Buying home is tough but possible for single mom by MikeJenny


									                                                                              The Subject
                                                                                 Beth Moore, 34
                                                                                 Occupation: 911 dispatcher
Monday, May 3, 2004                                                              Her objective: To buy a
                                                                              house, save for retirement and
                                                                              plan for her three daughters'
                                                                              The Expert
                                                                                 Keith Southwick
                                                                                 Keith Southwick is a certified
                                                                              financial planner and owner of
                                                                              StraitGate Financial LLC in
                                                                                 His advice: If Moore must
                                                                              buy a home before she saves
                                                                              more cash, she should structure
                                                                              her mortgage to avoid private
                                                                              mortgage insurance. She'll be
                                                                              able to cover expenses but
                                            Brandy Baker / The Detroit News
                                                                              should look for ways to boost
                                                                              her income in the coming years.
Beth Moore, right, helps daughters Zoe, left, and Helen do                    Get a Free Financial
homework in Moore's mother's Livonia home. Moore is                           Checkup
working toward buying her own house and saving for her three                      The Detroit News is
daughters' education.
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By Melissa Preddy / The Detroit News
                                                                              Detroit News, 615 W. Lafayette
      e h oe i ’epchri ’ ore t i u a
    B t Mord ntxet e le junyo nl e    fs              cd                      Blvd., Detroit, MI 48226. Please
stretch as a single working mom.                                              include a brief summary of your
    But for the past three years, the divorced mother of three                money questions and goals.
young daughters has made the best of what fate dished out.                     Comment on this story
  hnso e pr t ii eso hr h r i i
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T ak t hr a nswlnns t sa t iLvn             e e      oa                        Send this story to a friend
home, Moore has paid off debt that lingered from her                           Get Home Delivery
marriage, purchased a new van and landed a secure job as a
911 dispatcher in Ann Arbor.
    Next on the list: a house of their own for Moore and daughters Zoe, 10, Helen, 7, and Lily, 4.
    With an eye to home ownership, Moore has saved up more than $11,000 in a credit union account. She
 also took advantage of an Individual Development Account program, which uses grant money to provide
 cash matches to people who earn less than 200 percent of the federal poverty income guidelines.
    The IDA loans, which are administered though social service agencies, are available to those saving for
 a home purchase, higher education or to start a small business.
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$8,820 annually in child support, will be stretched thin if she takes on the expenses of a house.
   In fact, Southwick says, when the child support starts expiring in 2012, Moore will actually be
operating in a deficit.
   Has she considered renting a single-family dwelling? Southwick asked.
   Yes, but the cost of renting actually runs a couple hundred dollars more each month in Livonia than her
anticipated $800 house payment, Moore said. She really wants to stay in that city, where the kids are in
school and near their grandparents, who provide free baby-sitting services. Any savings realized by
moving to a lower-cost suburb would be eaten up by child care costs.
   Another factor: the IDA funds must be used by next March or Moore will lose the $4,000 match.
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reserves. He wants her to earmark $6,500 — roughly three months of current expenses — as a rainy-day
fund. If she does get into a house, higher costs would dictate that the emergency fund be raised to at least
   Setting aside the $6,500 now will leave Moore with roughly $10,500 for a down payment on a house in
the $115,000 range.
   By putting down less than 20 percent of the purchase price, Moore will be socked with the extra cost of
private mortgage insurance, which protects the lender in case the borrower defaults. Known as PMI, this
usually adds $50 or more to a monthly payment.
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        e         ,           d       e e ay w
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   We, ot i si “ a cr i y o r o m ni t to not buy a home. The key thing is
 o a n h e nwn o hv ot n.
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   For example, the planner said, sometimes a lower-cost variable rate mortgage is the best choice for
people who plan to hold a property for less than five years.
   Since Moore hopes to settle down for longer, Southwick suggested that she look into an 80-10-10
structure for her mortgage. That calls for a 10 percent down payment, a conventional mortgage for 80
percent of the purchase price and a home equity loan or second mortgage for the remaining 10 percent.
   This strategy will eliminate the need for PMI. And while the interest rate on the home equity loan will
be higher than on a regular mortgage, it will be tax-deductible, unlike PMI payments.
   Should Moore buy a $115,000 house with a $10,000 down payment, Southwick figures the monthly
charges for the 80-10-10 route will be $888, compared with $938 if Moore opted for a conventional
mortgage and PMI.
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expenses through 2012. But taking into account rising expenses and the toll of inflation, she will need to
figure a way to supplement her income by $15,000 a year by that point. Without it, Moore will start
running in the red by about $4,000 per year; with it she can augment retirement savings and make progress
toward other goals.
   As for securing her own old age, Moore is eligible for a 457 account — a tax-deferred retirement
account similar to a 401(k) — to which she currently is contributing about 5 percent of her gross pay.
Another 5 percent goes to an employer-funded pension program.
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   Mor i ’sr o t t m of the pension, which Southwick urged her to review as soon as possible
so she can determine whether to continue those contributions or add more to her 457 account.
   Going by a standard formula, and assuming that Moore stays at her current job until 2030, Southwick
figures the pension would pay out around $11,000 a year. When Moore starts collecting Social Security in
2032, it will provide about $17,000 annually. By drawing on her 457 for another $15,000 a year, Moore
will have about $45,000 to live on at age 62.
   This is much less than the $60,000 Southwick figures she will need to maintain her standard of living,
and it assumes that she boosts her income by the $15,000 a year he suggested earlier.
   While allowing that Moore is quite young and any of these variables could change dramatically by the
time she nears retirement age, Southwick urges her to give top priority to her own security.
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   Fortunately, grandparents and great-grandparents have already contributed some college funds for the
children. And Southwick encouraged Moore to look into cost-cutting options, such as having her
daughters complete their first two years of higher education at a local community college.
   Other recommendations:
     Mor s o n
   * oe dw -payment and emergency cash is earning only 0.4 percent interest in a credit union
                                       et nf i itI G i c a v tabn” ces v ne e
                                           a en                    e, r
account. To reap more income, considrr s r gto N Dr t “iulak acs d iIt nt                     e a r
or toll-free phone number which currently is paying 2 percent on its Orange Savings Accounts.
   * When she does buy a house, she should try to get on a bimonthly payment plan, which cuts interest
paid over the long haul by whittling down the principal balance faster. Beware of fees and set-up costs,
Southwick said, and make sure the money is applied promptly to the loan or the advantages of paying
more often will be moot.
   * Comparison-shop every year for everything from telephone service to auto insurance. The time spent
in calling for updated quotes and taking advantage of special offers can pay off by keeping the
 i li a r p abyS u wc a
  n ao y e
“ f t nr c e” t a, ot i si.      h k d
   * With three dependents, Moore really needs disability insurance to augment the 24 months of coverage
she gets through her job. Find out if more coverage is available via payroll deduction, Southwick said,
keeping in mind that while the cost of group disability insurance is usually lower, the benefits tend to be
capped at 60 percent of pay.
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cash investments automatically, saving the investor the chore of diversifying the account. Unless Moore
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                                                    e ng                       l      e       e             ”

                                                                       Brandy Baker / The Detroit News

                         Beth Moore looks over daughter Helen's homework as she
                         talks on the phone. Financial planner Keith Southwick lauds
                         Moore's efforts to save money for a home.

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