DEAR BOB: My wife and I have been avidly following the pro and con discussions in your recent columns about paying all-cash or getting a mortgage for a retirement home. We have contracted to buy a new house in Florida, which is now under construction. It should be finished in October or November. Although we can pay all cash, we’re having doubts. The home builder and the developer seem to be first class. But we would hate to tie up about half of our retirement assets in a new house, which might turn out to be defective. Your advice please – Myron T.
DEAR MYRON: I would never recommend you tie up half of your retirement assets in a brand-new house, which could turn out to be defective and unsaleable if something goes seriously wrong.
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Please be aware that I, after having written this column for more than 30 years, hear primarily from house and condo buyers who bought defective homes. I never hear from homeowners who are 100 percent satisfied.
Therefore, I must be cautious with my advice. My best suggestion is you and your wife make a 20 percent to 30 percent cash down payment and obtain a mortgage for the balance of your new-home purchase price.
If all goes well after at least three years of home ownership, if you wish, then go ahead and pay off your mortgage to save interest (of course, be certain the mortgage doesn’t have any prepayment penalty).
Should serious problems develop with your new home that can’t be resolved, at the worst you could sell it and let your buyer take over your mortgage payments. I just don’t want you tying up most of your retirement assets in a house that might prove to be defective. If you were buying a condominium, your risk would be even higher because condo developments are notorious for construction defects.
IS MORTGAGE PREPAYMENT PENALTY RISKY?
DEAR BOB: We are buying our first home. Actually, it is a condominium. The developer offers a fixed-rate mortgage at a below-market interest rate for up to 100 percent of the purchase price. But the “catch” is there is a stiff prepayment penalty for the first three years. Do you think we should pass on this opportunity? – Lou L.
DEAR LOU: Not necessarily. You can’t blame the mortgage lender for wanting to be reasonably certain of earning the agreed mortgage interest rate for at least three years. Chances of interest rates plummeting and your wishing to refinance within the next three years are slim to none.
However, you might have to sell your condo, perhaps due to a job transfer or family situation, within the next three years. If the chances of that happening are great, consider the cost of paying the mortgage prepayment penalty.
But most mortgage lenders will allow a buyer of your condo to take over the existing mortgage, perhaps by paying an assumption fee about 1 percent. Then you will avoid the prepayment penalty.
Unless you expect to sell your condo within the next three years, I would grab that mortgage, although it has a prepayment penalty.
MUST JOINT TENANTS BE MARRIED?
DEAR BOB: You recently explained joint tenancy with right of survivorship. As I understand joint tenancy, when one joint tenant dies the surviving joint tenant automatically receives the full title without any probate court proceedings. My situation is my “partner” and I own our condo as tenants in common. If one of us dies, our wills specify the other co-owner will receive full ownership. Would we be better off holding title as joint tenants with right of survivorship? Must joint tenants be married? – Jerome P.
DEAR JEROME: Joint tenants need not be married to each other. There are millions of joint tenancy real estate ownerships among co-owners who are not married to each other.
But joint tenant with right of survivorship co-owners should understand that when a joint tenant dies, that person’s will has no effect on the joint tenancy property, which then automatically passes without probate proceedings to the surviving joint tenant.
In other words, joint tenancy is a “survivor take all” situation. The deceased joint tenant’s will has no effect on joint tenancy property. For full details, please consult your attorney.
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