The Loan Arrangement

[Kailex]

So, I had a pair of clients today and I was dealing with some arrangements for a loan that's towards the purchase of a house.

What struck me different was the situation surrounding the loan.

The couple seemed happily married and both of them seemed to be well adjusted individuals in their thirties. Nothing struck me as unusual until I saw how the loan was going to be done and the "why".

The loan will be solely in her name.
He was simply present because she wanted him to be there to make sure that everything went through smoothly from start to finish.

Upon talking to the couple, I discovered that she seems to have better credit than he does and that was pretty much the main reason the loan and title of the house would be in her name. They wanted a better interest rate and easier payments for the house.

Now, I won't get into specifics about their finances, but her salary is enough to cover the payments easily. We'll just keep it at that. But they told me that obviously this was an arrangement where he would give her half of the rent. Payments seemed to be no problem for this couple and this loan is well on its way to be approved.

My observations were that he definitely seemed to take the lead in the relationship and that she deferred to him a lot. They did come separately because he was on his break from work. At some point, she got a phone call from her mom and she excused herself, telling him to handle the rest of it and leaving to go pick her up from the mall.

I couldn't resist and asked what the deal was:

Basically, they both were open about their finances and had come to an agreement to proceed with the loan this way. They both made enough money to pay the loan monthly, but he had some credit debt that he's been slowly paying off, while she had absolutely none.

He also came to the point I was hinting at:

He said he loved her very much but was very careful before they got married. They have a prenup in place and part of the reason he wanted to do the house this way was to avoid any mess in the future in case something DID happen. He said that he did not mind at all losing anything he put into the house and if it came to that, since the house was in her name, he would just leave and get an apartment.


I was kind of taken aback, simply because I had never seen a situation like this.


I just wanted to see what the general consensus on this situation is:

-Is he being smart and thinking ahead?
-Is he seeing red flags that would prompt him to do this?
-Is there such a thing as being too cautious in this situation?


I have my own opinion after seeing this up close and personal, but I wanted to see what others thought.

 

[Ridingthelightning]

I think its a fine situation. I would like to have a prenup in place, although I plan to actually buy MY house and own all of my stuff...
If a marriage ends then each party takes what they've brought to the table and go separate ways. If kids are involved then that can still occur. Sell things that are in the name of both (car, house, etc) and take an equal share of the money.

 

[Julius_Seizeher]

There's always a trade-off. In this scenario, he seems to have zero strings attached to his wallet, he's a renter and a divorce would be relatively simple.

On the other hand, he doesn't get any equity either. Or does he? I have discovered a gray area in my knowledge of mortgage finance, does his exemption from the mortgage loan obligation negate his legal marriage status in determining ownership?

All things considered, I think it's a win for him. We always hear that "your home is your biggest investment" bs but in reality your home is your biggest liability. Thank you Mr. Kiyosaki.

 

[vatoloco]

I pretty much agree with everyone but this is the one thing that bothers me:

On the other hand, he doesn't get any equity either. Or does he? I have discovered a gray area in my knowledge of mortgage finance, does his exemption from the mortgage loan obligation negate his legal marriage status in determining ownership?

At this stage in my life, I would hate to be putting money into something that I'm never gonna own. I don't know if Jersey is a community property state (is this loan originating in NJ for a property in NJ?) but, even if he's not on the mortgage or the title, in case of a split, would he be entitled to half of the house, even if there are provisions against such claim in a prenup?

Personally, I think he's either been burned before and is being EXTREMELY careful OR he's planning to bolt at some point.

As a side note, I bought a house that I was able to afford by myself. I plan to cohabit only with her paying the utilities (them being in my name, of course) but never putting her on the title, or if I refinance, never including her on the mortgage. That way if she decides "she needs her space," I can tell her "Cool! Pick up your things and get out of my house."

I will need to consult a lawyer to come up with a court-enforceable agreement while we cohabit stating that she denounces any claim to my house (even if we were to cohabit longer than 10 years and that the money she would pay would be considered "rent"). Unfortunately I live in a Community Property state so I need to be extremely careful...

 

[Julius_Seizeher]

Yeah how does Community Property work, 2+ years of cohabitation and she's half owner, with or without a ring? Wtf man

 

[taiyuu_otoko]

Sounds like he's going in with his eyes open, and she, for whatever reason, agreed to it.

How does she look? From an attractive/personality standpoint? Is she high market value, or doe he love her for her personality?

Also, how old are they? 30's, 40's?

Like JS said, not getting any equity out of the deal is the biggest drawback, but perhaps he's thought well about it and that is a worthwhile price to pay to be able to split with no strings.

She also may have put down the "marry me or else," and he weaseled himself this deal where he can keep her, but split with no hassle if he finds something better.

Any idea who initiated the prenup?

 

[Kailex]

Okay, a lot of questions, hope I cover them all.

(1) They are in their early 30's. Neither has ever been married, and there are no kids involved.

(2) I'm trying to figure out the logistics on the equity because I've never had this case before where the couple was willingly "buying a house together" but under ONE name. The way I heard it, he builds no equity, but in the case of him having to leave, he doesn't lose anything either. Basically, it's a "safe risk". He had told me that he'd just rather avoid potential messes in the future.

(3) He is from a divorced family... she still has both parents.

(4) She is not a 10, but no less than an 8 either. She is very fit, well built, and definitely seemed to have her feet on the ground. She had owned a house previously which was paid off, a car which is paid off, all of her credit card balances are $0. She made sure to keep constant credit flow by using it and then transferencing balances from her bank account immediately. They seem to have a loving relationship. It honestly seemed to be a mutual decision. They seemed to have a relationship were they both communicated decisions but it leaned 60-40 more towards HIS way and not HERS.

(5) He had decent credit. His only setback was some debt accumulated due to medical expenses.

(6) When she was away, he told me that neither of them had never lived with anyone else before. This was new to both of them, but they both wanted to be cautious. They'd been steadily dating and said they were great for each other. He says that he has no doubts about loving her and wanting to start a family with her, but the things he's seen in the past had led them to believe that this was the best decision for the two of them.



I get to see them tomorrow again.
I wish I could sit aside with HIM again and I'll definitely be gauging their interactions.

I'm just baffled by this whole thing.

 

[2crudedudes]

If his debt is sizable enough to make THAT big of an impact on the rate/payment, wouldn't he benefit from going rent free for a few years to pay his loans back?

She can easily make the payment on her own, so couldn't she cut him a break to catch up on his finances? I mean, they ARE in love and married...

Maybe its because I consider marriage to be a crazy level of commitment that I would expect my partner to give me this type of opportunity.

 

[Bible_Belt]

The other side of the not getting any equity is not being stuck with a debt that is higher than the value of the house, like about 1/3 of all Americans at the moment. If they later divorced, he would still be entitled to one-half of the wealth created during the marriage, including equity appreciation in the home that she owned. I don't think he would get stuck paying on a loan that is underwater, but if the house depreciated, that might offset any other created wealth that was being split up in the divorce.

I don't think it's a bad deal for him at all, but part of that is my view of the real estate market and not wanting to participate in it.

 

[zekko]

If they split up, she gets the house but she's also saddled with the payments. He gets out easily and is free to locate wherever he wants to without the house being a millstone around his neck. They probably discussed this, she wants the house and he wants to keep his options open. Everybody wins.

 

[backbreaker]

there is no down side to this. you do not have to buy a house to have good credit. there are other ways to establish credit, and considering what it could and does cost millions of men a year (divorce), i'd happily pay the rent.

those same guys crying over equitiy in their house are the same guys living at motel 6 while their wife is at his house, screwing some guy she met at work, while she's changed the locks, and he's still paying rent becuase he can't afford the credit hit.

 

[zekko]

there is no down side to this. you do not have to buy a house to have good credit. there are other ways to establish credit, and considering what it could and does cost millions of men a year (divorce), i'd happily pay the rent.

Good point. The more I think about it, the more I think this must be a very smart guy who's really got things figured out.

 

[Kailex]

Okay, so I spoke to the guy today over the phone. He wanted to ask some details and I took the chance to ask him a few more questions, of course, off the record.

So I'll directly address 2crudedudes since he had the SAME doubt I did.

If his debt is sizable enough to make THAT big of an impact on the rate/payment, wouldn't he benefit from going rent free for a few years to pay his loans back?

She can easily make the payment on her own, so couldn't she cut him a break to catch up on his finances? I mean, they ARE in love and married...

His debt is NOT sizable enough, it's not even 10K.
Yes, 10K seems like a lot but where I work, 10K is NOTHING.
After getting some of the payment figures, I forgot to take something important into account and this is what our last conversation was about.

He was living in an expensive apartment, paying about $1400 - 1700 a month including utilities.

With this new arrangement, he'd most likely NOT pay over $700 a month. Apparently for the first year of the live-in, she would take up the utilities. Him paying HALF the rent is NOTHING compared to what he was paying before.

They reached a conclusion that he was better off paying half of the rent but using his other half to pay down the debt at about 600 a month. They don't have children, so in about 1 to 1.5 years, he'll have all of his debt settled and he'll be having an extra 500 to 700 a month.



I have to say that I am intensely shocked by the whole situation. This was VERY well thought out and apparently they BOTH sat down together, looked at BOTH of their finances and made decisions based on what was best for them not only short-term, but long-term as well.

I'm sincerely blown away by this situation, to be honest. I've never seen a scenario like this before and it's kind of refreshing, almost gives me hope.

 

[taiyuu_otoko]

I'm sincerely blown away by this situation, to be honest. I've never seen a scenario like this before and it's kind of refreshing, almost gives me hope.

Sounds like two responsible, mature adults. Good on them.

This "story" would be a perfect way to screen for financial responsibility on a first date.

e.g.

"I was talking to a buddy of mine the other day, he's a financial planner, and he was telling me about a couple that are buying a house together..."

And then give the details, tell you're date you think it's a great idea, and see how she reacts. And next accordingly.

Thanks for posting this, Kailex. +1.

 

[cavedweller]

my 2 cents:

He don't have zip..The woman has some cash and good credit...She is covering herself just in case the relationship crashes..

If they ever breakup he won't get 'jack'.

cavedweller