Duffonomics: It’s Go Time (If You Are Ready)

Playboy is a high-profile publication; we are all aware of this fact. But it’s really hit home for me lately. I have suddenly been thrust into a very interesting position with newfound celebrity as Playboy’s financial columnist. Instead of people coming up to me and saying the usual, “Hey dooood, I saw you play Madison Square Garden in ’93—I was sooo stoned!” it is now suddenly, “Duff, I have some extra cash in the bank, what should I do with it?” or some such financial inquiry.

First off, I am going to do my best to shoot straight in this column while also keeping financial jargon to a minimum. I am qualified to write this column if only for the simple fact that I too am sick and tired of trying to figure out what the hell is going on right now in our economy. This column is a place for you and I to go back to square one and rebuild our financial confidence through knowledge.

Someone e-mailed me with timely question: Is now a good time to buy a house? In the case of this particular e-mailer, this would be a first ever foray into potential home ownership. Luckily for me, I have the go-to guy for just this question. My best friend has been buying and selling real estate in the Seattle area for the last 22 years and was more than happy to field a few inquiries from me. Here’s what I learned:

A lot of you may be sitting on a chunk of cash wondering how to time this real estate market. Markets around the country vary widely, of course, but they are all most assuredly down from the highs that we witnessed recently. How much lower will they go? No one knows for sure, but I have discovered a few factors that may help in your decision-making.

This recession will certainly not last forever and the drop in home prices will have to plateau at some point. Meanwhile, interest rates have sunken in the hopes of stimulating this economy. If you are waiting for that $300K home to perhaps reduce its price by another $5K to $15K by late summer, you’d better just hope that interest rates don’t go up in the meantime. If interest rates go up by just half a percentage point, you could end up paying 10 to 20 times the money you may have saved waiting for the “perfect” price of your home. Now, interest rates could drop further, but certainly not by much. If you are looking to get into your first home, now just may be the perfect time factoring in the massive amount of inventory out there, the “fire sale” prices and, most importantly, these low interest rates. Interest rates are what will kill you over the length of a loan.

Let’s talk about your credit score for a second. If it is below 640, forget buying for now. Rent. If it is above 720 and you have verifiable income (verified by the bank), you are golden and should qualify for the lowest-fee loans. Most of us however, have a credit score somewhere between 640 and 720 and will end up paying higher fees on a loan. Expect an additional half to two-and-a-half percent, depending on where your score sits within this range. There are things that you can do to better your credit score, such as paying off your credit cards. (Do keep the credit card, though, and make small purchases that you can pay off at the end of the month, thus building good credit). Also, pay all of your bills on time! A reported delinquent bill (to some creditors that can mean just 30 days late) will take three years to clear. There are some great non-profit organizations that will help with advice on your credit woes. Simply Google “credit counseling” and you should find something that suits your particular malady.

Federal guidelines are again being followed by loan underwriters (banks and other loan institutions) as to what percentage of your monthly income is recommended for a mortgage payment. Full documentation of workplace and income is now again being required. (Yes, they were giving loans to people without a stated or proven income before this “credit crunch.”) Just so you are aware, The Man (Fannie Mae) looks for your mortgage payment to represent 30 percent or less of your monthly income.

Once you have gotten yourself into a new home, just remember this: A house is your home and not your bank! This is where a lot of us have headed in the past. A bunch of us will buy a 300K house and start to think it is somehow wise to take out a second loan against your house so that you can buy flat-screens, Gucci, jet-skis, and hookers and cocaine to fill out this new lush pad. Three words: Bad fuckin’ idea.

Until next week fellow voyagers—breath deep and look at pictures of naked chicks!