Smart Moves

All across the nation, baby boomers age 60 and above are grappling with a thorny choice: should they renovate the family home or sell and downsize?

Downsizing sounds like the obvious choice because it frees the homeowners from the ordeal of renovating to make their property suitable for aging in place.

But aging in place also its advantages, says Jorie Johnson, a certified financial planner who heads her own company. For instance, it could allow owners to remain in a community where they have established relationships.

Johnson, a fee-only planner affiliated with the National Association of Personal Financial Advisors (napfa.org), tells the true story of a couple of retired clients who sold their family home and moved to a retirement community a 40-minute drive from their old neighborhood, where their grown children live.

“They thought the drive wouldn’t be a problem. But it proved a major impediment to seeing the children and grandkids,” Johnson recalls.

Johnson says a cash-out refinance could be the best choice for someone who’s willing to renovate to remain in the same neighborhood.

“The big upside for a lot of people is the ability to stay in your same community,” she says.

Here are a few pointers for homeowners seeking to renovate through a cash-out refinance:

-- Recognize that good credit still rules for lenders.

Though mortgage money for most borrowers is still available at very favorable rates, most lenders continue to adhere to stringent standards.

“Expect to jump through more credit hoops than you did when you first bought your house years ago,” says Keith Gumbinger, a vice president at HSH Associates (hsh.com), which tracks mortgage rates throughout the country.

Borrowers are still asked to explain blemishes on their credit reports, correcting flaws and inaccuracies when possible. Even seemingly minor dings, like an unpaid $179.01 balance on your cell phone bill, could hinder the processing of your loan.

Prudent borrowers closely examine their credit reports before applying for a home loan, Gumbinger says. Under federal law, each year you’re entitled to one free credit report from each of the three largest credit bureaus: Equifax, Experían, and TransUnion. Just go to this website: annualcreditreport.com.

In addition, you’ll want to access your “credit scores.” Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person’s credit risk. Most lenders still use FICO scores, pioneered by the Fair Isaac Corp.

Usually, you need to pay a fee to obtain your credit scores. One approach is to buy these through the Fair Isaac website: myfico.com. You can also receive credit scores through the three large credit bureaus. FICO scores range from 300 to 850.

“Now as much as ever, people with low FICO scores are punished and may have trouble getting a mortgage at any interest rate. But people in the 700s and above are rewarded with the best rates available in the market,” Gumbinger says.

Those who inform themselves on their credit history are better prepared to slide rather than stumble through the process of applying for a mortgage, he says.

-- Do lots of comparison shopping on rates and service.

One irony of the current mortgage market is that lenders are as eager as ever to make loans, even though their guidelines remain tight by historical standards.

“Because the volume of mortgage refinance is relatively low now, lenders are eager to do business,” says Mike Hummel, a mortgage broker in the business since 1997.

He urges those seeking to refinance to shop around, steering clear of lenders who might overcharge them. To do so, he recommends that all borrowers carefully scrutinize a lender’s estimate of fees and charges before committing to do business with that firm.

In this credit-conscious period, Hummel says those with high FICO scores -- ideally over 740 -- may be able to use their good scores as a bargaining chip for a slightly better rate, or reduced loan fees.

-- Try to reduce your debt burden before refinancing.

Does your household have multiple credit cards and more debt than you’d like? If so, remember that big minimum monthly payments on your plastic can limit your capacity to take out as big a mortgage as you’d like when you refinance.

Along with your FICO score, another key qualifier is your “debt-to-income ratio.” If you face high minimum payments each month, whether on credit cards, car payments or student loans, you may not be able to borrow as much as you want when you refinance.

As Gumbinger observes, one way to lower your monthly debt payouts is to move balances from your highest interest-rate credit cards to your lowest rate one. Alternatively, consider moving high credit card debt to an installment loan made through a credit union.

“Big debts are always a big problem when it comes time to borrow money,” he says.

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

A retired army officer of 84 was thrilled recently with a couple of real estate transactions that allowed him to sell his 1980s era multi-level house for a strong price and then move up to a much newer place loaded with luxury features.

"He sold the old house at lightning speed and -- using all his equity -- bought a bigger, fancier one-level place that spares him the need to climb stairs. He couldn't be happier with the change," says Sid Davis, the real estate broker who represented the man.

The good news for sellers such as the one in this true story is that demand for property, such as the affordable multi-level place owned by the retired army officer, is very strong. But the bad news for those seeking to use the equity they've built up is that they, too, often face rival bidders in their pursuit of a more desirable home.

"Inventories of homes are very tight right now. That's because many owners are sitting tight out of fear they won't be able to find an available home they like better. There are shortages all the way up the line," says Davis, the author of "A Survival Guide for Buying a Home."

One explanation for the severe housing shortage is that there is relatively little new home construction underway. Meanwhile, many millennials -- those now in their late 20s to 30s -- are coming into their prime home-buying years.

"Inventory has been falling for years with supply no longer meeting demand," says Svenja Gudell, the chief economist for Zillow, the real estate database company (www.zillow.com).

Ron Phipps, a real estate broker and former president of the National Association of Realtors, says many move-up hopefuls are late-marrying couples age 30 to 50 who need more space to house their young children, along with young couples living in condos or apartments who hope to move to a nice suburb and start a family.

But as Phipps points out, few upwardly mobile people are willing to sell their home unless they're confident they can locate a better property. That's why he says it's important to check out the market before letting go of your current place.

Here are a few pointers for prospective move-up buyers:

-- Survey the new home market for potential move-up options.

To be sure, real estate markets are hugely variable. But one generalization seems to apply in many areas: some of the best deals are available in brand-new upscale subdivisions.

"Granted, there's not a tremendous amount of new home construction going on right now. But there are always builders out there who need to unload some houses to cover payments on their bank loans. This is most likely in new subdivisions at the upper end of the price spectrum," Davis says.

-- Look for a place with strong, long-term resale potential.

Many people on the lookout for a move-up property assume their next home will be the last one they ever buy. Yet the majority of homeowners sell sooner than anticipated, often by several years.

No matter how long you stay, you'll want a place that holds its value and eventually appreciates. That's why Phipps says it's smart to look for features that should gain value over time, like those that keep energy bills to a minimum. Look for a home with extra attic insulation, energy-efficient windows and high-efficiency appliances.

He also encourages buyers to consider a property's proximity to public transit and amenities reachable on foot. He suggests looking for open floor plans that will retain their popularity rather than homes that are chopped up into small, self-contained rooms in the common areas.

-- Consider buying an "over-improved" house.

A surge of home improvement work in recent years caused many owners to go to extremes. Drawing on easily available home equity credit lines, some spent lavishly to upgrade their properties. In doing so, many created what real estate specialists call "over-improved" homes, meaning they outstrip neighborhood standards.

For example, some owners added a fourth or fifth bedroom, even though they reside in areas with modest, three-bedroom homes. Or they overhauled their kitchens with expensive custom cabinets made from such woods as zebra or mahogany, though their neighbors have run-of-the-mill cabinets.

When first they venture into the market, the owners of an over-improved home typically strive to recoup every penny they've spent. But after their properties have languished unsold for an extended period, most are humbled into price cuts.

Once the discounts have been taken, over-improved homes are often well priced.

"Sometimes the over-improved house is the best value out there for your money," Phipps says.

But he cautions that move-up buyers should rule out any over-improved home located in an undesirable neighborhood.

"To identify the best possible neighborhood and house to buy, count on expert advice from a strong local real estate firm. There's no substitute for that," Phipps says.

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

A woman in her late 20s -- a graphic artist married to a marketing manager -- struggled through sleepless nights for nearly a week after the couple bought a townhouse in a hip city neighborhood.

Had the couple bought the wrong home? Would the place lose value? Would they fail to meet their mortgage payments and face foreclosure? All these questions plagued her mind in the middle of the night.

It was misery until she talked through the issues with a financial planner and realized that buying the townhouse was indeed a sound decision.

As this true story illustrates, suffering from sleeplessness due to home-buying fears can afflict anyone, says Dorcas Helfant, the co-owner of several realty company offices. With so much at stake, she says it’s not surprising that many buyers second-guess themselves about real estate.

Sid Davis, a longtime real estate broker and author of “A Survival Guide to Selling a Home,” says it’s not uncommon for sellers to suffer from insomnia while their property is on the market.

“Even in a hot neighborhood, where houses are practically flying off the market, some sellers get totally stressed out,” Davis says.

Financial fears, along with health concerns, are leading factors that are highly correlated to insomnia, says Dr. Lawrence Epstein, a physician specializing in sleep at the Harvard Medical School and co-author of “The Harvard Medical School Guide to a Good Night’s Sleep.”

Real estate issues are only one of many explanations for insomnia. Epstein estimates that about 10 percent of American adults experience a chronic sleep problem.

Are you having difficulty sleeping due to a significant real estate issue or for any other reason? If so, these few pointers could help:

-- Realize that medication is a short-term fix at best.

Colleen Carney, co-author of “Quiet Your Mind & Get to Sleep,” has no objection to the short-term use of sleep aids. For example, they could be appropriate for people in the midst of a stressful home-buying transition.

“Medications are a quick and inexpensive fix for people with temporary insomnia due to a stressful situation,” says Carney, a psychologist specializing in sleep.

But Carney cautions that the use of sleep medications for more than two or three months can be counterproductive and could actually hinder the efforts of insomniacs to obtain sounder sleep.

-- Try to take the time to wind down before bedtime.

As Carney says, human beings aren’t programmed to downshift suddenly from an excited or stressful state of mind to the kind of relaxation that’s conducive to sound sleep. For that reason, she recommends that those suffering from insomnia give themselves a “buffer period” before going to bed.

“You need at least an hour to wind down,” says Carney, who’s been involved in sleep research for well over a decade.

During your buffer period, try to avoid work-related activities or discussions which could provoke worry or anxiety. For example, don’t get into a heated conversation with your spouse about which home to buy or how to deal with an unsold property. Instead, limit yourself to quiet activities, such as reading or watching a calming movie.

“Don’t do anything before bed that could over-stimulate you and make it harder for you to produce sound sleep,” Carney says.

-- Track your sleep habits closely.

Sleep experts say the most effective ways to deal with insomnia involve behavioral changes that can’t be accomplished overnight. They require sustained effort over a period of time.

“It’s the bad habits that affect our sleep more than anything else,” Carney says.

Because it can take weeks to reverse sleep habits, insomnia experts recommend use of a sleep log that can be found in many books on the topic of insomnia.

“The idea is to track your sleep habits until you can change them in constructive ways,” Carney says.

One practical guide you can consult is “The Insomnia Workbook” by Stephanie Silberman.

-- Keep electronic devices out of your bedroom if possible.

It’s no secret that electronic devices such as cell phones, tablets and laptops are a primary source of information for those heading into the home purchase or sale. But using them at night for this or any other purpose can be counterproductive to restful sleep, especially for people prone to insomnia, according to Carney.

“Ideally, you’ll sleep in a bedroom without a computer, or at least you’ll shut it down before going to bed,” she says.

Carney and other insomnia specialists say an increasing number of people are hindering their prospects for good sleep by bringing electronic devices -- including laptops and cell phones -- into bed with them.

“You don’t want anything electronic in your bed. It’s also a good idea to avoid watching TV in your bedroom,” she says.

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