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Money for Women: Tips to buying a new home

“Today” financial editor Jean Chatzky shares seven things you need to consider before making that purchase.
/ Source: TODAY

According to the National Association of Realtors, single women made 22 percent of all new home purchases in 2004 – that's up from 18 percent in 1997. About one-third of condo buyers are single women. What's going on?  Women are earning more, they're marrying later, they're still divorcing at a rate of 50 percent and they — just like most everyone else in this country — are not only interested in laying down roots, they're interested in taking advantage of the hotter than hot real estate market.  But the rise in prices — 12.5 percent from first quarter last year to first quarter this year — presents more questions than answers when it comes to buying.  In our special series called “Money for Women” series, “Today” financial editor Jean Chatzky gives tips on what you need to consider before buying that new home.

Think about all the expenses, not just mortgage, but taxes, insurance, utilities, electric and lawn care. One great thing to do, find a friend who lives in a home about the size you're looking at buying and ask them to how much they're spending. One of the great things about women is that we don't mind sharing financial information with each other. A good friend will open her checkbook and let you peek.

Build equity — don't borrow against itOne quarter of women surveyed by sears borrowed against their home equity in the past five years.  One-third of those borrowers used their home equity to pay off credit cards, which wouldn't have been a problem.  But 40 percent of those same women racked the credit card debt right back up.  That can be disastrous.

Is now the right time to buy?Experts are in agreement that there are regional housing bubbles in this country. According to one new report from PMI Mortgage Insurance Co. there is a 16 percent chance of an overall housing price decline over the new two years and a much greater one in the metro regions of hot markets including Boston, San Diego, Detroit, Minneapolis, Denver and New York. However, if what you're looking for is a place to live for at least the next 3 to 5 years (longer is better) rather than an investment you want to flip, and you can handle the payments you should be okay.

Would you be better off renting?If you're going to be in this place less than three years, renting might be a better move. Not only are rents a comparably better deal in many parts of the country, but you have to remember, there's a cost to the transaction itself.  When you add fees, commissions and moving you could easily spend 6 (if you're buying) to 10 percent (when you're selling) of your purchase price.

How much can you afford?The cost of living in a house isn't just mortgage, interest and property taxes — although that will be your biggest nut.  It's the cost of the car you need to live in the suburbs, the utilities, bills for maintenance, and lawn care. According to Harvard's Joint Center for Housing Studies you should budget 1 percent of your home's value each year for upkeep.  You may not end up spending that each and every year, but if you bank that much you won't get caught in a pinch when the refrigerator goes the week after the roof springs a leak.

Is your FICO score good enough?
Your FICO score is your credit score — a numerical representation of what kind of credit risk you represent.  You're best trying to clean up a bad score before you apply for a loan. Why?  According to Fair, Isaac & Co., the company responsible for cooking most of the country's credit scores, a person with a terrific score (760-850) could get a rate of 5.3 percent on their mortgage if they applied today. A person with a score that's just fair (640-659) would pay a full point higher. You can buy your score and a report of what you need to do to fix it from Fair, Isaac at myfico.com.

What sort of mortgage is best for you?As the interest rates in the paragraph above show, this is still a good time to get a loan. Your best bet is to try to match the amount of time you think you'll be in this house with the kind of loan you take out.  If you think you'll be there 5 years, you can take a 5 to 1 or 7 to 1 adjustable rate loan, which is fixed for the first 5 or 7 years before the rate can jump. The benefit to these loans is that they're cheaper than 30-year-fixed rate loans. However, right now, they're not so much cheaper that if you think there's a possibility you'll be in the house longer you should take an unnecessary risk. As for interest-only mortgages that allow you to pay only interest and no principal for the first 5, 7 or 10 years they're only good for people who expect to move out of that home before the interest rates adjust and who can handle writing a big check to pay off their mortgage should property values slide.

Finally, when you apply for a mortgage, consider also applying for a home equity loan as safety net.  You'll have a tough time getting a line of credit if you wait until an emergency strikes — illness, job loss — before applying. Then sit on the line of credit until you really need it. You can use equity to buy other real estate or to pay for college or of course for home improvements.  But very few other uses, including paying down credit card debt, are smart uses of the money.Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .