw it up yourselves, though. Bring in a lawyer and have it done right.

Coping With Lost Value of Townhouse

Q: You had a column recently where a woman had bought a townhouse for $67,000 that now has a market value of $49,000. You suggested that she turn it into a rental property. I would like to know how one can take a tax loss on the townhouse unless the selling price is below $49,000, plus depreciation. The adjusted basis for the rental should be $49,000 because it is lower than the purchase price--according to the tax books I have read.

A: There’s nothing wrong with either your math or the books you’ve read. The only problem is that you missed the point I was making--which was not to convert it to a rental for the purposes of taking a tax loss.

I suggested, instead of laying out the $18,000 difference to the lender, that she convert it to a rental for a couple of years so that as income property, she can minimize her negative cash flow and take advantage as far as taxes are concerned, of the depreciation, maintenance, management, property taxes and insurance.

After two or three years, one of two things will have happened--it will either have appreciated in value from that present market value of $49,000 or it will have held steady, or dropped in value even further.

If it has appreciated, well and good. If it has dropped even further then, taking the depreciation into account, she may indeed have a tax loss that she can’t claim now as a personal residence. I wasn’t saying that the original value of the property, bought as a residence, would be the cost basis in computing any future loss as an income property.

But converting it for the tax loss, if any, was the furthest thing from my mind.

Management Firms for Absent Home Lessors

Q: My family and I will be moving out of the country for about three years. Rather than sell our house, we would like to rent it. I am at a loss about how to go about this since there is no family to oversee the property in our absence. I assume there are companies that do this, but how does one find them? Are there any pitfalls to be wary of? Who is responsible for any minor repairs while rented?

A: Property management is a well-established business, and that’s how you’ll find it listed in your Yellow Pages. Any good, well-regarded real estate brokerage should be able to recommend two or three for you and in many cases, the realtor himself may have a subsidiary engaged in this activity.

You might check the management company out with the local Better Business Bureau and before signing an agreement, get at least three references and check them out, personally. They should be people the management firm has worked for at least three or four years.

The common arrangement calls for the absentee owner to keep a certain number of dollars in reserve with the property management company from which it will pay for minor repairs without even bothering you. Of course, if the furnace blows up and a major expense is faced (set a limit here), then the company will have to contact you for approval--distance or no distance.