Dear Edith: I have a daughter living in Virginia who is planning to buy a new home. She has recently purchased a new car. Her friends have advised her to include the cost of her new car in her mortgage, and then pay off the car. Their reasoning is that the additional monthly amount added to the house mortgage would be insignificant, while the cancellation of the monthly car payment would allow for additional cash flow. Is this legal -- or advisable? -- K.A.

Answer: Those may be good friends, but they're rotten financial advisors.

It's ridiculous to put her house at risk and pay interest for the next 30 years for a car that will be in the junk heap long before it's paid for. Besides which, particularly today when banks are being much more careful, no mortgage lender will OK her for more than she needs to buy the house.

VA Down Payment

Dear Edith: I'm a veteran and am eligible for a VA "Certificate of Eligibility," which guarantees the lender a percentage of the loan. Can I use this as a portion, if not for all, of the down payment? -- J.V.

Answer: No, but you won't need to.

The certificate isn't exactly cash money. But with the government guaranteeing part of your loan, the lender can lend you the entire purchase price, with no down payment. Talk with a mortgage broker, or directly to local lenders, and they'll explain.

Widower Using Homesellers Exclusion

Dear Edith: I am in the process of selling my home. We lived here for 42 years. My wife passed away on May 29, 2007.

You stated in a previous column that the surviving spouse has one year to sell the family home and claim the full exclusion, $500,000. Am I entitled to the full or half of the exclusion? I obtained publication 523 ("Selling Your Home") from the IRS. Nowhere did I notice any answer to the above question. -- W.C.B.

Answer: I didn't see it in there either, but at any rate, the full exclusion is available for a sale in the year of the death. That's not the same as a whole year after the death.

If you had sold your home in 2007, for which you're filing a joint tax return, you could have taken up to $500,000 in tax-free profit.

Selling in 2008, you'll have only the single homeseller's exclusion.

That covers up to $250,000 profit, free of federal capital gains tax.

Husband Goofed

Dear Edith: My husband co-signed on a mortgage with another person who is not paying the mortgage. Can he force that person to sell? -- Via e-mail

Answer: Not unless he's also a co-owner.

Meanwhile, your husband's credit rating is being battered, and he could be held personally liable for the whole debt, including late payment penalties. As I've said before, it's misplaced sympathy to help someone borrow money when the bank, by requiring a co-signer, has shown it thinks they aren't a good risk. And in this case, the bank was unfortunately right.

Three on the Mortgage

Dear Edith: My husband and I purchased a home with my mother. All three names are on the mortgage. Now, my mother is in the hospital and she has told me she does not have a will. If she dies, will we have to go to probate court? -- Via e-mail

Answer: You don't say if the three names are also on the deed. If they are, you might automatically become full owners when your mother dies, or you might not. It all depends on how your names are written in the deed.

If you are listed as "joint tenants with right of survivorship," you and your husband would remain as the only owners. Otherwise, your mother's share would go according to her will if she had one. As she doesn't, it would go according to state law. If she had a husband or other children, they could have claims to it.

As for probate -- when someone dies, no matter how simple his or her finances, a lawyer should always be consulted to see if anything needs doing.

Selling Right Away

Dear Edith: I just purchased a home three months ago and now we want to sell. The drive is just too far to work. Is there some kind of penalty for selling so soon? -- S.

Answer: No penalty, no problem, except that given the costs of buying and selling, you may be out some money before you're done.

Edith Lank will respond personally to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.
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