Debt $ense

You remember the fable about the tortise and the hare, right? I’ve got a friend who’s taken that approach to her house, and this weekend was a great example of how well it’s worked.

She moved into the house in April 2005, and started by painting and recarpeting the top floor. Until she did, she kept her bed in the second-floor living room, along with any furniture. Only when they were ready did she move things up there.

Last weekend, she finally got to stage two of the fixing-up - painting the kitchen and living room, along with ripping up the living room carpet to prepare for putting hardwood floors in. (Six-year-old townhouse, so of course the floors are plywood.) She didn’t do any of that until she had saved the money from her second job to pay for the supplies and flooring. As a result, we were able to go out Monday and pick out and order the flooring, which was on sale.

It’s been a slow process, and since she’s a fellow booklover, leaving the bulk of her massive library in boxes in the garage until she can get the living room floor in and bookcases set up has been a challenge. But after seeing how nice everything looked once it was painted and imagining the floor in that space, it’s definitely going to be worth the wait - even if we’ll be sitting on the floor. Why? Because bookcases are next on the list (more to match the ones she has), and then furniture. She’s done the same thing with things like paint and fixtures - waiting until she’s sure what she wants and can afford to buy - with cash - the good stuff.

Her logic is she would rather wait, do without and do it right then buy something cheap to make do and then replace it later. As I’ve watched the transformation of the house, I’ve become convinced that she’s taking the right approach - and it’s an approach I’ll be following when I buy a house late next year. But that’s the subject of another post…

In summary: Take your time, do it right and wait until you can pay cash.

It’s a little frustrating to live in an area where the median household income is $45,000 and basically all the new residential construction is upwards of $250,000. There are one or two developments planned for the low $200s, and one just went in where the average price is $115,000. But all these new homes are driving up the prices of the 1950s ranch houses that make up the bulk of the non-historic-district stock. It’s frustrating to watch prices go up and know that if I had taken better care of my money when I was just out of college, I could be in my own house now and enjoying the price increases. *sigh*

On the other hand, the income to price ratio makes me think that this is partly a result of being overheated, and the market will settle back down. These price levels just don’t seem sustainable unless we get an influx of better-paying jobs to the local market, which is unlikely. We’re too far away from any major markets to get those nutty people who commute 90-plus minutes to work because it’s cheaper to live that far out.

We’re already seeing some signs of cooling in the RE ads - lots of reduced prices and builders offering to pay closing costs. So maybe it’s good that I can’t get into the market just yet.

I just have to trust that if I manage my money correctly during the next few years, I’ll be in the right place to buy at the right time. Until then, I’ll just be watching the ads to get a feel for the market.

One regular assignment at work is a feature on a neighborhood. It’s a weekly series, and several of us rotate through. It can be a pain, but it does have one nice side benefit - I get to check out neighborhoods and find out what people living there have to say about them.

My latest one is right near my apartment, but it’s self-contained (for now), so I’d never been down there. So far I’m liking what I see. The smaller houses are in my price range, it’s near the park where I run and it’s a friendly place.

I’ve found a couple other neighborhoods I like through this assignment, though one is out of my price range. Another is not only in my range, but within walking distance to work and to another park I could run at. The downside there is the grades in the roads, which my little four-cylinder car isn’t as happy about. One I haven’t done - somebody beat me to it - but is on my list is within walking distance of work, close to the grocery store I shop at and not yet a hot commodity. But it might get historic district status in a few years, which could make ongoing maintenance and renovations problematic.

As the date to actively start searching gets closer, I’ll be taking even greater advantage of the opportunities to check out neighborhoods and talk to co-workers who write about neighborhoods that look promising. My goal is to find sections like the one with the steep grades that are undervalued by the community at large, yet have potential to improve. That would let me more easily afford something when I’m ready to buy, but not leave me stuck in a neighborhood where it will be tough to sell.

I was online today and - procrastinating as always - decided to see what sort of home loan programs my state housing department has for first-time buyers.

They’re actually pretty good, and I not only qualify for all of them, but also would have a good range to work within given home prices in the area. And one of the approved mortgage brokers is a guy I know through various activities who was on my list of possible brokers.

So I’m rethinking my plans and considering whether I should plan to buy at the end of next year - after a year of saving. It would mean waiting three years, not two, to replace my car, possibly more. But it also would let me start building equity, which will be a net savings in the long run.

I’ve sent off for an information package, and am tracking their schedule of homeownership classes to find one in the area on a night I’m off (or could schedule off, since they plan several months in advance). I’m also going to start using the city’s GIS service online to locate neighborhoods within my price range, plus track homes in the real estate sections we run.

I had been planning to wait until I had 20 percent down, but the more I’ve been reading, the more it seems like if I can get a fixed-rate mortgage, it makes sense to use one of the programs to buy with less down and funnel the money I’m spending on rent into a mortgage so I’m a couple years ahead on building equity. Once I read the program packet, I’ll have a better idea of my options and can focus on a detailed plan.