Buying our first home

[paul]

This is a long rant so please bear with me.

We have been married for about two years. I got out of a personal BK about 3 years back. We are both financially concious and budget everything. Wife stays at home to take care of our kids. I pay the bills and take care of expenses. We recently decided to buy a home, and i do not have much saved - due to the BK and my income covered rent and expenses. Wife had a job for a while and saved some money. She inherited quite a bit too( a lot). Now, for the downpayment for the new home, she does not want to contribute much more than what I can match which is not much. She wants us to own a home that will have a high PMI and interest payment. I have to pay for the mortgage and will also be higher than our current rent amount.

Am I out of line asking her to use her inherited money for downpayment? We both have no major expense and no auto loans. She has the capacity the buy the home we are interested in, without a mortgage loan, but she does not want to do that either. She believes we need to contribute equally towards the downpayment.

[youdontkillmoney]

I think having you not rely on her inheritance puts strain on you, and eventually the marriage.  She should want to use her  inheritance for the downpayment, and put both of your names on the deed. If I were her I'd use it to put less stress on you and the marriage, it is after all her idea to buy a home too.

I don't understand when I hear such things, since if it were me being in a marriage, what's good for one is good for both. My wife had a student loan, I used her money and my money to pay if off. The point is it is paid off regardless of whose money. I did not insist, it is your loan, use only your money.

I understand we are in this together, her loans are my problems too, so wherever the money comes from, mine or her, it doesn't matter.

Same in your situation, she should look out for the both of you and if she can help, she should. I dare even say, being married, that inheritance money is also yours and you both decide what to do with it. Buying a home together is a great idea.

[bada_bing]

You have what appears to be a couple separate issues.

Your wife appears to want to keep her inheritance separate from what could be considered 

the community property of the marriage. From a financial standpoint, that is smart on her

part. From a relationship standpoint, I would have a problem with it if it were me. All of

"your" income is community property - is building wealth and paying bills that belong to

both of you. I wouldn't expect her to dump "her" entire inheritance into jointly owned property,

but it doesn't seem unreasonable to expect her to use some of it to structure the best

home purchase for both of you. 

As far as structuring a home mortgage, PMI is a big drag. I wouldn't go into a mortgage

that required PMI, too expensive. If you can't come to an agreement that allows you to

use some of her inheritance for a down that gets you a mortgage with best terms and 

no PMI, then you aren't ready IMO to shop for a mortgage. You need more savings for

a down.

If it were me, I would try to get her to cover enough down from her inheritance to get you

into a no-PMI loan and agree that perhaps "you" will pay more towards the payments until

"you" have offset the difference in contributions towards the down. If she doesn't like that idea,

if it were me, I might start looking at ways to insulate some of  "my" earnings from community

property claims. Not exactly a healthy situation, but that's how I would intrepret the situation

as posted. She is smart to insulate her inheritance from community property, but it has to be

balanced by an appreciation for your contributions. What you have right now appears to be a situation

where she considers things to either be "her" money (the inheritance) and "our" money (your income).

Not healthy and cause for a discussion towards finding a happy medium.

[Anonymous]

In my opinion, I don't think it is out of line for just asking. Have you ever had that talk with her about the money?

But it just sounds like she needs properly educating about how the down payment affects the monthly payments. Most of the time if you're down payment is below 20% of the houses value your monthly payments would go up as you would have to pay mortgage insurance. Does she really understand this? This is not a good investment decision, especially as you actually have the money.  It would be different if you didn't have the money to cover it. This could possibly end up costing you an extra few hundred, even thousands of dollars per year. And if that money is just sitting in a savings account chances are it's not going to be gaining much interest anyway. Does she have any special plans for this money? Anything more important than buying a house? I guess it could be used a backup/collateral if she really doesn't want to touch it.

[paul]

Thank you so much for the advice and viewpoints, that helped.

[tacpoly]

---

@bada_bing wrote:

You have what appears to be a couple separate issues.

Your wife appears to want to keep her inheritance separate from what could be considered 

the community property of the marriage. From a financial standpoint, that is smart on her

part. From a relationship standpoint, I would have a problem with it if it were me. All of

"your" income is community property - is building wealth and paying bills that belong to

both of you. I wouldn't expect her to dump "her" entire inheritance into jointly owned property,

but it doesn't seem unreasonable to expect her to use some of it to structure the best

home purchase for both of you. 

As far as structuring a home mortgage, PMI is a big drag. I wouldn't go into a mortgage

that required PMI, too expensive. If you can't come to an agreement that allows you to

use some of her inheritance for a down that gets you a mortgage with best terms and 

no PMI, then you aren't ready IMO to shop for a mortgage. You need more savings for

a down.

If it were me, I would try to get her to cover enough down from her inheritance to get you

into a no-PMI loan and agree that perhaps "you" will pay more towards the payments until

"you" have offset the difference in contributions towards the down. If she doesn't like that idea,

if it were me, I might start looking at ways to insulate some of  "my" earnings from community

property claims. Not exactly a healthy situation, but that's how I would intrepret the situation

as posted. She is smart to insulate her inheritance from community property, but it has to be

balanced by an appreciation for your contributions. What you have right now appears to be a situation

where she considers things to either be "her" money (the inheritance) and "our" money (your income).

Not healthy and cause for a discussion towards finding a happy medium.

---

---

@youdontkillmoney wrote:

I think having you not rely on her inheritance puts strain on you, and eventually the marriage.  She should want to use her  inheritance for the downpayment, and put both of your names on the deed. If I were her I'd use it to put less stress on you and the marriage, it is after all her idea to buy a home too.

I don't understand when I hear such things, since if it were me being in a marriage, what's good for one is good for both. My wife had a student loan, I used her money and my money to pay if off. The point is it is paid off regardless of whose money. I did not insist, it is your loan, use only your money.

I understand we are in this together, her loans are my problems too, so wherever the money comes from, mine or her, it doesn't matter.

Same in your situation, she should look out for the both of you and if she can help, she should. I dare even say, being married, that inheritance money is also yours and you both decide what to do with it. Buying a home together is a great idea.

---

I think some clarification is in order:  even in Community Property States, inheritances are separate property, not marital/community property.

Yes, it would be easier if she would contribute enough of her inheritance to avoid PMI, but you also need to see that with her not working, having this money is a much needed fall-back for her.  The opportunity cost of staying at home and taking care of the kids are substantial - by being out of the work force for an extended period, she could be destroying her career or at least setting it back so far that it could be difficult for her to get back to the level she left.  Yeah, you're making all the money, but at the same time, she's also sacrificing what would have been her salary.  It's something to keep in mind when you're talking about "financial contributions".

[Revelate]

@tacpoly: I agree the only rational reason for her to be doing this is for the financial fallback position; however, the majority of American divorce case law is setup to defend the non-working spouse for exactly the reasons you describe.  I would also turn that argument right around: how is it fair for someone to do that and retard the financial capabilities not only of the marriage partnership but also the future assets of the working spouse in the failure situation?

I know this is particular to me, but I just wouldn't be OK with my spouse doing this, and rather than buying a house, I'd be having a non-trivial talk with her to sort this out.  Someone able to contribute meaningfully to the relationship financially but not?  No, so many things wrong with this, not ethical by my standards.

Financially it's not a hard call for me: either contribute an outsized share of the DP and you don't pay the mortgage or expenses, or we split the DP 50/50, we split the mortgage payment and any housing repairs / upgrades we mutually agree on 50/50 or something way more equitable than her sitting on a pile of cash and my wiping out the rest of the family assets and retarding our family cash flow to do this for her fallback position.  That impacts the kids too, and that's a no-fly zone when it comes to my accepting it if it were my situation.

The whole situation needs a major talking through anyway as this likely isn't isolated just in the financial space.

[tacpoly]

---

@Revelate wrote:

@tacpoly: I agree the only rational reason for her to be doing this is for the financial fallback position; however, the majority of American divorce case law is setup to defend the non-working spouse for exactly the reasons you describe.  I would also turn that argument right around: how is it fair for someone to do that and retard the financial capabilities not only of the marriage partnership but also the future assets of the working spouse in the failure situation?

I know this is particular to me, but I just wouldn't be OK with my spouse doing this, and rather than buying a house, I'd be having a non-trivial talk with her to sort this out.  Someone able to contribute meaningfully to the relationship financially but not?  No, so many things wrong with this, not ethical by my standards.

Financially it's not a hard call for me: either contribute an outsized share of the DP and you don't pay the mortgage or expenses, or we split the DP 50/50, we split the mortgage payment and any housing repairs / upgrades we mutually agree on 50/50 or something way more equitable than her sitting on a pile of cash and my wiping out the rest of the family assets and retarding our family cash flow to do this for her fallback position.  That impacts the kids too, and that's a no-fly zone when it comes to my accepting it if it were my situation.

The whole situation needs a major talking through anyway as this likely isn't isolated just in the financial space.

---

There is another reason not to hand over all her money to her husband:  maybe he's not great at handling the finances.  He's already filed a personal bankruptcy; he has no savings to put a down payment yet wants to buy a house.  I would be a bit wary in this situation.

That's all good in theory but reality is different: 

     - One in five women fall into poverty after divorce. (1)

     - Three out of four divorce mothers don't receive full payment of child support.  (1)

As an aside, this whole stay-at-home parent thing is an issue with me because I think the stay-at-home spouse always gets devalued.  I think those who end up staying at home should negotiate a "salary" for taking care of the kids and the home.  I think that "salary" should be direct deposited into the SAH spouse's bank account just as if it were coming from a company.  They can then contribute what they need to to household expenses.  If most of it gets spent on household bills, then so be it, but this way the other spouse can't take their SAH spouse for granted.  Otherwise, the SAHS basically relies on the good will of the wage-earning spouse -- what happens when that good will dries up? 

(1) Grall, T. S. (2003) Custodial mothers and fathers and their child support: 2003 (Current Population Reports, Series P60-230). Washington, DC: U.S. Government Printing Office.

[paul]

@tacpoly, I understand your logic about the non-earning spouse getting compensated properly. But, the issue here seems to be about making financially sane decisions together.

We are careful about spending money and budget every expense. The reason for me to bring this question to the forum is because I felt we were not making the right decision buying a home with a high PMI. The home we will buy if we put 20% down will be cheaper than paying rent in our area. The extra portion she was expected to contribute would be about 10% of what she inherited. She has absolutely no expenses, except for her cell phone bill, which she pays. Also, she plans to go back to work in about a year. In the meantime I have been contributing to "our" retirement plan. She has a retirement plan from her last job which I have no idea how much is left.

Not paying down 20% will make the mortgage expensive, an initial Mortgage premium and a monthly amount - does not make sense for us. The reason I have no savings, is I lost my job and I had to declare BK, this was before our marriage - I wanted to wipe out debt before we got married. Our current situation is that there is not much left over after our day to day expenses and there will not be anything left after paying a mortgage with a high PMI. I hate to spend money and not being able to save when we are still recovering from our last downfall. 

We did have a conversation this week, and have agreed to buy a home with just what we have - still a 50/50 match. This will most likely double my commute, but I have to accept that for now.

[bada_bing]

Good for you for making progress.

I thought a little more about your original post. One solution that seems rather

advantageous to consider would for your wife to use her inheritance to purchase

a house with no mortgage (for cash). I know you said she didn't want to do that but

it has some compelling advantages to consider:

1. She could retain ownership as inherited property and protect her interests if the

the property was bought entirely with her money.

2. It would free up the money budgeted for house payments to be used for savings. If

desired, it could allow more fully funding retirement accounts and college savings funds.

In a way, it would allow the transfer of her inheritance money into tax advantaged savings

over time, which could be a real advantage.

3.There is nothing like owning your home outright to give a greater sense of security. Having

no mortgage allows all kinds of things to be recalculated like minimum budget and size of

emergency fund.

One way to look at it is as if your wife invested her inheritance into a rental property with the

perfect renters locked in - her family. She would get the homeowner's tax free capital gains treatment on

this "rental" when it finally gets sold. It makes for a compelling investment for her inheritance as

well as a major step up for her family.

If it were me with an inheritance and faced with choice between spending some of it on joint ownership

of a mortgaged property and more of it to be the sole owner of a mortgage free property, I know what I would

choose.