Color of Money Live (April 5)

Apr 05, 2018

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

“Knowledge isn’t power. The right knowledge is power.”

Stay informed.

Read & share Michelle Singletary’s Color of Money Column on Wednesdays and Sundays: http://wapo.st/michelle-singletary

Follow Michelle Singletary on Twitter (@SingletaryM) and Facebook www.facebook.com/MichelleSingletary

So glad you could join me today. And I have a guest. Ilyce Glink, a Post real estate columnist and author of "100 Questions Every First-Time Home Buyer Should Ask." 

Looking for those Thursday Testimonies too.

Let's get started.

Could you explain the difference between a co-op and a condo. What are the advantages and disadvantages of each? Since a co-op shareholder doesn't have a grant deed, what document establishes his/her ownership in the property?

Condos and co-ops are different forms of ownership. With a condo, you own the space inside the walls, floors and ceiling of the property plus a share of the common elements (i.e. walls, floors, ceiling, garage, pool, backyard, etc.). 

With a co-op, you own shares in a corporation that owns the building. The shares are equal to your unit, but are not technically the same thing.

There are other differences. When it comes to paying property taxes, condos and co-ops are assessed as a whole and you pay your share of that (so fighting your property taxes individually is a waste of time and money). But with a condo, you typically pay your own taxes and with a co-op, the taxes are broken into 12 pieces and added to your monthly assessment.

Final difference: Co-ops retain the right to refuse anyone who wants to buy for any legal reason (racism/sexism are not legal reasons). But if they don't like the color of your hair, they can reject your application. Condo buildings typically retain a right of first refusal. In other words, if you want to buy and they don't want to, they have to buy the unit.

I have more on this in my book and on my website, ThinkGlink.com.

So we own a home in the midwest, and have owned it free and clear for 20+ years. Freedom! If we sell, we might get $300K, but how do we buy a home in CA where the home prices are $750 and up? Or do we simply rent? Suggestions? We do not really want to have a mortgage in our retirement, but do not think we should use ALL of our retirement savings to buy a home in CA. We have a 401 K of $700K for retirement living, but that's it besides SS -- we will wait until age 70 to claim it. Help, please!

I hear you! It's expensive to buy (and then to live) in California. I'm sure Michelle will agree with me that YOU SHOULD NOT use up all of your retirement savings to buy your dream house. And, renting is expensive as well, though it might be a doable option.

Instead, consider shifting where you want to buy a home. For example, I'd love to buy a home in Palo Alto (where Stanford is located) but I don't have a spare $2 million for a teardown. (Yes, that's what teardowns cost there.) But if I shift my sights, there are other locations where it might be possible to purchase something.

In other words, buying a home in an expensive location, no matter where it is, will require tradeoffs. But the one tradeoff I don't want you to make is being house rich and cash poor. That's a one-way ticket to Problem City.

I totally agree with Ilyce! You do NOT want to get a mortgage. You will probably manage well in retirement because you don't have that debt. So keep fighting for your financial freedom.

If you are set on living in CA look for areas where you can buy the home outright, which would put keep you in the very enviable position you are in right now -- no mortgage monkey on your back! 

Michelle, I route you several months ago as a survivor of domestic violence you’re still going through the divorce process and dealing with a lot of debt. I have a small testimonial. I have been working hard to save, pay down debt, and reduce expenses. For the divorce process we have to do financial affidavits and I had to update mine. When I first did mine I had a deficit of over $1200 a month. through six months of cutting expenses, paying down debt, and taking a side job that I work when my son sees his father I have changed that deficit into a $41 extra every month. I am on track to pay off all debt except for student loans, mortgages and loans from my parents to pay for this divorce within four years. it looks like it least two months before the divorce is final still and I am making sure to build up my emergency and life happens savings account as well. I am careful to currently only pay what I need to on the debt that was incurred during the marriage because that particular debt will be split when the divorce is final and assets and debt are split. I am Aggressively tackling the debt that I have incurred since filing for divorce because that is mine. there is a light at the end of the tunnel and amazing how I could go from a $1200 deficit to $41 extra. Not much but progress. As an aside, I am using my experiences to create a resource that can be shared with other survivors going through this process.

Thank you for coming back and sharing your story. Again, so sorry for what you went through but so happy you found a way to survive and then thrive financially!

I also commend you for creating the resource information. It's a wonderful way to pay forward what you've learned. 

Hi Michelle, I have lived in my current home for the last 16 years. Throughout the last 16 years our home basis has gone from $330,000 (purchase price) to $785,625 (addition/home improvements). I recently had a real estate agent walk through my house and tell me I would be lucky to get $675,000 for the sale of my home. We have paid cash for most of the home improvements so luckily we are not upside down on our mortgage. This has led me to think about the Rent vs Ownership debate. I figured out how much rent would have cost me over 16 years...$404,940. Then I added up all the costs to date of my home ownership...purchase price, improvements, repairs, taxes, interest, and tax breaks...$967,862. Then, I took the $967,862 (costs to date)and subtracted $404,940 (rent) = $562,922. My thought is...over the last 16 years my family and I had to live somewhere...there is a value to that...even though my house has not been "profitable"...Do you think I am still coming out a head because the home value of $675,000 is still more than the $562,922 net costs to date?

I'm going to take a stab at answering your question. 

First, congratulations on your mastery of the numbers (not that I'm surprised that regular Singletary readers wouldn't know their numbers!). Not everyone understands to the penny how much they've spent over the years.

When people talk about renting vs. ownership, I'm struck by how numbers are at the heart of it. But consider this: Would you have been able to rent the same sort of property in your chosen location? While you've put a number on the amount you would have spent, would you have had the same quality of home and of life? You're living in a new and improved home (you referenced addition/improvements) and that might have required you to move to a different property along the way if you were renting.

Also, there is a transience to renting in that the owner might have decided to sell the property (necessitating one or more moves along the 16 years), which could have proven disruptive to your family.

As for profit, we've had a very skewed vision of home value in this country over the last 20 years. Some areas still haven't recovered from the Great Recession (in my own neighborhood, on Chicago's North Shore, homes are selling in some cases for less than what the owners paid 10-20 years ago). Yours sounds like it might be one of them. Had you been living in Palo Alto (see other question referenced), your investment might have quadrupled in the last 16 years.)

Meanwhile, you bought a home for a down payment, got a mortgage, and were able to pay that off over time. If you are sure that you would have lived super-cheap and invested the difference smartly (in Index Mutual funds, which are my favs), then you might have more money today than if you sell your home and pocket the $675,000 (tax free - you'd pay taxes on the investment dollars, btw).

We can't control what home prices are doing at any point in time. In 5 years, your home could be worth a lot more. But assuming it stays the same, when you sell, you'll have $675,000 in the bank (plus or minus, depending on if you sell by owner or use an agent), and hopefully that is enough to get you where you want to go.

Anyone else want to weigh in?

 

Can't add more to what Ilyce just wrote. 

I will say that numbers don't always tell the whole story. 

Should the loss of PMI tax deductibility change my decision about whether or not to make a 20% down payment.

Nope. PMI is wildly expensive. If you can put the cash down, it's far better.

This is part Thursday testimony, part question. My husband bought Ms. Glink's 100 Questions for First-Time Home Buyers back in the mid-1990s. It was a blessing, because after reading it we realized we weren't ready to buy a house. Fast forward 25 years and we are still living in our DC rent-controlled apartment with its 1980s kitchen and bath, balky plumbing, etc. The good news is we have been aggressive savers and patient investors throughout that time and now, in our mid-50s, are well-situated to retire next year. Michelle, thank you for all your advice and support along the way--especially your frequent reassurances that it's okay to rent. We couldn't have come this far without you. And there's no way we could retire at this age if we had bought a home in the DC area. Now, my question. After retiring next year, we will be moving to a low-cost area where we plan to buy a home. Any special advice for first-time buyers in this life stage? Home prices there are $200,000 to $250,000. Thoughts on whether we should pay cash or get a small mortgage? We could manage either way.

Whoo hoo! I'm delighted that you didn't buy when you weren't ready. Instead, you made a safe and smart move for yourselves (which didn't even require a move) and it sounds like that decision has been repaid in spades.

I'd love for you to think about buying a home at this stage. It sounds like you've earned it. I'd just caution you to think carefully about what you want/need for the next 15-20 years of retirement. Don't buy a house with stairs if you think you'll have trouble climbing them. Make sure you have the size garden/house you can envision taking care of as you age (or if you have the funds to hire the neighborhood kids to help, even better). And, make sure your retirement plans include plenty of extra cash for the other sorts of things people like to do in retirement, like travel, see grandchildren, eat out, play golf, etc.

Other than that, you seem like you're ready to make this move. Don't get pushed into buying a home you don't love. Find an agent who really knows the community and can help you buy the home of your dreams.

You've earned it.

The new version of my book would probably help. (You can find it online for around $13.)

PS: Check out ThinkGlink.com for more tips!

I love your testimony and your patience!

Continue to follow Ilyce's advice. 

One thing I will add, before buying in the new area, rent for a year. This will allow you to spend time getting a feel for the area and really know where you want to live. Should I ever move, that's what I would do. Rent first. Talk to folks, drive around, see what fits for your. For example, I would like to live near the church I'm attending. But what if during the year I start out at one church but then decide to change because well I'm new to the area and heard later about some great church I hadn't discovered right away?

Other than that you got this. And the concept of not taking a mortgage into retirement. 

Read my newsletter for today: Link here.

Since we're talking about buying a home. Thought you might like to read my newsletter that came out today: Black homeownership is as low as it was when housing discrimination was legal

I bought a home almost 20 years ago in my early twenties, now I can see the end of my 30 year mortgage coming on. I recently started a new career where I earn more than when I purchased, so should I consider paying off this mortgage sooner than later?

What's your interest rate? If you're paying 3%, then keeping the loan as long as possible is a smart move, particularly since you've paid most of the interest and now you're primarily paying down principal. 

Here's what I'd do if I was suddenly earning more money than I needed:

1. Max out your 401k at work

2. Take advantage of a Roth IRA and max that out (if you're able)

3. Put the rest into a brokerage account, invested in cheap index mutual funds. Vanguard and Fidelity have the cheapest index mutual funds and very good calculators to help you run simulations.

4. Rinse and repeat. 

Along the way, take some money to enjoy your life. Travel, dote on your relatives, take a class that teaches you something new (cooking, wine-tasting, computer coding).

And, good for you. I've always felt that the younger you are when you buy your first home, the wealthier you'll be later in life. 

All great steps by Ilyce. 

But me, if I was saving as needed for retirement and have enough in college funds for kids (I am, I do) I would go for getting that mortgage monkey off your back. 

It's not about the numbers but freedom. Great job now but what about future. If you pay off the mortgage while you have the money, if your job situation changes you are debt-free and free to pursue whatever. 

Sure you could invest the money but as we have seen recently the markets are fickle. They can go up and down within a day. So that money is not guaranteed. But having a paid off house is a guarantee that you won't have a mortgage or loan holding you down.

I vote sooner than later.

How good of an idea is turning a house into a rental property? What issues, should I be concerned about with regards to this topic?

I think a lot of the great fortunes in this country were build on the idea that you buy a home, turn it into a rental and then collect rent.

The new studies I am seeing all point to an increase in renters over the next 10 years. Millennials are more likely to rent than buy (though I don't think this is such a great long-term strategy), and other folks are wondering whether buying a home is worth it (see the question about).

But if you don't own, you'll have to rent. Or, go home and live with your parents. 

If you're going to be a landlord, you'll need to figure it out. I've written some ebooks/videos on the topic of investing that you can find at ThinkGlinkStore.com. I also wrote quite a bit about it in a different book: Buy, Close, Move In!, which was published in 2010. I also have plenty of help on ThinkGlink.com. (And, like Michelle, I, too, have a free weekly newsletter you can sign up for.)

My best advice for investors is to surround yourself with a great team: Agent, lawyer (yes, you'll need one), contractor (to fix things that break), mortgage lender, accountant (or enrolled agent). Then, follow their advice. You'll need to pay special attention to deductions (better in the new Tax Era than for a primary residence, I think), and how to make the cash work.

Don't expect to buy with "nothing down." That's for charlatans. 

Over time, you'll get better at choosing tenants, buying in neighborhoods that are better for renters than owners, etc. You'll make mistakes, too. Just try to take the long view.

Good luck!

 

 

Can I just add something? 

Really think about whether this is how you want to make (or lose) money? Do you really want to be a landlord? This is not passive income but very much "I need someone to fix my toilet now" type of income. 

I rented my condo for one year. Hated it! HATED. IT.

I would also suggest you spend a lot of time talking to people who are  successful at owning rental property and those who weren't. 

How many lenders do you recommend getting prequalified or preapproved for to get the best interest rate? Also is it necessary to go through the whole application process or just get prequalified to compare rates?

You don't need to get prequalified or preapproved by more than 1. What you should do is contact 4 or 5 different sorts of lenders (mortgage broker, banker, online, credit union, etc.) and take a copy of your credit score ($9 from AnnualCreditReport.com) and say this: "Assume this is my credit score. What deal can you give me on a 15-year or 30-year fixed rate loan or ARM." 

Start comparison shopping for a loan about 3 to 6 months before you're ready to buy. Negotiate with all the lenders. Then, as time grows closer, figure out who is offering you the best deal, and then apply for the loan with that lender.

Shopping around will help you figure out not only who is giving you the best deal, but who is the best partner for you to work with.

Make sense?

Again, lots of great information about getting a mortgage at ThinkGlink.com.

“Black Americans have clearly put a tremendous amount of personal effort into improving their social and economic standing, but that effort only goes so far when you’re working within structures that were never intended to give equal outcomes.” --- As a black woman, I'm not sure you can make this statement with a straight face with almost 3 out of 4 of our children are born out of wedlock, and the high school drop-out rate remains embarrassingly high for us. These are clearly two factors that WE control, and there is a strong correlation between the level of education and wealth. Dropping out of school and disrupting one's educational path with unplanned pregnancies certainly don't help matters for us. Just saying...

I don't have enough time to really address this but why blacks are still having financial problems is much more complicated than you present. 

Poverty is not just a state of being but a state of mind. The folks having kids out of wedlock aren't trying to stay down financially. Often they are looking for love in all the wrong places. Why? Perhaps family dynamics, legacy of issues. And why? They come from broken homes perhaps. Why were the homes broken? Because slavery, Jim Crow, etc. were horrible for black families. 

Education may not have been stressed because the schools were unequal, the materials not there, etc. Families needed folks to work to live because those who could get a job were being paid less. 

Kids drop out of school for the same reasons. Issues. Many of those issues can be traced back to how we were treated and mistreated and denied and separated based on our color (light skin, dark skin, etc.). Fathers left to find work that wasn't there and then too embarrassed or ashamed to come back home. 

This isn't to say we all can't and shouldn't take responsibility for our own actions but a discussion about births out of wedlock, dropping out of school, deserves more than saying, "I'm just saying."

What should be an individual's priority when it comes to investment? Retirement funding or home ownership?

I think you'll want a mix. Historically, real estate has been used as a hedge against inflation. By that, I mean it appreciates over time at a rate of 2-3 percent per year.

Retirement investments appreciate faster (historically) but have larger swings up and down. 

So, here's my prescription:

1. Take on as little non-deductible debt as possible (mortgages are ok; car loans may be necessary; credit card debts are not)

2. Max out your company's 401k

3. Start and max out a Roth IRA (if you're eligible)

4. Plan to save 15-20% of your GROSS income overall, and make sure you have a solid emergency fund.

5. Start saving for a down payment.

Make sense?

Your bylined article, and all of the articles linked in your peice, including the Forbes article - despite that publication's focus on economic and market analysis - fail to provide meaningful information on what might be called "housing investment" which, in my opinion, is a more meaningful metric and would provide a more useful baseline for changes in housing ownership. Would you comment?

Not sure if this is aimed for Michelle or me.

I don't know what you mean by housing investment metric. You need to have a place to live. If you're trying to make money from a real estate investment, you're an investor, not a homeowner. 

Doesn't mean I won't be happy if the house I live in appreciates above the rate of inflation. 

I have NEVER seen my home as an investment. 

I'm interested in buying a home after renting for many years. How do I know whether home ownership is really for me? How do know if a home is too much for me? ( I earn roughly $47,000 per year) If it is, What steps should I take to get prepared?

The question is, why do you think you want to be an owner?

If you're ready to be the master of your own space, but aren't quite ready for all the maintenance work a single-family home takes, then consider buying a condo or a townhouse. Assuming you have plenty of cash for a down payment, you should start to look for properties worth $150,000 to $200,000. Depending on the neighborhood, your price rate might constrain where/what you can buy.

As for being a homeowner, even with a condo you'll have maintenance issues. But you'll also be paying down your own mortgage, and building up equity. I think that's a good thing, too.

The below statement has not been my experience owning two condos. EAch time, I had an individual assessment, as did others in the condo community. Mine might be more because my unit is larger, or because I have improvements such as a newer kitchen, newer air conditioning unit, or the property has been generally upgraded. I've had several friends appeal their property tax assessments on condos and win. Maybe that's just in DC, but I'd hate for people to get the wrong info on condos. "comes to paying property taxes, condos and co-ops are assessed as a whole and you pay your share of that (so fighting your property taxes individually is a waste of time and money)."

Thanks for sharing. It might just be DC. I don't think it works that way in NY, Chicago or other parts of the country, where condos are assessed as a whole and not as an individual.

But this just proves the point that real estate is really very local. It's all about what happens on your very own block.

 

That is a good suggestion even if you aren't retiring. My sister and her husband moved to a large city early in their marriage. They purchased a home in the new area before they moved. After moving, they found out that the new job wasn't all it was cracked up to be and there was a glut in the housing market. They lost money when they moved. Lesson learned.

Explore first. Buy second.

It's a good rule. Sorry that it didn't work out for your sister and her husband. I always tell people it's important to really get to know a neighborhood. But when a job doesn't work out, you sometimes get stuck.

Thanks for sharing!

Can persons in their 60's get a 30 year mortage if they put down a 20 percent dp. I am speaking of a modest home in retirement community with low property taxes.

It is illegal (age discrimination) to reject you for a mortgage because of your age. Even if you only put down 3.5%.

If you find a lender who seems unwilling to loan you the money, find another. (And, consider filing a complaint with HUD, for as long as they seem willing to enforce fair housing laws.)

Well, this week I found out my car will cost twice what it is worth in repairs. Given that it's over 15 years old it's time to buy new. Gonna walk into the dealer and pay full amount - no loans for me! Hope the new one will last 15 years too.

I don't concern myself with what my hoopty is worth. If old Betsy is totally unreliable and I can't plan repairs then I will retire her.

And hope you are considering a late mode used car. Let someone else take the depreciation hit. 

But love that you are paying cash. Debt free forever!

I hear you can take a loan against your retirement to make a down payment on a house. Any payments and interest go back into your retirement fund.

Well, sort of.

Some 401ks allow you to borrow against it for any reason, and some specify the reason. If you borrow against your 401k (and feel free to substitute KEOGH, etc.), and you separate from your company (either because you leave to take another job or you are fired), you'll have 60 days to repay all of the money. In the meantime, all of the payments and interest go back into your retirement account. So, good, if you stay there.

If you have an IRA, you can take (not borrow) up to $10,000 for a down payment, without incurring the early withdrawal 10% penalty (if you're under 59 1/2 years of age when you do it) but you'll still owe tax on the withdrawal at your marginal tax rate.

If you have a Roth IRA, you can withdraw up to $10,000 for a downpayment on your first home. You wouldn't have to repay that, and you won't pay taxes on the cash (because it's after-tax contributions). 

Borrowing against your retirement should always be a last resort. I get that it's hard to save up enough money for a downpayment, especially these days when home prices are skyrocketing in most of the country. But taking a loan against your future should be carefully thought-through.

Do you have any other options?

I'm a realtor...what is the MOST IMPORTANT thing to advise my clients about?

Hi Realtor! 

I think as a buyer's agent, you want the buyers to understand that you are not thinking about how much money they can spend. Buyers worry that the agent is only pushing them to buy a bigger home to get a bigger commission. You want to reassure them that you're only interested in what's best for them because your business will only grow with referrals from happy customers.

For seller's agents, you need to reassure sellers that you're not just trying to close the deal by taking the first offer. Sellers don't understand that the first offer they receive might be the best. And, what they'd be happy taking initially will change if a bidding war breaks out (they're common in many areas again). 

Just my 2 cents.

Hi! My wife and I are looking at purchasing a home in an area that is over saturated with foreclosures. I am hesitant to purchase above a certain price and even consider a foreclosure because I don’t want to be saddled down with exorbitant cost to fix them. At this point I much rather build a small home keeping well under all the foreclosed homes. Can you provide advice on what to do or other options. The area is Kendall and/or Kane County of Illinois. Thank you.

As I said earlier in one of my answers, there are parts of the country which are FAR from recovered from the Great Recession. Illinois (Metro Chicago and other parts of the state) is the prime example.

I don't think you should build a home in a neighborhood of foreclosures. I'm not even sure you should buy anything other than a foreclosure. 

You can probably get a HUD 203K loan to help fix up the property. You'll get a great deal. Just know that if you buy a foreclosure, you'll be there for awhile until the rest of the properties are soaked up, either buy home buyers looking for a deal or investors who buy and then rent the properties back to their owners.

Be careful. Don't build.

Hi Michelle - I submitted this question last week...re-sending to receive your opinion. Thanks. Michelle - my brother has been sharing information with me about 3rd party debt collectors. I wanted to know your opinion. When you have an original debt and it is 1: written off by the company (which you would not know) or 2: sold to a 3rd party, how to do you feel about requesting the 3rd party show you the burden of proof that they now actually own the debt? Do you actually owe a 3rd party company that 1: paid off your loan without your knowledge or 2: bought the information from your loan but not the loan itself? He has been challenging 3rd party debt companies to send him written documentation about owning the original debt and when they can't, he fights to have the debts removed from his 3 credit reports. Is there a consequence to this in the future?

So sorry I didn't get to your question last week. In fact, I pulled it out to write a column about it. For now, I will say this. It is your brother's right to demand proof the debt is his if he believes it is not.

But if he's fighting and he knows for sure he owed the money that's not right. He purchased a good or service using someone's money. What if we all did that? Just played the waiting game until the debt was sold so many times ownership can't be declared.

Although I loathe many debt collectors, if they have proof and legally bought the debt, the ownership of said debt has been transferred to them and by law  they have a right to collect. 

Now having said all that, if your brother is within his rights to ask for proof. If gets proof he could offer a settlement. Let's say the original debt was $1,000. A company bought and added on $300 in fees, etc.

He could offer $500 in cash to settle and I wouldn't have a problem with that. In fact, many debt collectors fully expect to only get pennies on the dollar.

In this case, your brother, if he's financially able, is  making a good faith effort to pay his debts. He should make sure to get any offer in writing and hold on to the proof FOREVER. Because these types of debts get sold and resold so much that to your brother's point the companies can't prove ownership.

 

One thing about owning that I like is that with a fixed mortgage rate, I know exactly what my housing costs are for the next 15 - 30 years. Obviously, you can't predict maintenance costs, but that's what a rainy day fund is for. With rentals, your rent will rise every year, so it makes budgeting that much harder.

Correct.

Great news for wanna-be real estate investors, right?

I've been see the down payment requirements dropping and there are some banks out there with Zero down payment loans. What do think about this trend? Isn't this what caused the mortgage crisis before? Don't banks learn?

Banks don't learn. They're there to make money, right? 

It's difficult to believe we're back in the land of Zero Down Payments. What's next? Pay-option ARMs?

(Actually that's where we got into trouble for the mortgage crisis. Banks offered pay-options ARMs, which were actually negative equity loans - meaning that every payment added to your debt instead of paying it down - but the banks sold off those neg-equity loans as though they were prime loans.... don't get me started.)

To your question - I think that loosening banking regulations, which is where Washington DC is at these days, is a silly idea that helped cause a great deal of pain and disruption about 10 years ago. 

While banks don't learn, you hope that people do learn. The problem is that many of the folks who were there 10 years ago have retired, been fired, or otherwise left their positions. I'm not sure the folks who have moved in have the same degree of understanding of the nuances that got us to 2008. 

Sure wish they did...

I have a family of 7 (a mixing bowl - an unemployed sibling and their 2 kids, me and my 2 - unemployed college age children, and my parent (retired/disabled)) I am currently seeking to purchase my first home but have limited income. I have very LITTLE savings because life keeps putting its hands in the pot. I have cleaned up my credit a great deal and according to the lender I am in a great position. As of today, we have limited income (all unemployed able bodies are seeking employment) would you say I should wait to purchase a home. I have a lender and agent currently working with me but I don't want to be wasting anyone's time if I need to be more prepared. My family and I need to have a bigger place and the only option I see right now is to purchase. I have been working closely with the lender letting them know what mortgage amount I DO NOT want to exceed, this has been successful thus far. What other options might be out there that can be suitable for my family situation?

You should look for down payment assistance.

1. Check out DownPaymentResource.com for free assistance in locating down payment housing funds. (They scrape all of the housing authorities in the US, and other places that offer free help.)

2. You might also look at HUDHomeStore.com, which is where all of the FHA Foreclosures are listed. These homes often have minute down payment requirements (special programs available for teachers, law enforcement, and firefighters) of as little as $100. And, the homes are supposed to be inspected to meet minimum standards.

3. Seller assistance. You might find a seller willing to finance your home purchase. If you do, it'll be cheaper and better over the long run. 

 

Good luck. (And, congrats on raising your credit score.)

I think you need to be more prepared and have more of those adults working before you buy.

Sure, you might be able to get in the door without a large or any downpayment. But what if something key breaks and you don't have the savings to fix it? 

What if you lose your job?

You need a cushion before you buy. I would recommend you save up an emergency fund with the mortgage amount for at least 3 months. Then save up a "life happens fund" for the things in life that happen, your water heater breaks, your car needs a major repair.

Don't just barely get into the house without a financial cushion. That's a setup for a fall down. 

Take your time. I lived in a row house with my grandmother and FIVE siblings. I shared a bed with my sister. I understand the need for room. 

I want you to appreciate more the need to have a cushion for when life happens. 

Wait. Get more stable. The homes will still be there. 

Hi, I have a really weird (to me, anyway) question. My middle-aged sibling is separated and living elsewhere (a little transient, available by phone/email but sometimes intermittent). I was looking online and saw that the house (where the ex-spouse still lives) is now in pre-foreclosure at least, or foreclosure. Is it possible that my sibling is not aware of this development? How hard do banks work to make sure that all parties are aware of missed payments? Should I butt out? Please do not use this as part of the regular column - online only please. If this means you cannot accept this question then I understand. Thanks

I don't really know how to answer your question because you don't have all the facts either.

If the property is still in your sister's name (you can check this out online) then you should try to tell her. If it is owned by the ex-spouse (are they separated or divorced??), and her name is off the mortgage, title, etc., then butt out. 

I can tell you care about your sister... She sounds perhaps a bit troubled and might need some sisterly help.

I was carfree for years, then bought my dad's old car from him when it was not appropriate for him to keep driving and that was the only way to get the keys out of his hands. It wasn't a pretty process. I decided to treat myself to a new car in 2017. After good research, I decided to finance $18,000 instead of paying all cash because I max out my 401K, and IRA, am meticulous about other savings, and felt I would ultimately make more in my nonretirement fun than the 2.9% financing. I know you don't agree but it has been worth it for me.

Sounds good to me. There are lots of ways to save. 2.9% is pretty cheap. If you have some extra cash lying around, just prepay your car payment. That way, it'll be even less in the way of interest.

PS: Congrats on a job well done!

Folks on this chat know me. I say if you have the cash why get into debt? Why? 

It's a state of mind. Debt makes you a slave. Period!

 

Hi there, My husband and I purchased a co-op in DC in late 2016. We're a little over a year into our 30 year mortgage at 3.5%, no PMI & 20% down when purchased. My parents have been making comments that they'd like to provide us money to shorten our mortgage to a 15 year mortgage because they don't like debt. I'm very lucky to have them. Given how low our rate is, is it worth even bothering with switching to a 15 year mortgage as opposed to say investing in the stock market (also risky but we've got about 30 years or so until retirement so there's a lot of time for the investment to compound, ebb, and flow)?

Interest rates have risen, so you might not get a rate lower than what you have. Plus, you'd have closing costs and fees (more wasted cash).

I'd argue that you'd do better by taking your parents' money and putting it into a brokerage account and letting it grow over time. If that doesn't work for them, then take their money and make 1-2 extra payments/year. You'll automatically shorten your mortgage term from 30 years down to anywhere from 15 to 21 years.

There are lots of calculators on my ThinkGlink.com website that you can use to play around with the numbers.

Overall, your parents are right - debt isn't great. But if you're going to take on debt, taking on a mortgage is still the best kind to have. 

PS: A note to your parents: Sounds like you raised great kids. How about contributing to a 529 plan for your future grandchildren?

Is this a wise move for a first time homeowner? What are the risk?

Rent to own, otherwise known as "lease with an option to buy" can be a good way for a first-time homeowner to test out a property.

The risk is that you don't have the right kind of contract, and that you get screwed by the seller. Hire a good attorney to make sure the contract says what you want it to say and hopefully it'll work out well for you down the line.

How can we prepare for Trump's recession? I fear it is going to come faster than he planned, due to the retaliatory Chinese tariffs.

Save more, spend less, avoid getting ripped off. (Credit to my buddy, Clark Howard, who say that before every radio show.)

Seriously, make sure your spending is under control and you have plenty of cash in the bank. I don't know what's coming, but we are 9+ years into an expansion (even if it was slow as molasses for the first 6 years) and that means we'll eventually have a recession.

Get out of debt and stay as debt-free as possible.

Live below your means under Trump and any president coming after him.

These economic cycles repeat all the time. Good times. Bad times. Really bad times.

But good financial practices are timeless. 

Good morning, I filed my taxes as early as possible this year. With all I've heard about identify thieves targeting tax returns I thought it would be good to do it ASAP. Then the tax law changed, and now PMI can be deducted. Do you have suggestions for how to refile so I can get that deduction? And any ideas on how to decide when to file in the future? Thanks!

You can file an amended return using Form 1040X (but you can't e-file again, if you did that to begin with). 

I think you're smart for filing early. With the IRS not having enough hands on deck, and having older technology, it's getting tougher to cope with identity thieves.

Better to file early and then file an amended return.

Thanks for your question.

Also, make sure the debt purchased is still a debt. We had an issue with a debt on my daughter's records from a health incident she had in college (we said our insurance covered everything, but the one bill that came in her name - and kept coming - and she ignored- and didn't mention... finally went to collection). We learned of it, paid it and thought that was that. Until a collection agency kept calling her, and she found out it was that one medical bill - already paid.

Great point, thanks.

Definitely check to make sure the debt is owed. Same thing happened to us. Hospital came. Was covered by insurance. Many calls later got it removed. But only after MANY calls. 

57 years old and two high school seniors. should I buy or rent? I do not have debt. willing to do 20 percent downpayment. income 60K.

If you're thinking of buying because you're looking for a place to live for the next 10-15 years, sure. Go ahead and buy.

Don't buy if you think you'll want to move sooner than that (i.e. if you want to live near your kids after they graduate college and move somewhere else). You might lose money on the sale.

I'll add - not exactly. Property taxes and insurance increase every year. True, the increases are probably smaller than rent increases but it's not completely fixed for 15-30 years.

You can also fight property taxes. Insurance does increase minutely and you'll have maintenance and upkeep on a property.

Some people like owning their own home.

Some don't. It's a big world and everyone gets to choose what's right for themselves.

My husband, Sam, within whom I co-write our weekly syndicated column (that appears in the Washington Post each week) and I own our house, a condo in downtown Chicago that he used as his office for years that is now rented out, and we share ownership of a rental property in Evanston, Illinois, that seems to be a favorite of graduate students.

We have had past investments that haven't worked out as well. Sam doesn't love being a landlord and he really carries the brunt of it. Like I've said, it isn't for everyone.

But we love our house and our neighborhood, and we can walk to our best friends homes. We throw a neighborhood block party (almost) every year that 50-100+ neighbors come to. It's been a joy for the nearly 25 years we've lived there.

That's us. Not everyone is so lucky. 

 

I am 52 with no children and recently divorced. My ex-husband and I sold our house last summer, and I have been renting a townhome. I was really torn about selling the house because I loved it, but in the end I knew I couldn't afford it on just my income. I want to retire in five or six years from my current career. (High school counselor - very stressful) I am looking forward to working in another field and know that I must work, even if it's just to pay for health insurance. Is owning a home again right for my situation, or would continuing to rent be the smarter move? I will be receiving a lump sum of money from the estate of an aunt and could use this money toward a down payment. Would it be wiser to pay off some debt incurred during separation and divorce? I have owned three homes, so I have been there and done that, but renters are frowned upon. Would renting or buying be right for my situation? Thanks! Lisa Richmond, VA

No one frowns on renters where I come from. And, I think you were super smart NOT to take the house in exchange for cash. That's the biggest mistake women make in a divorce.

Why don't you wait another few years so that you can see where you are, what you're doing, and how much of a house you feel like taking care of while tackling another career.

I don't see anything wrong with renting - lots of people are doing it these days. Good luck!

Get rid of the debt!

I use Credit Karma among several tools to keep an eye on my account info, and it includes monitoring. I got an email today saying that something called Evine Live had checked my Equifax credit report. I've never heard of Evine Live; I haven't tried to open anything anywhere. I looked it up and it's apparently some online and broadcast purveyor akin to QVC and those types of sellers. The email from Credit Karma says that if I did not give permission for this credit check, I can file a dispute. Should I do that? I've had no indication of any sort of identity theft; my tax return was accepted when I filed it and there has been no suspicious activity on any of my accounts. I guess I'm more puzzled than anything else.

So, there are "soft" credit pulls and "hard" credit pulls. Each affects your credit history differently.

Creditors check your credit (soft pull) frequently. They're trying to find people to send offers to but it won't affect your credit negatively (or at all).

Hard pulls happen when you apply for credit. That does get reported on your credit history and too many hard pulls all at once can negatively affect your credit score.

There probably isn't much to do, but if you want to stop it, then freeze your credit. It's the safest way to protect your credit but you'll then have to "unfreeze" it if you want to apply for a car or home loan.

 

I just heard from a reader that someone had gotten his/her credit card and tried to buy something from this company.

Don't assume this is legit. Call and find out. 

We've been in our house for almost 6 years now. We refinanced into a 15 year fixed mortgage about 18 months ago. I'm pushing to pay it off ASAP, and want to throw any extra cash at it (I max out my 401K and we have other investments). My husband would rather pay it off a bit slower. I think that we could probably have it paid off completely in another 4 years. I know that because it's a 15 year fixed we won't be saving a ton on interest, but I really just want to own our house free and clear. Then my plan is to save, save, save everything so that I can retire early!

I think you're already saving as much as you will with a 15-year loan. You've gotten rid of most of the interest you'll pay, and you only have 13.5 years left.

I love that you want to be debt-free. But if you can "save, save, save" and put that cash into a diversified stock portfolio (index mutual funds are the best!), you might do better than prepaying your mortgage further.

Just my 2 cents. Remember, you and your hubby have to sleep at night!

PS: We have a 15-year loan at around 3%. Wish I had another 30 years on it! :) Instead, we'll pay it off very soon.

I have a 15-year and my husband and I make extra payments every single month.

I want to sleep at night. I want to be completely debt free -- definitely before we retire.

If you are saving well for retirement, have an emergency fund, life happens fund (college funds if you have kids), get that monkey off your back ASAP. 

When I pay off my mortgage the folks on the international space station will hear me!

Your article noted a disproportionate drop in homeownership among black families, but homeownership per se, does not capture the gain or loss that is associated with wealth accumulation or social stability. It is the equity in a home that correlates with such positive outcomes. It is possible to increase homeownership to 100% by forcing elimination of down payments and proving mortgage money to all, but this status would be misleading, would last only a short while until the market intervenes, etc. I am interested in the NET equity gains and losses among groups -- and I believe public policy should look at this also - since the housing bubble grew from easy credit and the net result was a disproportionate % loss of equity among black families when the bubble burst. It's for this reason that I am asking for a more meaningful metric than simple "Ownership."

So, you can only measure what you can measure. I'd love to have a better measurement tool, but instead of looking for more metrics, the administration is pulling back.

I'll point out that black homeownership levels are at the lowest they've been in ages, which isn't good. I also worry that by not forcing lenders to publish the data, we'll soon not know whether minority homeownership is making progress - which is just dumb.

 

I posted early the other day about a credit inquiry from Evine, which I did not recognize. This morning I found a provisional charge on my MasterCard for $205. I called CitiBank and told them my card had been compromised. They immediately canceled the number and are sending me a new card. I just now received a phone call from Evine's verification department, and sure enough, someone had used my info to order an iPhone. Evine has canceled the order and will not process the charge. Passing all this along as a reminder to people to monitor your accounts every single day! (I use Mint for that.)

Good for you - and, thanks for sharing.

We live in scary times with regards to credit. It seems as though every day some company (My Fitness Pal) has 100 million people's credit stolen, pilfered, or accessed. And, I'm not even talking about Facebook.

I just want to take a moment to publicly thank my father, and parents like him. My husband and I made some poor financial decisions early in our adulthood. (We're in our early 30s.) We had turned the corner when we married, had cut all non-essential bills and were paying off debt, but we were looking at a decade or more of trying to pay off debt before we'd be in the position to buy a house. I sucked up my pride and asked my dad if we could live with him to pay off debt, and he agreed. For two years he let me, my husband, our now-toddler, our dog, AND our cat live with him. We paid off all of the debt and just bought our house last week. I will never be able to thank him enough for everything he's done for us, but I know I will try to repay it to him and pay it forward as much as we can. Michelle, we used (and continue to use) your advice to figure out how to structure our budget and pay off the debt, so thank you to you too! I don't think moving in with family is the best decision for everyone (and I'm sure my dad regretted it sometimes), but it really did help us. No more credit cards and no more debt for us!

I'm just going to throw in my two cents and say, "Well done." And, way to go Dad! 

It's tough to watch your children make mistakes. But helping you fix them and learning that you have really changed must make him proud.

Heck, it makes me proud and we're not related! 

Seriously, congratulations on turning that corner and learning the lesson of a lifetime. Happy Early Father's Day to your dad.

Please show this to your dad. 

You have made him proud.

And me too.

You also proved what I tell folks all the time. There is no shame in shared housing with such a goal in mind. 

Good for you!

I just finished up my estate executor job, which included a complicated will (four adult heirs and three minor heirs), a distant single-family rental, mutual fund and bank accounts. At the beginning it was quite daunting and I initially engaged with a high-priced law firm in the area of jurisdiction (Court, Commissioner of Accounts). I found the law firm's fees were exorbitant for virtually zero-value added. So I disengaged them and dealt with the Court/Commissioner directly and did my best with the paperwork (submission weighed about 2 lbs). My estate paperwork was recently approved by the Commissioner of Accounts! I have to say that the staff at the Commissioner's office were extremely professional, very flexible and understanding, and allowed all business to be conducted via phone and email (except for initial swearing in at the Court). I handled the remote rental and sale using an outstanding, progressive real estate brokerage, which allowed me to do all the paperwork via phone and email. And the estate CPA, who supported my parents through the years, was exceptional; we did all our business via email. Five of the heirs live overseas, which caused some delays, as did the rental sale leaseback, which the Commissioner readily approved. This job haunted me for two years (e.g., fear of missing deadlines), but I'm here to tell your peeps that if I can do it, you can too! My lesson learned: you just need to find and engage the right people, and don't be afraid to let them go when they aren't working.

I've been the representative for 1 estate. Never, ever again. But so glad you had a better go at it than I did.

 

Thanks for sharing. 

Dear Michelle, My husband and I have two sons. One just finished his AA degree at community college and worked for three years to help pay for it. He amassed $8500 in savings. He is 21. He will commute to a state school in Sept, and we will be able to pay his tuition. Our other son starts at the same state school (he received some merit scholarship money but only has about $2k in savings). We can pay his tuition, too. My husband and I were terrible with our finances, and got into a ton of credit card debt when we were younger. I do not feel qualified to advise my sons on what to do with their savings. Living at home, they don’t/won’t have many expenses. They share an old, reliable, ugly car we bought so they can commute to school. The older son works, so he spends some money on his entertainment but continues to save. The younger son poured his time into academics, and it paid off in terms of merit aid. He has never had a regular job; he has walked dogs and taught music here and there. Should we just tell them to read all your books and leave it at that? They are absolutely amenable to learning about their finances; thet just don’t know where to start. And neither do I, since we screwed up so badly for so many years. Thank you for any suggestions you have.

Clearly you are already doing a great job. Keep doing what YOU are doing.

Sure, you can turn them on to my books, columns and this chat. But honestly, children learn what they live. 

Mine did. 

Yours did. 

Thanks to all you joined me today. Didn't you just love Ilyce!

She's also agreed to answer any leftover questions. Look for them here or in a column.

See you next week. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Ilyce Glink
Ilyce Glink is an award-winning syndicated columnist and blogger, radio talk show host, author of 14 books, publisher of ThinkGlink.com and the founder of four Chicago-based companies.
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