Hi, Helaine: My husband and I have saved to afford a home in the San Francisco Bay area. We're now in our mid-30s, and we can cover the down payment with our savings and investments, and cover the monthly mortgage expenses with our income. But we are considering taking additional money out of our 401(k) as a loan to cover additional costs of fixing up the house the way we would like it.
On one hand, we would like to fix up the house before starting a family, and this seems to be the only way to do that right now, since the down payment and other closing costs will basically clean us out. On the other hand, this will add an additional monthly expense to cover, but at least we'll be paying it back with interest to ourselves. Is this a good idea? -- Eager Renovator
Dear Eager Renovator: Why do you believe you need to renovate a home immediately after buying it? Is it because your budget leaves you no choice but to purchase a fixer-upper that needs immediate roof and electrical work? Or is it simply that you've seen your friends insist on a fresh coat of paint, new furniture and the like when they move into a home? If it's the latter, let me assure you that's not a requirement.
I've done renovations on homes both before and after I moved into them. While the latter is more inconvenient, I'm also generally happier with the results. There's likely a reason for that. If you take on a renovation project before you move into a home, you are only guessing at what you need and what will make you happy. If you do it after you live in a home for a time, you will know quite specifically what's essential and what would be nice, but isn't a must. There are even things you will likely decide to forgo entirely.
Another consideration: Are you contemplating what having a child will possibly do to your otherwise excellent finances? Annual child care costs in many parts of the country exceed the expense of a college education at a public in-state university. College costs are also significant. And then there are all the costs in between -- food, tutors (if needed), summer camp, toys. I can go on, but you are no doubt getting the idea. In other words, it's quite possible your ability to save will be impacted, and not for the better.
On the other hand, given your age and the amount of money you must have managed to save, your financial habits are clearly quite good. So my take: If you are taking on a house that needs immediate work, go ahead. But if it's a home that could be lived with for a few years, show patience.
Finally, remember that renovation is forever more expensive than even the most honest and upright contractor claims. Whatever money you've budgeted for this task, know that you will probably spend significantly more.
(To ask Helaine a question, email her at askhelaine@gmail.com.)
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