Q DEAR BOB: I read your response to that reader saying a married couple can qualify for the full $500,000 principal-residence-sale tax exemption even if only one spouse held title. My mother is soon going to sell the house where she has lived for 23 years. She is to marry this month. If she sells her house after the wedding, can she qualify for the full $500,000 tax break? Her real estate agent says that because her new husband never lived in the house, she only qualifies for $250,000 tax-free. -- Stephanie R.
ADEAR STEPHANIE: Internal Revenue Code 121 only requires one spouse's name to be on the title of the principal residence being sold to claim the full $500,000 exemption (instead of just $250,000 for a single home seller). But both spouses must meet the occupancy test.
Because your mother qualifies but her new spouse hasn't lived in the principal residence an aggregate two of the past five years -- and therefore doesn't meet the occupancy test -- she can only qualify for up to $250,000 in tax-free profits.
DEAR BOB: We opted for upgrades that our home builder offered at a discount if we borrowed from the builder-owned mortgage company. The sales agent assured us our mortgage rate would be no higher than 1/8 percent over the market rate. But now we discovered our mortgage is about 1/2 percent higher than market rate. We have excellent credit and have shopped around to discover we qualify for the lowest rate. But the purchase price of our house will go up about $20,000 if we do not finance with the builder's mortgage company, which refuses to offer a competitive rate. What should we do? -- Priya R.
DEAR PRIYA: In real estate, as you discovered, a sales agent's oral statement means nothing. To be enforceable, any real estate promises or agreements must be in writing and properly signed.
Be sure your new home loan from the builder's mortgage company does not contain a prepayment penalty. Then you can refinance with a lower-interest-rate lender after your home purchase closes. If the builder's loan is 1/2 percentage point higher than the market rate, that means your discount on the builder's upgrades will be expensive unless you refinance with another lender to lower your interest rate.
DEAR BOB: My husband and I have both been married before, but our investments are separate. We are of modest means and are both retired. Because of the divorce settlement and an inheritance, the home we live in is in my name alone. What worries me is, on occasion, my husband drinks too much when he is with his buddies. He then drives across town to come home. I have told him that he could injure himself or someone else. I am afraid of losing my home in a lawsuit. We have proper insurance on our vehicles. Even if the home is in my name alone, can this happen? -- Connie A.
DEAR CONNIE: Under the circumstances, you are wise to keep the title to your house in your name alone. If you add your husband's name to the house title, and if your husband gets a court judgment against him, depending on state law, the house equity might be subject to execution on that judgment.
Should your husband become involved in an accident and if his auto insurance is inadequate to pay a court judgment for negligence, the injured plaintiff might try to enforce that judgment against your house. But in most states, such an attempt would fail because the house is your separate property.
Even in a community property state, because you owned the house as your separate property before the marriage, it remains your separate property unless your husband contributes to it financially.
My suggestion is to review your insurance protection with several insurance agents, not stating the reason for your concern, of course. To illustrate, my insurance agent recommends I carry $300,000 liability insurance on each property, and on my car, plus a $2 million "umbrella liability" policy, which would apply to any negligence judgment against me over $300,000.
DEAR BOB: I have been paying my private mortgage insurance (PMI) fees on my home mortgage for more than two years. I just called my lender and was told I must have a loan-to-value ratio of 75 percent (not the 80 percent I anticipated) to cancel PMI. I was also told I must get an appraisal from a recognized appraiser. Some time ago, you suggested borrowers file lawsuits in small-claims court to get rid of PMI. At what point should I sue my lender and for how much?
-- Stefan C.
DEAR STEFAN: PMI enabled you to buy your home for little or no cash down payment. In return, you had to pay the PMI monthly premiums, which protected your mortgage lender on the top 20 percent in case of your loan default loss.
