Smart Moves

Do you find yourself in the position of having to buy a house and a car at the same time, due to a major life change?

If so, to avoid overspending, you'll want to make the most prudent and cost-saving choices on your car purchase. That way you'll maximize your chances of obtaining the best possible home, according Sid Davis, a real estate broker and author of "A Survival Guide for Buying a Home."

"Nowadays, those who make a strategic home purchase in a strong neighborhood can, at the minimum, expect that the property won't go down in value. And over time, it could appreciate. However, a car isn't an investment because it's bound to depreciate," Davis says.

Should homebuyers who are also buying a car choose a new vehicle or a used one? If possible, should they try to pay cash for the car or finance it? How can they determine the best choice in terms of safety, reliability and fuel economy?

"Remember, if you buy a very expensive car with a big car loan, that could negatively impact your chances to buy the home you want or to get a mortgage. Lenders hate seeing a huge car loan popping up on a borrower's credit report," Davis says.

Ideally, homebuyers who also need a car should buy an inexpensive one and pay cash -- assuming they have sufficient savings to do so, he says.

Here are a few tips for wannabe homebuyers who also need a vehicle:

-- Look for a great deal on a late model used car.

The very idea of buying a used car makes many people nervous. After all, it can be risky to purchase one without the assurances that come with a new vehicle. But if you do your research, over time the savings from buying used can be significant, says Jeff Bartlett, deputy editor for autos at Consumer Reports magazine.

"The greatest depreciation for a brand-new car comes in the first three years -- when new cars typically lose 35 to 50 percent of their value," Bartlett says.

-- Research the reliability ratings for the vehicles you're considering.

Drawing on reader surveys, Consumer Reports publishes annual data on the reliability of numerous used car models. The Used Car Buying Guide is available in either the print edition or online at www.consumerreports.org.

"We believe in making reliability a major factor when you buy a car," Bartlett says.

For those in the throes of buying a home and a car simultaneously, it can be tempting to consider only immediate needs. But Bartlett urges you to think longer-term and consider upkeep and repair costs, as well as fuel economy.

For information on fuel economy ratings, go to the website of the U.S. Environmental Protection Agency: www.fueleconomy.gov.

-- Get a clear sense for used car prices before you shop.

Bartlett says all used car purchasers should thoroughly research values before heading out to look at cars. That way you stand a better chance of avoiding an above-market price.

One widely recommended source on car values is AutoTrader.com, a website for consumers seeking to buy or sell vehicles (www.autotrader.com). Another source to consider is Edmunds, which provides extensive car pricing data, along with vehicle reviews (www.edmunds.com).

-- Shop for cars with a businesslike attitude.

Eric Cluskey, a former car dealer and author of the "Step-by-Step Guide to Buying a Used Car," says those shopping for a used vehicle are in a stronger bargaining position if they maintain emotional neutrality.

"Once the dealers know you're in love with a given car, you lose your edge in negotiations. Dealers hate it when you hide your emotions, but that's what you've got to do to get the best price," Cluskey says.

-- Have any used car you're considering checked out by a mechanic.

"Your best secret weapon is hiring an independent mechanic," Bartlett says.

Many dealers will allow you to take a used vehicle off the lot to a service station to have it assessed. But you might also choose to pay a mechanic to check out the car on the dealer's lot.

Consumers are increasingly turning to independent car inspection services that will go to any location, including a dealer's lot, says Andrew Dabbs, the founder of one such service called Lemon Squad (www.lemonsquad.com).

"The advantage of our type of service is we don't care whether you buy the car. Unlike your neighborhood service station, we don't have any repairs to sell you," Dabbs says.

Besides the Lemon Squad, two other companies in the car inspection field include: Aim Mobile Inspections (www.aimmobileinspections.com), and Car Chex (www.carchex.com).

Before hiring any car inspection service, consumer advocates advise you to search for possible complaints about the company through your local government consumer protection office or the Better Business Bureau (www.bbb.org).

-- Shop for safety as well as price and reliability.

Obviously, all used car buyers should make safety a top consideration. Bartlett recommends you pick a vehicle new enough to have state-of-the-art safety gear, including front and side air bags, as well as electronic stability control. ESC is an especially important feature on sport utility vehicles.

You should also look at comparative crash test ratings available through the National Highway Traffic Safety Administration (www.safercar.gov) and the Insurance Institute for Highway Safety (www.iihs.org).

-- Give more thought to home buying than car buying.

Clearly, no one should buy a car -- new or used --without a substantial amount of research. But Davis, the real estate broker, says those buying both a car and a home simultaneously should realize they'll need to pay more attention to the real estate.

"Remember, a car is a commodity. At any one time, for example, there are probably a few thousand 2010 Ford Explorers for sale in your region. But every home is unique in terms of features, condition and location within a neighborhood. So in the long run you'll find that every additional hour you spend will likely prove more rewarding," he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Many 20-somethings are understandably fearful about buying a home. After all, everyone seems to know someone who's had a house taken away through foreclosure. Yet despite that scary image, many young adults remain highly motivated to acquire properties of their own.

"As Americans, the desire for homeownership is practically written into our DNA. A house still represents a badge of success -- the trophy you get when you finally grow up," says Jim Blankenship, a veteran financial planner who's advised numerous young clients on their real estate plans.

At a time when mortgage rates are low and home prices are affordable, he says, an increasing number of young people are doing the math and are seeing homeownership as a viable alternative to renting. The steadily rising rents in many metropolitan areas add to their motivation.

"If you plan to stay in the same place for five to seven years, this could be a really good time to buy," says Blankenship, who's affiliated with the Garrett Planning Network, which represents fee-only planners throughout the country (www.garrettplanning.com).

However, as he notes, many young, wannabe homebuyers face financial hurdles. Student debt combined with stringent mortgage standards represent serious barriers that must be overcome. Thus, many 20-somethings must reposition their financial lives to reach homeownership.

"To afford a home and qualify for a mortgage, sacrifice is often necessary," Blankenship says.

Is homeownership your top financial priority? If so, you may wish to consider taking one or more of these steps:

-- Reduce your debts by generating extra income.

As the Federal Reserve reported recently, total consumer debt in America declined slightly in recent months. But student loan debt continues to soar, and now tops $900 billion.

For anyone seeking to make financial progress, cutting debt -- including credit card balances -- is an absolute must.

Unfortunately, many 20-somethings make only enough money to meet their current living costs. They're limited in their capacity to pay off debt or generate savings for a down payment. Given this reality, Blankenship recommends that young people consider augmenting their income.

"Think about taking a second job. Or try to get overtime at your regular job, assuming overtime is available," he says.

He urges clients who've accumulated too much debt to think positively about changing their financial habits rather than dwell on how they ran up so much debt in the past.

-- Give up plans for a big wedding in favor of money for a home.

Kristin Meador, a real estate broker who often works with young buyers, wrote a book designed to help clients save substantial amounts on their wedding costs. It's called "How to Have a Wedding Without Spending a Dime: Or at Least Very Little."

The book grew out of money-saving strategies Meador developed while helping relatives and friends stage their weddings. It provides pointers on how to cut costs for a range of wedding-related expenses -- from invitations to rings to the reception and honeymoon.

"When you're trying to save for a house, it makes no sense to spend $500 or more for a wedding dress," Meador says.

Her book itemizes a number of ways to hold an inexpensive yet tasteful wedding, including having the reception at a lovely local park or community center rather than a swank hotel.

"Buying a home has long-term benefits that last far beyond your wedding day," Meador says.

The expense of an average wedding now tops $25,000 --funds Meador believes would be better spent on a home, assuming the property is carefully selected.

"A lot of parents with money to help their grown kids would rather their funds go toward a home than a fancy wedding," she says.

-- Cut discretionary expenses.

Most 20-somethings who live in rental units are very sensitive to their monthly housing costs. But they're typically less aware of how much money they're spending to eat out at restaurants and on social activities, Blankenship says.

Young professionals may also spend what he calls "shocking sums" on clothes, as well as entertainment. He recommends that would-be homebuyers comb through a recent month's worth of spending to realize where they could cut back.

"I recommend you look closely at your cable bills to see if you really need all those movie channels. Also, look at that fitness club membership you never use and consider taking bag lunches to work," Blankenship says.

-- Sell a car and watch your savings grow.

A new or nearly new car is often the first major purchase for many young adults. And usually the purchase is financed with a hefty loan. But mortgage lenders often frown at the sight of a prospective homebuyer driving up in a late-model vehicle.

"Lenders know that a couple who's financing one or more cars will likely find it tougher to qualify for a home loan," Blankenship says.

Even if you drive an older vehicle and have no car loan, chances are you're paying a substantial amount for car insurance and repairs, not to mention gas.

Blankenship says it's a wise idea for young couples bent on homeownership to ponder the idea of selling one vehicle. Consider public transportation or carpooling as an alternative to commuting alone.

-- Don't rule out a temporary arrangement to share housing.

Moving in with family members for a year or so could help you cut living costs dramatically and save for a down payment.

Beyond family arrangements, another way to find a similar money-saving housing swap is to go through a co-housing service. You can locate such a service in your area through the National Shared Housing Resource Center (www.nationalsharedhousing.org).

Meador says she's worked with many young buyers who've built up substantial savings for a down payment through a housing-for-services swap.

"Shared housing was the ticket that ultimately let them reach the dream of owning their own place," she says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Despite exceedingly low mortgage rates and more affordable property prices, some families seeking to buy a first home must scale back their expectations. That's because their household income has also declined due to lower salaries or reduced overtime at work.

"Nearly all homebuyers must make tradeoffs. But this is especially true for folks who need to stay within a tight budget due to economic conditions," says Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents (www.naeba.org).

He tells the true story of a cash-tight couple he recently helped to find a home. They wanted to live near the university where the wife -- who'd lost her higher-paid position at another college -- had just been offered a job teaching English. The husband worked from home as an IT specialist.

At the top of their original wish list, the couple cited their desire for a yard with at least half an acre of land where the man could plant a large vegetable garden. Plus they hoped for a spacious kitchen with granite countertops and solid maple cabinetry.

Early in their search, they fell in love with an English cottage with a dream kitchen that opened onto a screened porch. But the yard was only an eighth of an acre.

"They were really torn. For more than two weeks they debated whether to buy that cottage with the tiny yard. It took many conversations and visits back to the house before they decided to go for it," Ottwein says.

Sometimes buyers come to regret the trade-offs they made to get what they want for a lower price.

For example, some purchasers make the mistake of accepting a grueling commute from a distant suburb in exchange for the chance to own a much larger property than they could otherwise afford.

"From time to time we hear from buyers that they don't care how far they have to commute to get that huge house with every single feature on their wish list. Then they call us back a year or two later to complain that the long drive isn't worth it," Ottwein says.

"Any commute that takes more than 50 minutes is punishingly long," he says.

He urges homebuyers to think through their lifestyle preferences before narrowing the scope of their property search.

"At almost every phase of the property search you're confronted with trade-offs. Very few people get everything they want in a house," Ottwein says.

Here are a few pointers for homebuyers:

-- Consider your feelings about your current living quarters.

"First write down what you like and don't like about your present home. Then list all the features you absolutely must have, would like to have, or are willing to forgo in the new house," Ottwein says.

Suppose the townhouse where you now live has you feeling cramped because it lacks side windows. That could tell you that buying a detached house with large windows would be more important to you than a townhouse with extra living space.

"People with a strict cost ceiling should be doubly mindful about what's critical for them versus what they're willing to give up," Ottwein says.

-- Select features early when buying a brand-new home.

Those buying in a new subdivision face lots of trade-offs before the sales contract is even written.

"Most builders give you a lump sum allowance for all the basic options -- everything from kitchen cabinets to lighting fixtures, appliances and landscaping choices. Usually anything else you select costs extra," Ottwein says.

It's important to make as many selections as possible before you sign the builder's contract. For instance, if you want a sunroom, bargain for that additional feature to be included in the original contract.

"After your sales contract is signed, you lose your leverage with the builder. Because he knows you've already agreed to buy the house, anything you purchase later will cost a lot more," Ottwein says.

-- Don't trade off a fixed-rate mortgage to get more home for the money.

Keith Gumbinger, a vice president at HSH Associates (www.hsh.com), which tracks mortgage markets throughout the country, says some homebuyers are still drawn to adjustable-rate mortgages.

It's true that at the front end the monthly payment on one of these loans is lower than on a traditional fixed-rate mortgage for the same amount. But Gumbinger says the savings you enjoy during the early years are likely to be more than wiped out over the term of the loan.

"The always-present downside of taking an ARM is that interest rates will undoubtedly rise at some point in the future," says Gumbinger, noting that nearly all variable rate loans have at least one automatic upward adjustment built in during the early years of the term.

Moreover, taking an ARM now could mean years of discomfort not knowing if your rate will rise or fall.

"For the vast majority of buyers, knowing your rate can't double while you're still living in the house is comforting. They sleep better at night," Gumbinger says.

Some purchasers, particularly those who think they will move again soon, are drawn to what's known as a "hybrid ARM," which is typically guaranteed to stay level for a minimum of the first five years before it's subject to adjustments. Gumbinger thinks such a move risky, given the vicissitudes of life

"You need to have a lot of confidence that you'll definitely have a short tenure in the house to warrant taking an ARM of any kind," Gumbinger says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)