Making Dream House a Reality Is All About Patience, Planning
Q: I really respect your no-nonsense approach to financial advice, so I’d like your input on a problem I’m muddling through. I own and have lived in a nice condominium for the last 12 years but have begun to feel a strong urge to move to a single-family home, so that I can have more room, a better investment and, most important to me, a yard where I can have my dream garden. A lot of houses with payments within my “comfort” range, though, have been scary little hovels in neighborhoods full of barred windows. As a single female, this does not thrill me. Should I stay put, waiting until I can afford a house I would feel comfortable in, or buy the best “shack” I can afford and improve it? Or should I dip into my investments for a larger down payment so that I can get a better house?
A: Your problem is one faced by many people who are feeling priced out of the real estate market by rising interest rates and property values. You face additional pressures as a single person; you don’t have a second income to bail you out if you make a mistake, so you need to be a bit more conservative with your investment choices--and that includes which house to buy.
I’m assuming you have a good idea of the costs of maintaining a home, which are almost certain to be much higher than what a condo requires. You should plan on spending at least 1% of the home’s value each year on repairs and maintenance, and probably more. Make sure you factor that, along with higher property taxes and insurance costs, into your calculations of what you can afford. You may not spend the whole amount each year, but sooner or later you’ll have to replace a roof or repaint the house, and you’ll need every dollar you’ve saved for that purpose.
I’m also assuming you have a good real estate agent on your side. Although you can save some money by representing yourself, you may miss out on some deals or neighborhoods that you might not find on your own. A well-connected, hard-working real estate agent also can be a valuable advocate in helping get your offer accepted. An unenthusiastic or overworked agent is worse than none, however, so make sure you choose carefully.
If a home is really important to you, and you’re prepared for the greater costs, it can be worth dipping into your investments for a bigger down payment, even if that means delaying your retirement a couple of years or putting off some other goal. As with most financial planning, you must weigh the value of your dreams and decide what matters most.
Bad neighborhoods tend to get worse, not better, so you probably want to aim for the best neighborhood you can afford, even if it means buying the worst house. Ideally, you would look for a home that requires only cosmetic improvements; unless your means and patience are substantial, you don’t want to take on serious flaws such as a cracked foundation or other structural problems.
Be prepared to look for a while, but be ready to move quickly on a home that meets your needs. Your agent can guide you through the process of getting your finances in shape and getting pre-approved for a loan.
I’d urge you to pick up a copy of “Home Buying for Dummies” (IDG Books Worldwide, 1996) for a complete discussion of all the factors you need to consider, as well as advice on finding loan programs that might help you buy more house.
With patience and planning, you can get your dream house. Good luck!
A Day Late Keeps You Dollars Short
Q: Thank you for the column in which you said one should keep track of the due dates of regular bills. I had not been doing this, and inadvertently spent quite a lot on late fees; I don’t think any company, except for our mortgage lender, had ever told us on what day of the month bills would be due. I discovered that our bank, which has both our checking account and Visa/Mastercard, will automatically deduct a minimum payment, averting the late fee. When I called to ask our other credit card issuers, they said they would be glad to do that too.
A: Good for you; automatic debit is the easiest and cheapest way to make sure your recurring bills get paid on time. Check to make sure your companies aren’t charging you a fee for this service, though; most don’t.
Of course, you should be even smarter by making sure you make additional payments to help pay down your credit card balances. Paying only the minimum on your credit cards each month can keep you in debt forever.
Some credit card companies offer other services to help you avoid late fees. Discover, for example, has a nifty, free feature that sends you an e-mail a few days before your payment is due, and gives you a link to its Web site so you can pay online.
By the way, finding out the due date of your credit card bills isn’t tough: Just check the due date of your last month’s bill. Most issuers expect payment on the same day each month. Only a few try to get cute by moving the date around, perhaps hoping to boost the late fees customers must pay. If yours is one of them, shop around for a new issuer.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. She regrets that she cannot respond personally to queries.
