Smart Moves

Millennials -- born between 1980 and 1998 -- are America's most active generation of homebuyers. Within the past year, more than 36 percent of home purchases were made by people from this generation.

But Dale Robyn Siegel, a home loan broker and author of "The New Rules for Mortgages," says an increasing number of those in this age cohort are now delaying their purchase plans.

"It's easier to just rent for another year," says Siegel.

But she says inertia isn't the only factor causing wannabe buyers to defer. They're also troubled by gradually rising mortgage rates and increasing sticker prices for property. What's more, many in this generation continue to carry heavy student loan debt loads -- which count against them on their loan applications.

On the other hand, the widely expected loosening of financial regulations through revisions to the federal law known as the Dodd-Frank Act could make it slightly easier for income-tight buyers to qualify for home loans.

Even so, looser regulations will translate to fewer consumer protections for borrowers, according to Siegel.

"Changes to Dodd-Frank will make it easier to make bad mortgage choices," she says.

Siegel contends buyers are well served by doing some serious number-crunching in advance of property selection.

"Before they choose a property, I always tell clients to run the numbers and stay skinny on their overhead," Siegel says.

Your core living costs are expenses you must meet on a regular basis. They include outlays for food, transportation, child care and insurance coverage. They also include any financial commitments you've made to a religious institution or charity. Together, these expenses constitute what many in the financial field call your "nut."

"Before making any major financial decision, your first task is to ensure you'll have the funds to meet your nut every month. Otherwise, your stress level and quality of life could be greatly impaired," Siegel says.

How do you determine your nut? Arlen Olberding, a certified financial planner, urges would-be buyers to take a step-by-step approach.

As a first step, he says you should carefully review your checking and credit card statements to see where your money has gone during the past six to 12 months.

"When it comes to spending, people are creatures of habit. Because of that, looking back at your personal spending history should help you project your future spending," says Olberding, a fee-only adviser affiliated with the National Association of Personal Financial Advisors (napfa.org).

Once you've categorized your past spending, it's time to comb through the columns, determining which among your non-mandatory costs you'd be willing to trim to buy the sort of place you want.

"Establishing financial priorities is a very personal matter. There are no right or wrong answers. To create a spending plan, you need to think both about your necessary expenses and lifestyle choices, like an urge to travel," says Olberding.

After you calculate your living costs -- along with quality-of-life choices you consider essential -- it's time to compare this monthly total to the net income you're bringing in. The difference should be the funds available to cover your mortgage expenses and future home upkeep and utility costs.

Here are a few pointers for would-be buyers:

-- Realize it's still very possible to overborrow on a mortgage.

Siegel says many who can jump over lender approval hurdles continue to be able to borrow more than they reasonably should. Why? Because the full extent of their living costs isn't apparent to the lender who reviews their file.

"If an expense doesn't show up on your credit report, the bank doesn't know about it," Siegel says.

Because a lending institution has limited information on your living costs, she says it's critically important you do your own pre-purchase computation to determine the realistic scope of your monthly nut.

-- Consider inflation when estimating your living costs going forward.

Although the government's Consumer Price Index has shown little movement in recent months, inflation is still a major factor for many households. Especially hard-hit are families with young children who face hefty day care costs and those who've opted for private schooling after their kids reach kindergarten.

Along with education expenses, health care costs have risen dramatically, led by the cost of employee contributions to health plans and the premiums paid for the kind of individual policies used by those who lack access to insurance coverage through work.

Even core expenses that are normally immune from big price swings -- including food and utility costs -- can rise unpredictably.

In assessing future living costs, Olberding advises clients to factor in average price increases of as much as 5 percent per year for their core expenses.

"No one is immune from inflationary increases -- so it's always better to err on the high side when preparing a spending plan," he says.

-- Factor savings into your calculations.

Many younger adults -- including the offspring of baby boomers -- are increasingly attentive to the need to make regular contributions to their retirement savings funds, Olberding says.

"Savings should be one of those core costs you don't forget when figuring out how big a mortgage you can handle safely. Buying your dream house is great, but you want to do so without breaking your budget," Olberding says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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