Business

<< Previous   of   Next >> (click to enlarge) Peter Bielagus   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, October 28, 2007 What to do if you want to buy a house The road to becoming a home-buyer starts with establishing a stable credit history and making sound money and life decisions, a financial adviser says. By Debra Smith Herald Writer Affording a home seems nearly impossible for many young adults in the local housing market. The median price of a single family home in Snohomish County hit $368,000 last month, according to the Northwest Multiple Listing Service. The median price of a condo is $239,950. It's not impossible, but it does take planning, said Peter Bielagus, a 31-year-old licensed financial adviser and author who tours the country speaking to young adults about personal finance. The first step, and the easiest, is making sure your credit history is accurate, Bielagus said. A credit report includes information on where you live, how you pay your bills, and whether you've been sued, arrested or have filed for bankruptcy. An estimated 70 percent of credit reports contain errors. An error can affect your ability to get the best interest rate on a home loan and affect other areas of life, including renting an apartment and getting a cell phone. Sometimes employers check credit scores to gauge what kind of employee you might be. The Fair Credit Reporting Act requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report once every year. That information is available at www.annualcreditreport.com. Other Web sites claim to offer free credit reports but don't. You can dispute any errors you might find and the credit agencies are required to investigate. Young adults also can increase their score by borrowing money responsibly, Bielagus said. It takes about two years for most people to turn around their credit scores, he said. Time can improve the score but so can keeping the amount of credit-card debt to less than 30 percent of what you can borrow and making payments on time. Sometimes people have a lousy score because they won't touch credit cards. Build a credit history by getting one card and using it once a month to buy gas and then pay it off on time, he suggested. "They don't even have to carry it on them," he said. If you're considering college, choose one you can afford. The baby-boomer generation put tremendous value on education, he said, but the price of education has risen considerably. College is an investment, and students should weigh the return on that investment. An expensive Ivy League degree may not be worth thousands in loans for someone who plans to work as a teacher, he said. Instead, consider attending the first two years at a community college and transferring to or attending a state school. He said he encounters despair among people who borrowed too much for school and are concerned they'll never be able to pay it back, much less buy a house. "College is not just an experience, and it's too expensive to be treated like an experience," Bielagus said. Most people think young people in debt got there "because they went to Cancun, partied and drank," he said. Instead, most people rack up thousands in credit card debt because they suffered a mishap, such as a robbery or a medical emergency. "Disasters, illness, robbery, fire damage, a burst pipe -- one of these things is likely to happen over the next 10 years," Bielagus said. For that reason, Bielagus suggests even the cash-strapped consider health, disability and renter's insurance to protect what they already have. Renter's insurance is affordable at $15 to $20 a month and protects personal property against fire, theft and vandalism, he said. Renter's insurance also protects you in case of a liability lawsuit against if you injure someone else or their property. If your job doesn't provide health insurance, Bielagus recommends buying at least a policy for catastrophes, which costs about $120 a month and carries a deductible of $5,000 or $10,000. "A full-blown policy costs three times that amount," he said. He also advises buying disability insurance, which protects people if they get hurt off the job. For most young Americans, their best investment is their job, he said. The final piece of the puzzle is saving and investing. Bielagus said people frequently tell him they don't have anything to put aside. The most important thing is to establish a habit of saving, even if its $1 a day. "Pretty soon you're saving more," he said. "It's all habit." That habit is easier if you can automatically deduct a portion of your paycheck and place into a savings account. If you don't have much, start with $25 a month. "Once you start doing it, you won't miss it," he said. It takes some serious cash to purchase a home, Bielagus said. He doesn't recommend raiding your 401(k) or Individual Retirement Account. Instead, he said, begin saving for a down payment by estimating a mortgage payment for a specifically priced home and putting the difference between rent and the mortgage payment away monthly. "That's a way to get yourself revved up to pay the mortgage as well as save," he said. He encourages people who want to buy but can't now to look at houses anyway. Visit open houses, he said, and learn what a one-bedroom house costs in the area. Look into government-backed programs for first-time homebuyers, he said. In high cost areas, it's worth considering buying a duplex and renting one side or even buying a house with a family member or friend. That can come with risks, but sometimes that's the only way to make it work, he said. Bielagus added some people may come out better financially if they rent for the long term. Buying a house involves a number of extra costs such as taxes, insurance, maintenance and furniture. Stretching beyond your means might not be worth it in the long run. "You don't want to be living on ramen again," he said. Reporter Debra Smith: 425-339-3197 or dsmith@heraldnet.com.

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