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Archive for Friday, September 2, 2005

Old personal bankruptcy filing likely to affect interest rate on loan

September 2, 2005

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Q: I am a stay-at-home dad who went through a personal bankruptcy around 2003. Our house is held in my wife's name only. We want to refinance before rates go up again, so any advice you can provide would be greatly appreciated.

A: The fact that you filed for personal bankruptcy a couple of years ago shouldn't prevent you and your wife from getting a mortgage to refinance the family home. The bigger issue is whether you'd get the best loan terms if you apply for a new mortgage as a couple, or if your wife instead applies for the loan in her name only.

Most lenders today are willing to provide mortgages to people who have a bankruptcy on their record, especially if the bankruptcy was filed at least one or two years before the date of loan application. However, such borrowers are often charged a higher interest rate or larger fees to compensate the bank for its perceived higher risk.

Ask a few lenders and mortgage brokers how the personal bankruptcy you filed a couple of years ago would affect the mortgage application. Then ask for two separate quotes: One for the terms you'd get if you and your wife applied jointly, and the other for the terms your spouse would obtain in her (bankruptcy-free) name only.

If the terms are the same, the two of you could apply for the mortgage together and then take title to the home jointly. But if your wife would qualify for a better deal by applying as a sole borrower, she could take the loan out by herself and later add your name to the title - assuming that your bankruptcy case has closed and previous creditors could no longer place a lien on the home in an effort to collect old debts.

Talk to both the lender and your bankruptcy attorney for details.

Q: I spent about $5,100 on new flooring for my kitchen and living room last month. Can I deduct that amount on my next income tax return?

A: Sorry, but the answer is no. The Internal Revenue Service generally does not allow deductions for home improvements, though the cost of certain types of projects - like adding wheelchair ramps to assist an owner who suddenly becomes disabled - can be written off if certain guidelines are met.

Although you can't deduct the $5,100 you paid for the flooring on your upcoming tax return, you can add the amount to the "tax basis" of the home to reduce any taxes you might owe on the profits when you eventually sell. Consult an accountant for more information or visit the IRS's user-friendly Web site, www.irs.gov.

Q: What is the ECOA?

A: It's lender jargon for the federal Equal Credit Opportunity Act. The law prohibits banks and other creditors from discriminating against a credit applicant on the basis of the borrower's sex, marital status, race, color, religion, age or the fact that some or all of the applicant's income may be derived from welfare agencies or other types of public-assistance programs.

Q: I am about to rent a house with two roommates. We would like the landlord to provide the three of us with separate rental agreements, but he says we must all be on a single agreement. What do you think?

A: Landlords generally aren't required to provide separate rental agreements for individual roommates. Having multiple agreements for the same rental can be cumbersome and create extra bookkeeping headaches: For example, the landlord would have to assign a portion of the monthly rent to each of you and then divvy up charges for utilities and the like.

Equally important, if separate agreements were used and one of the roommates subsequently couldn't pay his or her share of the monthly rent, the landlord couldn't legally hold the others responsible for the unpaid balance. And if one of the roommates decided to leave before the lease expired, it would be virtually impossible for the owner to accurately and fairly determine what amount (if any) to withhold from the departing roomie's deposit while the other two tenants remained in the property.

- David W. Myers is a 20-year veteran of the newspaper and magazine business, having previously covered real estate for the Los Angeles Times and Investor's Business Daily.

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