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4 Signs You Should Rent Instead of Buy a Home
Just because you can buy a home or condo doesn't mean you should. Here are some instances in which renting makes more sense.
Photo: Robert Trachtenberg
1. You have credit card debt or you have yet to save 10 to 20 percent for a down payment. I know FHA-insured loans allow down payments of just 3.5 percent. But I have a higher bar for you to clear: If you have credit card debt and haven't saved for a sizable down payment, you are not yet ready to own.

2. You envision moving within five to seven years. When you buy a home, you owe the real estate agent nothing. When you sell, however, you pay the full agent's fee, which is typically 6 percent. Add in the other costs of closing a sale and the cost of moving, and it's very possible that leaving your home too soon could eat up close to 10 percent of its sale price. Here's something else to consider: Depending on where you live, it could still be a year or two before home prices stabilize. And even once they rebound, it's wise to anticipate average annual increases in line with or slightly ahead of the rate of inflation, or about 3 percent. So if you have to sell a home in fewer than five years or so, the cost of selling may exceed any potential price appreciation during the time you owned.

3. Your calculations show that the cost of renting is a better deal than the cost of buying. The New York Times has a terrific free online calculator that shows how many years you'd need to own before your home "pays off" relative to renting.

4. You don't really want the responsibilities and risks associated with being a homeowner. There's absolutely no rule that says you must own. Whatever feels right to you is the right move—as long as you can afford it.

More Financial Guidance from Suze Orman

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Should You Buy a Condo Instead of a House?
Photo: Robert Trachtenberg
Q: My spouse and I have been considering a home purchase, but every time we begin looking, the plummeting prices give us cold feet. Is buying a condo a smarter move? The prices seem less risky.

A: Listen to your cold feet—they're telling you something. Though buying a home still makes a lot of sense, don't do it just because you think you're supposed to. For many people, I believe that renting is actually the way to go. For help sizing up your own best option, see "4 Signs You Should Rent Instead of Buy a Home."

But if you're set on owning, know that a condo's lower price doesn't necessarily mean lower risk. Because too many condos were built during the housing boom—and because many people bought condos as investments, not residences—they've been among the hardest hit properties since the real estate bubble burst. From 2007 through 2010, the national median price of condos fell 24 percent, according to the National Association of Realtors, compared with a 22 percent decline for single-family homes. That doesn't mean condos are always a bad deal, but it does mean you should do your research. Ask your agent for data on how local condo values have fared compared with single-family homes in recent years.

You should also know that in 2009, the Federal Housing Administration announced that it would insure loans on condos only in developments where at least 50 percent of the units are owner occupied and, for new developments, where at least 30 percent of units are already sold. If you plan to use an FHA-insured loan, you can check if a condo development is FHA approved at hud.gov.

After all that legwork, if you're sure you want to buy a condo, do so only if...

     • You can afford the maintenance fee. Many first-time owners don't realize that a condo purchase means paying a monthly fee to the condo association.

     • At least 90 percent of the condos in the development are owner occupied.

     • The annual increase in the monthly maintenance fee for the past few years has not exceeded the general rate of inflation, or about 3 percent.

     • Ninety-seven percent of the development's residents are current with their monthly payments. Remember, it's the other owners who must make up the shortfall when some owners fall behind.

     • At least 10 percent of the association's annual budget goes into a reserve fund.

     • The condo's roof and major mechanical systems are closer to five years old than they are to 15. If a development requires big upgrades, you could face a costly "special assessment" charge after moving in.

Finally, talk to a few of the residents. They can be your most valuable resource for learning about the development's pros and cons.

More Financial Guidance from Suze Orman
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.

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How to Get a Mortgage Postbankruptcy
Suze Orman
Photo: Marc Royce
Q: I filed for bankruptcy a few years ago but have managed to get back on my feet. Now my partner and I would like to buy a house, and we've saved enough together for a sizable down payment. He has excellent credit; I still have the bankruptcy on my credit report. Would it be best if we put the house in his name? If so, how do I protect myself and secure my half of the house if we break up?

A: First, let's focus on the big issue here: getting a mortgage. It's great that you've saved a down payment—lenders love to see that these days. And if you've managed to stay on track with your bills for at least two years since your bankruptcy, you can indeed qualify for an FHA-insured mortgage. But that bankruptcy is still going to be a factor in this deal.

The advantage of both partners applying for a mortgage is that two incomes will typically help you qualify for a larger loan. In fact, it's possible you couldn't qualify based on just your partner's income. So if you need both of your incomes to make this work, I'm afraid you may hit a speed bump—because, as you guessed, your FICO credit rating will definitely influence a lender's assessment of your application. You each have three scores (from Equifax, Experian, and TransUnion). Usually a mortgage lender will take an average of your scores and an average of your partner's, and then use the lower figure. I wouldn't be surprised if your average score is still below 640, and that could make for a much more expensive mortgage. For example, at press time a $250,000, 30-year fixed-rate mortgage obtained with stellar FICO scores would cost about $1,234 per month. The same loan based on a credit score below 640 would be $1,478. That's $244 more a month, and over the life of the loan that comes to nearly $90,000 in additional interest. (Yes, you read that right.)

So the question is whether your boyfriend can qualify for the loan on his own. If that's feasible, he could then add you to the title, giving you equal financial rights to the home. But that's asking a lot of him—you'll effectively co-own the property, yet legally only he will be on the hook for the payments. If that's the route you take, your best option may be joint tenancy with right of survivorship. You and your partner would be equal owners of the home with equal rights, and if one of you passed away the survivor would continue to own the home. You'll want to have an attorney familiar with your state's property and estate laws draw up the right ownership documents.

Having said all that, my best advice is to slow down. If you wait another year or so and continue to pay your bills on time, your FICO score will continue to improve. One of the biggest misconceptions is that your score stays in the dumps until the bankruptcy is removed from your credit report (with a Chapter 7 bankruptcy, that can be 10 years; for Chapter 13, it's seven). Although the bankruptcy will continue to show up, its impact on your score will lessen over time. Be fanatical in your bill paying, continue to reestablish your credit (with a secured card if necessary), and keep your overall debt-to-credit limit low, and your score will be on the upswing sooner than you think.

Next: Are your partner's finances dragging you down?

Suze Orman's most recent book is her Action Plan: New Rules for New Times (Spiegel & Grau). Click here to ask Suze a question!
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.

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Finding Money to Buy a House
Suze Orman
Photo: Marc Royce
Q: I am a 23-year-old single woman with a stable job. I pay off my credit cards every month and contribute 12 percent of my salary to a 401(k) that has a 3 percent company match. I also put the maximum allowance into a Roth IRA each year, which is a stretch. At the end of the month there's little left over to save for a house. Should I reduce the amount I'm putting into my 401(k)? Not contribute to my Roth annually? Switch to a traditional IRA? I'm so confused, and I don't want to live with my parents forever.

A: For starters, give yourself a pat on the back. The great decisions you're making today will pay huge dividends in the future. So my advice may come as a surprise to you: I want you to consider tapping into your Roth IRA.

I love that you're socking away money for retirement, but I bet you didn't know that you can withdraw any of the funds you originally contributed with no tax or penalty. Let me be clear: I'm only talking about the dollars you put into the Roth, not the earnings on your contributions. (There are tax and penalty rules for early withdrawals on those.)

I'm making this suggestion because you're putting so much into your 401(k); while you will temporarily reduce your Roth savings, your cushion for retirement is still being nicely padded.

If you think you may dip into your IRA in the next few years, I would change the investments in your account. Stocks are terrific over the long term but too volatile over the short term, so you don't want to count on them to pay for a goal that's a few months or years away, such as a down payment on a house. Any funds you think you might use from your IRA should be shifted into a low-risk investment like a money market mutual fund or a certificate of deposit.

Instead of making new contributions to your Roth IRA, steer money into an FDIC-insured bank account. So if you were saving the $5,000 maximum per year, stash it in the bank for now. That would give you $10,000 for a down payment in two years. Combine that with money you take from your Roth, and I bet you're closer to owning a home than you realize.

After you buy a place, and if you still meet the eligibility rules, get back to investing in your Roth IRA. You can recharge your account by scaling back your 401(k) contributions to 6 percent of your salary and using the extra dollars that will show up in your paycheck. Don't forget to switch back to stocks since you will once again be saving for a goal that's decades away.
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.

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