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Timing a retirement home purchase

Future pensioner finds today's low prices and mortgage interest rates attractive, but a lot can change in four years.

December 06, 2009|Liz Pulliam Weston | Money Talk

Dear Liz: I have high credit scores, no debt, a large retirement fund including a generous pension and a home I own free and clear. I plan to retire in four years and am thinking of moving to be near family.

Should I buy my retirement home now while real estate values and interest rates are low? I could make a 20% down payment and rent it out until I can move in. I should be able to sell my current house and pay off the loan when I retire.

Or should I just be patient and buy a place after I retire? If I wait, I could pay cash for the next house, but property values may rise, and I suspect they'll rise faster in my future town than in my current one.

Answer: Getting a loan to buy a rental property is difficult these days. Although your high credit scores and solid finances will help, you may have to come up with a down payment larger than 20%, and your interest rate almost certainly will be higher than if you planned to live in the home right away.

Then there are all the issues associated with being a long-distance landlord. You would need to screen tenants, respond quickly to repair requests and keep a substantial reserve fund to pay the mortgage when the property is vacant. A property management company could help, but such outfits typically take 10% or more of any rent payments.

Also consider that your plans could change. Although being close to family is important, you may decide you don't want to give up ties to your current home or its environment.

If you haven't spent a substantial amount of time in the area where you plan to move, consider taking a long vacation there when the weather is at its worst so you have a good idea of what life there might be like.

That's not to say your plan can't work, but you need to do some research, carefully go over the numbers and think about whether you're up to this task.

For many, it's till debt do they part

Dear Liz: My spouse has extremely high credit card debt. All cards are in her name only. Where do I stand legally if she dies or we divorce? What can a person do about such uncontrollable abuse of credit cards? The interest alone is horrific, but she pays it.

Answer: If you live in a community property state and don't have a prenuptial agreement, debts incurred during marriage are typically considered owed by both parties (even if there's only one name on the credit card). Community property states include California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

In other states, debts incurred by one spouse are usually that spouse's responsibility alone, unless the money was used to buy family necessities such as food or shelter. If you divorce, she probably would be responsible for these separate debts. If she dies, creditors could go after her separate property and may be able to go after her half of any jointly held property.

The rules vary enough by state that you'd be smart to consult an attorney about your potential liability.

Wherever you live, though, this debt is affecting your union and your future together. The money she's paying in interest isn't available for other purposes, such as saving for retirement or your children's educations, plus it's clearly causing tension between you. If you want your marriage to succeed, you should invest in sessions with a marriage counselor and a fee-only financial planner.

Repay credit card debt or settle?

Dear Liz: Is there a point at which the time required to repay credit card debt exceeds the period that settling the debt will adversely affect your credit scores? Is there something else that should be considered?

Answer: You can't predict how much credit card settlements would hurt your credit scores (other than "a lot") or how long it would take your scores to recover.

But anyone who is struggling to pay debt and considering debt settlement should research whether bankruptcy might be the better choice. If you can't repay this debt within five years, a Chapter 7 liquidation filing could let you erase it.

Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What's at Stake." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston.com. Distributed by No More Red Inc.

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