Living in a New Home and Within Your Means

By Ilyce R. Glink with Samuel J. Tamkin
Saturday, November 8, 2008

When setting up a household budget, you have to think about big-ticket items, such as how much you should spend on rent or mortgage payments, how much to budget for utilities, and what it will cost to buy homeowners or renters insurance to protect yourself in case of catastrophe.

But other expenses, such as what you spend on an average Saturday night out or on cable bills, are important pieces of a household budget as well. And with the high cost of food and fuel, you might need to pare back your household entertainment expenses if your heating bill is skyrocketing.

It may be time-consuming to calculate what your household expenses will be before you move into a new home. But creating this kind of budget before you move will make your financial life easier.

Here's how to create your own household budget: Start with basic household expenses: housing (rent or mortgage), insurance (homeowners or renters policy premiums), utilities (phone, electric, gas, cable, Internet service, wireless, etc.), food, entertainment, clothing, home furnishings (painting, carpeting, furniture, etc.), transportation, savings, donations, medical, household cleaning and maintenance, and school supplies, day care and other children's expenses.

If you own your home or will be buying one, be sure to include costs for maintenance and upkeep, real estate taxes, and homeowner association dues or monthly maintenance costs.

A big clue to what you will spend in the future can be found in what you're spending right now. If you don't already track your household expenses, you should buy a small notebook and start writing down every cent you spend. A trick I still employ is to wrap a sheet of paper around the dollar bills in my wallet (a piece of sticky notepaper works, too). Then, any time I take dollars from my wallet, I write down how much I spent in cash.

You probably pay a lot of your household expenses with your checkbook, so run through the checks you have written or sent online, and jot them down in your notebook. If you have a pocket or purse full of receipts, be sure to add those as well. Go online to check your credit card accounts, and write down all purchases you have made in the past few months.

If you track your expenses with money-management software, such as Quicken or Microsoft Money, you will be able to get your hands on these numbers quickly. If not, consider using free online services to track your household expenses, such as Quicken Online or Mint.com. You can upload your credit card charges and bank information to your online accounts, which should update automatically. You can then check this information from anywhere you have an Internet connection.

Once you know what you're currently paying, you should analyze whether you're living above, below or at your means. Then, try to calculate what your basic expenses will be in your new home.

Will your new mortgage or rent payment be higher than what you're paying now? What if you factor in taxes and insurance? Will these higher payments be affordable, or will you straining your budget?

Don't underestimate the extra one-time costs associated with your move. You may have to hire movers or rent your own moving truck. You will need to clean your new home and perhaps buy draperies, appliances or light fixtures. While these one-time expenses shouldn't sink your ongoing household budget, they can drain your cash reserves, so be sure to plan for them when you're saving up for your move.

When it comes to setting up a household budget that works, you've got to be realistic and conservative. You should be realistic about what things actually cost, so if you don't know, take the time to find out how much your property taxes will be, for example. For numbers that can't be known, you should estimate expenses conservatively. So instead of guessing that your energy bill will be $200 per month, set your budget number at $300 or even $400 per month. The worst thing that will happen is you'll wind up with some extra cash at the end of the month.

Even after you move into your new home, you should continue tracking your expenses for at least a year. (Actually, I think you should track your expenses forever.)

Over the course of the first year you live in your new home, you will see how your expenses rise and fall with the seasons, and you will get a real sense of how much you're spending to live the way you do. If you decide you need to tighten your belt, you will have a year's worth of household expenses to look back on and help you decide where to cut.

Q: I am thinking about purchasing a house built in 1909. The house is structurally sound and has very sturdy oak floors and solid walls. The roof is only about seven years old and still in good condition. There is a bit of old water damage on the ceilings, but it is more cosmetic than anything else. The wiring is up to date, but the plumbing is in bad condition.

The house has six bedrooms, two bathrooms, two living rooms (both with fireplaces), a sunroom, kitchen and dinning room, along with a partial basement and a full attic with a tall ceiling. The owners are asking $70,000. Does this sound like a good purchase?

A: I have no way of knowing whether this house is listed correctly at $70,000. Depending on where the house is located, it could be a fabulous bargain or ridiculously overpriced.

You also have to consider what problems you're having with the plumbing. If you have to dig a new sewer line to the street, build a new septic field, or replace all of the plumbing in the house, you could be talking about spending anywhere from $20,000 to $100,000.

You also didn't mention how much, if any, land comes with the property. Do you get 10 acres, or is it on a tiny city garden lot?

The best way to know whether this house, or any house, is worth the asking price is to look at what comparable homes in the area have sold for in the past three months. If no homes have sold, then you should look back to sales within the past six months. If you look for sales comps any further back than that, you risk unfairly comparing your property to sales that were closed before the housing crisis.

Once you thoroughly explore the local market, you will be able to tell whether you're being offered the bargain of a lifetime, a good deal, or something that you should pass on.

Q: I closed on a home in July. The builder said I have a one-year warranty for repairs.

Now the builder can't be reached to make repairs. I haven't had the inspection I was supposed to have after living in the home for 90 days. Also, the builder was to provide a longer warranty for my home, which was returned by the warranty company unprocessed. The payment toward that warranty to be provided by the builder is on my HUD-1 closing form.

What legal recourse do I have to get the builder to honor the warranties? I waited until I was 50 years old to buy a home, and now I don't want the house.

A: I understand that buying a house can seem like a scary amount of responsibility. But you already purchased this house. You generally can't return a house as you might return a product purchased at a store. You might be experiencing a good dose of buyer's remorse brought on by the builder's bad behavior.

Are you having major problems with the home? Or are you looking for your builder to perform an inspection of the home, with the hope that the builder will fix the issues that came up during the inspection?

If you're not experiencing problems with the home, you could spend some money and find a good residential real estate inspector to go through your house and see if anything comes up, particularly if you don't understand the ins and outs of living in a new home.

Just keep in mind that you will pay the inspector to go through the home. You will still have to pay someone to fix any items that might come up during that inspection if you determine that your builder is not coming back.

Please talk with a good real estate lawyer who has experience with new construction contracts. You will want to review what was promised to you in terms of the warranty. Then, have your lawyer contact the builder to see what's going on.

What you may find, in the current economic climate, is that the builder is bankrupt, has gone under or is slowly going under. If the builder goes out of business, your warranties from that company will probably be worthless. However, there may be underlying warranties from the materials manufacturers that may protect you somewhat. These manufacturer's warranties might include windows, heating and cooling systems, plumbing fixtures, roofing materials and some other components installed in the home.

You have to face the fact that the builder may be unable to provide the warranty you were promised. If that's the case, you own the home and will have to step up and make the necessary repairs to keep it in good shape.

It's only in extreme cases that a buyer has the right to rescind the purchase of a home. These extreme cases may involve fraud on the seller's part.

Q: When my husband and I purchased our home in 2002, I wasn't working. The loan and title are in his name only. Is there any way to put my name on the title in case anything should happen to him? Is this something that could cause a problem for me if he should die?

A: In most states, you shouldn't have a problem having your husband transfer the title of the home from his name alone to his and yours as husband and wife with rights of survivorship.

If you and your husband have an agreement as to how the two of you should own the home, you should make sure to hold title in the manner you desire. This is particularly true if you decide to work with an estate planner or an estate lawyer and create a living trust to hold the property. Then you can put the title into the name of that trust.

If you decide to transfer the title to both of you, you will need to have a document prepared to do so. Most people will transfer title using a quitclaim deed, but in some cases, a warranty deed may be a better option.

Both a quitclaim deed and a warranty deed can achieve the same result. But with a warranty deed, the title insurance protection the owner obtained when the property was purchased can carry forward to the new owners, subject to the terms of the title insurance policy.

In some states, a quitclaim deed is not the right document to use. There are other documents, under different names, that can do the same job for you. Your lawyer can provide details.

Q: I have a quitclaim deed naming me, my mother and my two older brothers as the new owners of the house. The deed states that each of us owns the home with rights of survivorship. My mother and two brothers have passed away. Am I the sole owner now?

A: If the person who signed the quitclaim deed was the rightful owner of the property, your mother, your brothers and you owned the property at the time the deed was transferred. If you held the property with rights of survivorship, as the sole survivor of all of the people named on the quitclaim deed, you should now be the sole owner of the property.

However, there may be other circumstances that could change your situation. Some of these issues could include the loss of the property due to unpaid real estate taxes or the loss of the property due to a mortgage foreclosure. Or, if the property was abandoned for years, someone else might now have a claim on it.

If your family has occupied and used the home continuously, you should be the owner. For clarity, you can go to a title insurance company in your area and request that they prepare a title insurance commitment for the property. That title insurance commitment should identify the owner of the property.

If you are applying for a loan on the property, your lender may order a title insurance commitment, and that title insurance commitment should identify you as the sole owner.

Q: I own two homes and share ownership with my brother of a third family house that is unoccupied. The third property was inherited from our mother this year. Can I deduct 50 percent of the property taxes on the inherited property from my federal income taxes?

A: You probably can't deduct the real estate taxes on the inherited property. That property is not an investment property, so you can't deduct the taxes on that basis. And it is neither your primary home nor your secondary home, so you can't deduct the taxes on that basis, either.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.comandhttp://www.expertrealestatetips.net.

Copyright 2008 Ilyce R. Glink and Samuel J. Tamkin

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