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| The Basics | How should I pay for home repairs?
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A homeowner faced with hefty home repairs asks Liz Pulliam Weston whether it's wise to apply for a loan. Plus: Questions about credit scores and adult children living at home.
By Liz Pulliam Weston
Dear Liz:
I've owned my home for seven years and now need to have brick work done on the sidewalk, front steps and driveway. Does it make sense to apply for a loan for these repairs?
Answer: Repairs and maintenance are part of the routine costs of owning a home. Such expenses ideally should be paid out of your current income. Eric Tyson, coauthor of "Home Buying for Dummies," recommends that homeowners put aside an amount equal to at least 1% of the value of their homes to cover such costs each year. Some years you'll spend less, but other years you'll spend more, and it can be handy to have some cash saved up for bigger repairs.
If you don't have the cash but need to make the repairs to preserve the value or safety of your home, then a home-equity loan or line of credit can be a good alternative. The interest rates on home-equity borrowing tend to be low, and your interest payments may be tax-deductible.
Home-equity loans typically have fixed rates and give you five to 15 years to repay. Home-equity lines of credit usually have variable rates and a 10-year period during which you make only interest payments, followed by a 10- or 15-year period during which you must pay off the debt.
When you're using home equity for repairs, though, you should try to pay off the loan as quickly as possible. Unlike home improvements, repairs don't add much value to your home, so it doesn't make sense to stretch out the repayment.
Dear Liz:
I recently applied for a secured credit card through my bank because I have almost no credit and one bad mark from an unpaid utility bill while in college. In the past, you've advised people not to use more than 30% of a credit card's limit to avoid hurting your credit score. But my bank advised me to max out my card every month and then pay it on time and in full, saying this activity over the course of several months will boost my credit score. Do you agree?
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Answer: One of the unfortunate but persistent problems with credit scoring is the sheer volume of bad advice that consumers are still getting from sources who should know better.
It's never a good idea to max out a credit card, particularly if you have a thin or troubled credit history. At least your bank didn't advise you to carry a balance, which would profit it without affecting your credit score. (For more, read "How to read your credit score," and "7 fast fixes for your credit score.")
Dear Liz:
I didn't think your advice was very good to the parent who asked about retirement planning for a 25-year-old son who was living at home. You got on your high horse about how the parent should charge him rent because he has to learn responsibility sometime.
I took the opposite approach with my kids and told them they were welcome to stay with me as long as they liked, provided they were saving money for a down payment on a house. I also advised them to put 20% of their incomes into retirement accounts because it's important to start saving when you're young and not saddled with expenses. Once they saved up their down payments, they moved out and bought their own houses. It really didn't cost me anything to have them live with me, and I got to spend more time with them, which is important too. Too many other old folks complain that their grown kids never visit, but I wonder whether they ever did any favors for their kids when they were younger.
Answer: A parent's freehandedness about money doesn't necessarily ensure gratitude, but your approach is certainly reasonable. You set clear financial terms for your adult children, and they rose to the occasion. Yet another approach might be charging rent, then returning the payments as a gift toward the child's down payment on a first home.
What you don't want to have is an adult child who's not paying rent, not saving for the future and spending his money on whatever he pleases. That kind of prolonged adolescence does no one good. (For more on financial issues related to adult children, read "Should parents bail out their adult kids?")
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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