Thank you for the rate cut, Mr. Greenspan … I mean, Mr. Bernanke!
The Fed’s move earlier this week to ease credit could not have come at a sweeter time. Borrowers, especially jumbo borrowers, were starting to have a terrible time getting money.
Now we have a bit of momentary quiet, although what’s going to happen over the next 12 months is anybody’s guess.
For my part, I am encouraging clients — even people I think won’t buy for a year — to pull their credit scores and start working on their numbers now. We’re doing it too, in case we end up moving next year. We still have family debt — I had a terribly bumpy first year switching careers — but my goal is to get it all off the credit cards by next month and to pay off the HELOC the year after that.
One thing I am encouraging clients to read is last month’s piece by Ken Harney, the Washington Post real estate writer whose work is syndicated. Harney basically reported that since one component of a FICO score is the extent to which you utilize your credit — that is, you’re graded on what percentage of your limit you spend to — that all cards are not created equal. Cards that don’t report your limit to the credit bureaus, he says, end up getting you a FICO penalty over cards that do.
So obviously one component of credit score cleanup is to make sure your debt is in the right place. Another, of course, is paying off debt, but I am not one of those people who think you can go for a year without groceries or clothes just because you want to buy a home. I think the more sensible personal-finance solution is to look at what you spend and ratchet it down a little — it makes more sense to change your money habits bit by bit than to be a binge-and-purge spender.
Of course today’s prices are never going to be palatable to some clients. I got referred to a relocating renter at the beginning of this month, and I was very excited. Relos are great because they usually have a fixed timeframe, and referrals usually work out well for me.
Well, to start, her budget was $8,000-$10,000 (which I know sounds shocking, but remember to live in Manhattan you are competing with a gazillion lawyers and Wall Street types. Also, remember that if you’re paying a high rate on a jumbo mortgage, $8,000 a month is basically what it costs you to carry payments on a million-dollar loan plus taxes.)
So first, I e-mailed her five listings. The best wasn’t quite big enough, fine; I steered her to a bigger place in a different neighborhood.
Nope, she didn’t like that neighborhood. “By the way, the budget is really $7,000-$8,000.”
OK, I sent her listings in still more neighborhoods (with responses of no, no and no) and then Eureka! I finally found a place with the originally requested amount of space in the originally requested neighborhood that was right on the second, more restricted budget.
Deal? No deal.
My eureka place did have a flaw — it’s near a hospital and there might be noise issues, which was why it was “cheap” — but my customer and I didn’t even get to discuss that because the place was “too small.”
I’ve had clients go through this kind of status loop before — they want to be in one area, and then they find out the price, and instead of compromising by looking in a next-best area they go two or three rungs down. Then, to make up for the fact that they’re living in a markedly less-status-y neighborhood, they suddenly need a mud room and a big garage and a lap pool. They don’t compromise on two fronts (next-door to where they want to live, and a little bit small) but instead compromise on one front (very far from where they want to live). Then they reward themselves for that compromise by buying something bigger than they had originally thought they needed.
Of course, then they need to buy new furniture to fill up such a big new place. And that’s what they do — and then they wonder why they see mounting debt on their credit cards.
Alison Rogers is a licensed salesperson and author of “Diary of a Real Estate Rookie.”