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 have been 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?
Your problem is one faced by many people feeling priced out of the real estate market by rising interest rates and property values. And, 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.
I'm assuming you have a good idea of the higher costs of maintaining a home. You should plan on spending at least 1 percent 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. I'm also assuming you have a good real estate agent on your side. Although you can save some money by representing yourself, you might 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 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!