Saving, debt reduction keys to owning a home
Between college and graduate school, Jill MacKinnon spent a summer backpacking through Europe -- on a credit card. She's still carrying some of that debt six years later.
Until this past year MacKinnon, 28, a seventh-grade English teacher in Belmont, never quite came to grips with the ''bad financial habits" she developed years ago. Even then, she says, she had no idea whether she could afford to buy a home.
To get a handle on her finances, MacKinnon sought a Boston Globe Money Makeover and was matched with fee-only planner Bob Hurley of Stoddard Management Co. in Rockland. He analyzed income, expenses, and liabilities, and this past week assured MacKinnon that she and her husband, Charles Sorblom, 29, a manager for a landscape company in Walpole, can afford a starter home.
Hurley also said the couple's new-found commitment to a pay-as-you-go lifestyle would enable them to eliminate $7,000 in credit card debt in short order and gradually pay off their $23,000 in college loans while building up tax-deferred retirement accounts.
''I'm trying to learn to live on what I have as opposed to living the way I felt I could live when I was younger," said MacKinnon, who grew up in Concord, had her first teaching job in Dover, and previously lived on Nantucket. ''I like to go clothes shopping. I like to go antiquing. I like things that someone who's a teacher can't necessarily afford right now."
At one point she took out a loan to pay off a credit card, then ran up the balance on the card again. But last year MacKinnon took on extra work over summer vacation and paid off that loan along with two store charge cards, eliminating about $5,000 in high-cost debt. She also switched to shopping with a debit card. When the checking account balance was low she went without.
MacKinnon was surprised that the expenses she listed accounted for only 70 percent of their take-home pay of $69,219.
That means the couple should be able to sock away 30 percent of their disposable income into savings, Hurley said. ''That'll tell you whether this budget is accurate or not," he said. ''If you find yourself going into the savings account, you'll know something's off."
As for their remaining credit card debt, Hurley said MacKinnon should use the $5,000 cash value in her life insurance policy to reduce the balance and pay off the remaining $2,000 from the savings account after buying a home.
The couple's combined gross income of $103,000 should qualify them for a traditional 30-year mortgage of about $300,000 range, Hurley said.
MacKinnon said she and her husband are exploring various housing options. They like their two-bedroom Milton apartment, and the landlord has indicated he might be willing to sell it to them, MacKinnon said.
They also have thought about buying a house farther from Boston ''that may need a little TLC," which would give them more space for the money and might produce a better return when they're ready to trade up, she said.
MacKinnon is hoping for a buyer's market in 2006 that will moderate home prices. The MLS Property Information Network provided some encouragement last week when it reported that there are 50 percent more homes for sale in suburban Boston than a year ago.
The median price of a single-family home was $354,000 in November, according to the latest data available from the Massachusetts Association of Realtors.
The couple likes the idea of buying a newer condo in Milton or Jamaica Plain, which works well for their commutes. They probably won't make a purchase for six months. They want to see if they can save as much as Hurley projected -- money they would like to use for a down payment.
''If we do decide to start a family in a few years, I want to be done already," said MacKinnon. ''I want to own something."
DO YOU NEED A MONEY MAKEOVER?
To be considered for a Money Makeover, fill out the form at the ''Your Money" section of boston.com/business, or call 617-929-2916 and ask for an application.
