Home economics

The Baltimore Sun

Rob and Amy Clement moved from Pittsburgh to Baltimore last year, to be closer to family in Maryland.

After they landed jobs - she's an accountant, he's an engineer - the newlyweds rented an apartment downtown. But their hearts were set on buying a house.

In their 30s and 40s, each was tired of repeated moves; they wanted to put down roots. Amy Clement had lived around Baltimore several years earlier, and the couple quickly focused on the Lutherville area. Their assessment of their finances and house style preferences kicked off a seven-month house hunt, and about a week ago, they moved into a three-bedroom, two-bathroom brick Colonial.

"Our intent is to live here for a long time," Rob Clement said.

Choosing to buy a house, especially a first home, is a complex, if exciting, decision. Experts say that before going open house-hopping, prospective buyers should consider a number of personal matters - their financial condition, their understanding of home finances, their goals relating to the house and their romantic relationship. Experts recommend contemplating a number of possible scenarios, not only the rosiest one.

Because thousands of dollars go into a down payment and closing costs, and, later, into selling, financial advisers recommend buying when you're ready to stay for a few years.

"The traditional rule is that if you are going to be there less than three years, you probably won't be able to recoup" your investment, said James F. Ludwick of MainStreet Financial Planning in Odenton and Washington.

An up-front interest in staying longer than three years had the Clements considering not only commutes and community, but also schools.

"There were a couple of houses we saw and they were small, and we couldn't stay if we had a family," Amy Clement said.

They set at least three bedrooms, two bathrooms, brick exterior, no split-levels as their requirements.

Ludwick recommends that clients evaluate not only job security but local job prospects, so they could still stay in the house should they get laid off or seek a job change.

Crunch the numbers yourself so you know what house price and mortgage payments you can comfortably afford; it should be done before you approach lenders, said Steven Isberg, a finance professor at the University of Baltimore and senior research fellow at the Credit Research Foundation.

"You have to decide how much you want to spend. You have to decide on the parameters of your loan, such as 30-year fixed-rate," he said.

First-time buyers should start with assets, income and an online mortgage calculator, experts advise. Figure out how much in savings, net from assets you may be selling, plus gifts from parents or grants from programs you can apply to a down payment without leaving the well dry; that may mean saving up longer to reach a goal amount, such as the 20 percent that lets you skip paying private mortgage insurance.

Add up current expenses - car and college loans, utility bills, food and lifestyle expenses such as vacations and clothing. Add on at least one month's payment a year for house upkeep, more if you are looking ahead to renovations and big-ticket outlays. On top of that comes money for the furnishings that make a house yours, such as the drapes and furniture, etc. Whatever else will go into the house and household budget, including savings, should be included in a spending plan, so that at the end, you can come up with a down payment that leaves a cushion and a mortgage payment that doesn't leave you house-poor.

Plan for a worst-case scenario: "You want to keep money in the bank in case you lose your job, and you still have to make your mortgage payments," said Jean Legal, an agent with Long & Foster in Columbia.

How much? It depends on everything from severance benefits to insurance coverage, but should be at least several months' worth.

"If you can't buy a house and make a contribution to your 401(k), then you are considering too much house," Ludwick said.

Ditto if you can't afford the house without an exotic loan, though few exist anymore, Isberg said.

"I'd rather have a first-time buyer not tap out in their affordability. Homeownership is a wonderful thing, but a very large undertaking," said Ashley B. Richardson, an agent with Coldwell Banker in Lutherville, who worked with the Clements.

"We had to be comfortable with what we are paying. We didn't want to be in a position we've heard about from people where we would be living in a house and half of it would be unfurnished because we wouldn't have any money left for that," Rob Clement said, noting that Amy, an accountant, worked the numbers.

When a buyer contacts a few lenders, he may find he can qualify for a larger loan, or find the interest rate is higher than expected. Qualifying for more means a lender will give you up to that amount, but it's up to you to know whether it squares with your lifestyle, Isberg said. Lenders say they have fewer mortgage products than before the market meltdown, but they have a variety.

The Clements adjusted to ever-changing interest rates this way: "We made a promise that once we locked in [a mortgage rate] we wouldn't look again. It can drive you bonkers," Amy Clement said.

Geoffrey Bennett, 23, is a computer systems specialist who recently worked with family friend Karen Berger, an agent on Legal's real estate team. He said his father laid it out on a spreadsheet for him.

That showed Bennett that, as much as he thought he'd like to fix up a house in Elkridge, "I didn't have a lot of money to throw into new kitchen cabinets and a new washer and dryer." In retrospect, he said, "I would have definitely been struggling to pay the mortgage."

He recently moved into a condo in Ellicott City instead, where painting was the only immediate project. He still uses the spreadsheet.

"I budget myself," he said, and that includes setting aside money through an automatic payroll deduction that removes the temptation to spend extra cash.

Couples - married or not - should evaluate their relationship before they consider buying a house, say counselors and lawyers.

"I think it's important that both agree that this is what they want. What's important in a relationship is that the relationship is stable, that they are in it for the long term," said Linda Grande, a Baltimore therapist.

A new house, like a new baby, is not a cure for what ails a relationship, she said.

"If I am unhappy in my townhouse here in Baltimore, moving is not going to make me happy in my relationship," Grande said. "I will just get distracted for a while with decorating and getting everything set up."

A couple should talk about how a house fits into their future. "Is this a house that we are going live in for five years and then have kids and move, or is this where we are going to live for a long time and stay here until we retire, or live here forever?" she asked.

That discussion should include not only lifestyle choices that affect how much money will be available for the house, but how rooms will be used and the home's atmosphere.

An assessment of skills and interests goes with that. For example, she said, a gorgeous garden sounds great, but does either partner have gardening skills and interest? If not, will money be available to hire a gardener? If the answer is no all around, the couple should rethink the garden.

What happens with the house if the relationship fails?

"I tell people they need to come up with a plan for what happens when the relationship goes bad," said Cathleen Vitale, a family lawyer in Glen Burnie. "They chuckle, but I have made a very good living by being a divorce lawyer for almost 20 years."

She advises married couples to put in writing how much money each of them will bring to the purchase, if one set of parents is providing a down-payment gift and similar information to avoid warfare over that in the event of a divorce. The issues grow critical for unmarried owners, Vitale said. They should consider spelling out what each person's financial responsibilities are for the house because a court does not have to consider unwed owners the same way it would if they were married; also, what happens to the home if one person dies should be spelled out to protect the survivor, Vitale said.

She acknowledged that the matters are sensitive at best, but said they should be considered along with the thrill of buying.

Having bought, the Clements are looking forward to creating a home that reflects them.

"Our intent is to have a place to live that is our own," Rob Clement said.

They repainted the upstairs before moving in. They squirreled away some money for furniture. And they plan to get a cat.

before you buy

A few tips from the gurus before you go open-house-hopping:

1. Plug your numbers into a mortgage calculator that includes an amortization table or schedule. You can find mortgage calculators online and in desktop spreadsheet programs.

2. Don't know what an amortization table is? Learn home-buying language with online glossaries or a trip to the library.

3. Study up on homebuying and ownership. Consider seminars (there are free ones), books, online info - but keep in mind the operator/author may have an agenda - and words to the wise from family and friends who've gone through the experience.

4. If you are buying with a spouse or partner, discuss how the house fits in with your expectations for the future.

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