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Real estate editor Maryann Haggerty and columnist Elizabeth Razzi respond to a question adapted from a recent online
chat.
Fairfax: We have a mortgage and a not insubstantial wedding debt, which we are paying down, along with new day-care expenses. We don't have a lot of excess money, as we are putting most of it toward the credit cards. We do, however, have very good salaries, above $300,000 combined, which we expect to increase. We probably shouldn't spend the money, but our perfect vacation town has a property on the market for only about $125,000. The house needs to be entirely redone, but, for now, we could use it for summer vacations. The house has been on the market for almost a year, so there isn't any rush. I do not see this opportunity coming up again, but I also don't want to buy a money pit. Any thoughts?
Elizabeth Razzi: You've hit upon the frustration of downturns. Great deals abound, if only one could afford them! What's not clear is whether you really can afford any vacation home, at any price. It doesn't seem that you've taken stock of all your debts to judge whether another $125,000 purchase is even possible.
Maryann Haggerty: There has been a lot of discussion about how much housing debt families can afford to take on, but sensible borrowers and lenders also need to think about total debt burdens. That's housing debt plus all your other debt. Traditionally, it has been 36 percent of before-tax income for conventional mortgages and 41 percent for Federal Housing Administration loans. Think of these ratios as ceilings, not guidelines -- and remember that they do not take into account such important non-debt expenses as child care.
E.R.: If you decide to move forward, judge the money-pit question by hiring a home inspector to assess whether the property is structurally sound, if it has termite damage and whether it has an adequate septic system. After all, you said there isn't any rush, so act accordingly -- after you've determined the wisdom of taking on more debt.
The next Real Estate Live chat will be 1 p.m. Jan. 9.
