The $495,000 Starter House July 1, 2003January 22, 2017 Daniel S: “I recently bought a house for $495,000 near Boston. Usually a financial conservative, I’m afraid I’ve bitten off more than I can chew. (I bought the house because I’ve recently started a family and the size/location of our apartment was becoming a problem and I think I got a relatively good deal for my money.) On the $495,000 house, I put $100,000 as down payment, and took out a $322,700 loan at 5.75% fixed 30 year. Then I took out a $75,000 home equity line of credit (2nd mortgage) to avoid paying jumbo rates. Home equity line is at a 3.75% teaser, up to 4.25 in 6 months and then tracking prime. I know that the rule of thumb is that up to 28% of income can go towards housing, taxes, and insurance. Currently, without paying down the home equity line, my payments are $2,674/month, which is 32% of my $100,000 (pre-tax) income. I have about $40,000 cash which I’ve promised to my wife for home improvements. My wife currently stays at home but will hopefully be working again (making around $45,000/year) when our son goes to school, in 3 years. I’ve been working at the same company for six years and am relatively secure there, but I am in a volatile field (telecommunications). I just made the first mortgage payment and I’m worried. Should I be taking drastic steps to reduce my budget? I’ve already cut my 401k contribution from 15 to 6%. Should I forget the home improvements? Any other advice? ☞ Don’t forget them, just postpone them – savoring the anticipation of someday making them and knowing that by waiting you will feel less pressed and sleep better. In the meantime, you might do the small, inexpensive ones and the do-it-yourself ones? FDR Steve Morley: “I laughed when I saw your mention of FDR in last week’s posting. Neither Dad nor I can ever remember Grandpa saying anything complimentary about ‘that goddamned Roosevelt’. Grandpa was primarily a dairy farmer on an 86-acre tract who probably paid about $1.37 into Social Security during his working lifetime. Of course, he also lived to the ripe old age of 98, happily picking up his check from Uncle Sam every month and complaining about FDR whenever he could work it into the conversation.” POLITICS AND PERSONAL FINANCE Jeff Martin: “I certainly understand your readers wanting to focus on finances. But isn’t a discussion of what the government is doing exactly that? Are we now so distant from what is going on in Washington that we don’t realize how decisions made there affect our money back at home? I can’t believe that it has become so essential to save corporate CEOs (and probably quite a few unemployed folks with nice inheritances) hundreds of thousands of dollars in taxes that we need to turn people away from emergency rooms and kick old folks out of rest homes. Some people seem to think that the elderly and sick children will just magically disappear if the government stops funding the agencies that help take care of them. I seriously doubt that’s going to happen. Personally, I’m at a loss to understand how anyone can equate the desire to feed and provide a decent education to the children of America with ‘left-wing drivel’. It will be interesting once some of these people get to be older and NEED help, if their attitude changes.” Alicia: “Anyone who can’t see the connection between Bush politics and personal finance hasn’t been looking for a job, enrolling kids in school, paying FICA, purchasing health insurance, and/or investing lately. Anyone who doesn’t notice that a huge surplus has been turned into a huge deficit with very little benefit to 98% of the populace probably doesn’t know much about finance anyway.” “If this is class warfare, then my class is winning.” – Warren Buffett