Smart Moves by Ellen James Martin


For years, a couple in their early 50s -- an IT manager married to a nurse -- yearned to leave their ho-hum house for a historic place with charm and character. So after paying off their only child's last college bill, they hurriedly snapped up a handsome Tudor cottage for a price that seemed affordable at the time. But their sweet dream soon soured.

As it turned out, the centenarian cottage had horrendous issues and needed a huge array of costly repairs, including a new roof and replacement flooring. Plus it had extensive termite damage that needed fixing. Unfortunately, the couple lacks the funds for all that work and is now in a quandary about what to do next.

This true story illustrates what happens when homebuyers in a rush fail to think through the implications of their housing choices, says Merrill Ottwein, a veteran real estate broker.

"There's nothing inherently wrong with moving quickly when buying a home. But you have to first make sure you've assembled all the information you need for a sound decision," says Ottwein, a past president of the National Association of Exclusive Buyer Agents (

Buying a fixer-upper without sufficient forethought is one mistake made by some budget-minded buyers who believe this could be a viable way to shoehorn themselves into a prized neighborhood for a low price. But he cautions that "fixers" often require far more money and work than their buyers believe.

"The problems you see on the surface could be just a small hint of what's hidden behind the walls in terms of plumbing, electrical or structural problems," he says.

Ottwein urges any homebuyer considering a fixer to obtain reliable estimates on the cost of restoring the property. To get a sense of potential repair costs, your home inspector can help with estimates, and your real estate agent should be willing to help you arrange with contractors for bids.

Are you convinced you could handle the rehab work yourself? If so, Ottwein recommends you do a reality check by canvassing friends who know you well. Ask them if they think this big do-it-yourself project would be a good option for you -- both in terms of your skill level and available free time.

"Your friends can help you gain perspective on the possible pitfalls," he says.

Here are a few pointers for homebuyers who want to ensure they make the right choices:

-- Exercise caution before buying into a long commute.

Despite a moderation in home prices in recent years, it's no secret that housing is still a major expense for those on tight budgets -- especially first-time buyers with moderate incomes. Because of that, some buyers make tough trade-offs they later come to regret. For example, Ottwein says it's not unusual for some buyers to accept a punishing commute to a distant community in order to buy a large house.

"Some people say they don't care how far they have to drive to get all the bells and whistles they want. But then they call us back six months or a year later to say they can't stomach that killer commute anymore," he says.

How long a commute is too long? That depends on the buyers involved and the type of commute. For example, driving in heavy stop-and-start traffic can become far more tiring than one on a free-flowing highway.

-- Think carefully before taking an adjustable-rate mortgage.

Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage markets throughout the U.S., says that despite the extremely low rates now available on fixed-rate mortgages, some homebuyers who are close to the line on affordability are still drawn to adjustable-rate mortgages.

Of course, the opening interest rate on an ARM is slightly lower than that for a comparable fixed-rate home loan. And in the case of "hybrid" ARMs, the opening rate is guaranteed to stay fixed for three, five or even 10 years before adjusting. Still, as Gumbinger says, all ARM borrowers expose themselves to the risk of higher rates in the future.

"You'd better have lots of assets to protect yourself against the risk that your mortgage payments could skyrocket in the future," Gumbinger says.

-- Take a love-hate look at your present housing situation.

During his several decades in real estate, Ottwein says he's been struck by the intensity of peoples' feelings about the place where they live. An assessment of these feelings is a good starting point for setting priorities.

"Sit down and write out the good and bad in your present residence. Then make a list of features you've got to have, would like to have, or are willing to give up," Ottwein says.

"Almost everyone has limits on what they can afford. So it's crucial you set a strict price ceiling and face housing trade-offs consciously," Ottwein says.

-- Pick options early when buying in a new subdivision.

If you're planning to purchase a brand-new house, you're likely to be faced with many trade-offs before your contract is written.

"For one package price, some builders give lump sum allowances for anything ranging from lighting fixtures to appliances to landscaping to kitchen cabinets. Anything not included in that package will cost you extra money," Ottwein says.

These choices should be made before the sales contract is written -- but not under pressure from a hurried homebuilder or salesperson.

"To make genuinely solid selections, you may need to take weekend time or a day or two off work to explore the options," Ottwein says.

Those who are indecisive at the outset may find they have to pay a premium price for options they later decide they want.

"Once your contract is signed, you have little leverage left in negotiating with the builder. So you'd better pick the right kitchen cabinets at the beginning," Ottwein says.

New home buyers on a tight budget may wish to defer those items that can be installed later with relative ease, such as landscaping upgrades or window treatments.

"Lock in early those choices that are part of the infrastructure. The other options can wait until you have the funds to put them in yourself," Ottwein says.

(To contact Ellen James Martin, email her at