- The Washington Times - Friday, July 17, 2009

Q. My husband is retiring from the military in one year, and we plan on moving to South Carolina. We recently returned from a house hunting trip. We found a house that we really love and would hate to lose it.

I spoke with my mortgage broker, who helped us put together a financing plan that would allow us to buy this property now. We are taking out a home-equity line of credit on our current residence in Arlington for a 30 percent down payment and taking out a fixed-rate loan against the new home for the balance. While our payments will be high, our broker got us approved for an excellent rate. Once we move, we will sell our Virginia home.

My husband thinks it is a great time to get a good price on the house and that prices will be higher in a year. I’m wondering whether we are making a bad decision based on emotions. We looked at dozens of homes, and nothing comes close to this one. We are afraid that if we don’t act now, we will not find another home we like as much.

Are we taking an unnecessary risk?

A. I don’t know the details of your situation, but it appears to me that you are not putting yourself in a bad situation. Purchasing a home is, indeed, emotional, so I often suggest that the purchasers take a step back and examine the transaction broadly and objectively. Let’s do this now.

The fact that your mortgage broker approved you for financing the new house by taking out a fixed-rate and an equity loan tells me that you have sufficient income to cover all the additional debt. While you may be overextended for your own personal comfort level, your broker would not have been able to approve the financing plan unless your current income can support the debt.

You indicate that you will sell your Arlington home once your husband retires. Once the property is sold, your debt level will plummet, so your situation is temporary.

The inherent risk in this plan is the possibility that you are unable to sell your home in Arlington once you move. While my experience tells me that Arlington remains largely insulated from the market downturn, it would be a good idea to consult with a local and experienced real estate agent and get an opinion on what the demand for housing might be like in your neighborhood in a year’s time.

Also, in the event you do not sell your home right away, consider the affordability of your debt after your husband retires. How much will his income drop?

You didn’t mention how much equity remains in your home after you tap into the home-equity line of credit (HELOC), but my guess is that it is at least 20 percent. Most lenders require 20 percent equity in order to issue a HELOC. This means that your debt in the house is not likely to exceed your property’s value.

Having said that, let’s examine the wisdom of purchasing this home a year before you move. Your husband may be exactly correct. The market may be turning, and now might be a great time to buy the South Carolina house. On the other hand, he could be dead wrong. The housing market may have a way to go before a clear recovery.

Remember that buying this property a year ahead of your scheduled move means that your acquisition costs will be higher. Servicing the mortgage, paying the taxes and covering the maintenance costs will be expensive. Whether the property’s value will rise to offset these costs remains to be seen.

Since buying a property early doesn’t result in an unacceptable financial position, I see no reason why you can’t search for a property until you have found the one you really want. Once that happens, go ahead and buy it. If the property described herein happens to be that property, so be it.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at [email protected]

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