'What were we thinking?"

Affordable: Many homeowners are overestimating what they can pay in mortgages, leading to debt, resales and foreclosures.

February 07, 1999|By Adele Evans | Adele Evans,SPECIAL TO THE SUN

Looking back, Shiela Juchs can see that she and her husband Jim overbought when they purchased their Bowleys Quarters home four years ago, though they were both still working. When they had their daughter last year and Shiela decided to stay home, things came to the breaking point.

"We had to really adjust and go down to nothing to afford [our home]," she said. "We adjusted so much. We've gotten rid of cable, we can't call our family long-distance. We've cut corners in every way."

After they made their $1,200 monthly mortgage payment, they had almost nothing left.

"And we didn't even have a car payment," Shiela said. "We'd charge stuff to get by. I bought groceries on credit. It was a pain. It's no fun being house-poor. We want to tithe. We have no emergency fund at all."

Weekly groceries, $1,000 in curtains, other decorating items such as paint, all went onto the credit card. The Juchs also installed a $2,000 security system.

"It's all down the drain," she said.

For Shiela to remain home with her daughter, their only option was to sell the home and start over.

They paid $141,000 plus $10,000 in closing costs and fees, and recently sold it for $148,500. Shiela said they'll lose "a ton of money" that includes a $2,000 cash-back-at-settlement deal to the buyer.

She wonders why they bought in the first place, especially because they knew she would want to stay home with their children.

"What were we thinking?" she said.

Many homeowners are thinking like the Juchs, particularly those between 30 to 50 years old, financial planners say. Eager to get into a first home or move into a dream home, they stretch their budgets and neglect to save for major expenses such as loss of an income, health problems, college funds or retirement.

When something comes up, such as a layoff or baby, they wind up so far in debt that they have to make major sacrifices or lose their homes and good credit ratings.

"I'm seeing more people with financial problems in the last five years today people want things so fast," said Karen Kidwell Storey of Linthicum, a personal financial planner. "There are only two ways to deal with negative cash flow. Lower expenses or increase income."

"Many times they bet on future income increases, but with college costs what they are and retirement, it worries me," said Lyle Benson, a financial planner and accountant. "Is your salary going to go up enough?"

"It takes away from your retirement money. You have nothing but a big home that you owe money on when you're 65," Kidwell Storey said.

There's plenty of reinforcement for buying fever. Unemployment and interest rates are down, and advertising for home financing floods the media. American society has held homeownership in high esteem and a record 66.8 percent of Americans owned their homes in the third quarter of last year, according to the Department of Housing and Urban Development.

"They want immediate gratification -- with their houses, too. They want it now. Then they suffocate. It's getting worse, not better. They feel like they can be in debt forever. The mind-set is that it's OK to be far in debt," Kidwell Storey said.

Some say it's not just a matter of haste, but that people feel a house is the best investment they can make -- because they can enjoy living in their investment as it appreciates and gives them tax breaks.

"It's like what type of investment you make, stock or bonds, vs. money market funds," said Marc Witman, president of the Greater Baltimore Board of Realtors and an associate broker at Long and Foster Real Estate Inc.

"There's a lot of reasons to buy the most house you can. I don't want people spending money they don't have, but sometimes it's better to stretch and avoid the double move and all the costs that come with it," Witman said.

There's another perspective, according to Witman. Is it the house that's causing the budget problem, or the country club, the private school, the furniture or the credit-card bills? Are they really "house rich and credit poor?"

"We wanted a big house. When we bought it, we had no furniture for a year and a half," Kidwell Storey said. "We could afford the house, but we waited for the rest. People don't do it now."

The Consumer Credit Counseling Service of Maryland and Delaware is a federally approved, nonprofit agency that helps about 20,000 people a year with debt problems. Nationally, there are 1,300 offices. Linus Campbell, director of education for the Maryland-Delaware CCCS, said his average client is 39 years old, earns $30,000 to $32,000 but carries $28,000 to $34,000 of debt each year. That doesn't include car loans or a mortgage.

"This person has this much debt, plus fixed expenses and they're in a mortgage, too," Campbell said. "If you fall into this profile, even with four or five debts, there's a serious stress factor."

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