Tag Archives: American Dream

New Home Construction – The American Dream or The American Nightmare?

Buying a new home is suppose to be the American Dream. Unfortunately, for many buyers of newly constructed homes it becomes the American Nightmare. Hiring a qualified third party home inspector can increase you chance of a hassle free home.

One only has to visit sites like Homeowners Against Deficient Dwellings (HADD)- http://www.hadd.com or Homeowners for Better Buildings (HOBB) – http://www.hobb.org to see how widespread shoddy construction is in the industry.

No area of the country is free from shoddy construction.

In my job as a Professional Home Inspector I talk to hundreds of people each year about new home construction. It still amazes me that many believe the city inspector will find every item wrong with a home. Nothing could be further from the truth!

A city inspector inspects for code violations. The building codes are the MINIMUM standards that a home should be built to. City code inspectors only inspect for safety and health issues as they relate to building. City inspectors do not inspect for the quality of workmanship! City building inspectors also have no liability. If your home falls down and hurts you the day after you move in, you can not go back and sue the building inspector because he missed code violations.

In Houston, the area I inspect in, the city building inspectors spend about 10 to 30 minutes in a home inspecting it. At the end of their “Inspection”, they will then place a green or orange 3×5 sticker at the front of the home. The Green sticker says you passed, the orange or red sticker says the home failed.

There is no way that a city building inspector can note all the discrepancies on a home on a 3×5 sticker!

The new trend is for builders to advertise that their homes have been inspected by a “Third Party Inspection Company.” This is like listening to a used car salesman say he had his mechanic check your used car out before you bought it.

If the company the builder hires becomes a nuisance by continuing to find problems, then a new company will be found who can inspect the homes the way the builder likes.

Wise and prudent home buyers will research their builder before deciding on one to go with.

They will also start doing their research on finding their own third party home inspector to inspect the home as it is being built.

What are some things you should look for in a home inspector?

To start with, not all home inspectors are created equal. Look for a home inspector that is a member of the American Society of Home Inspectors (ASHI) – http://www.ashi.org. ASHI is the nations oldest and largest home inspection organization. They have strict membership requirements in place and not any ole inspector will be accepted.

Next, make sure the inspector you choose is Code Certified. Many areas of the country have now adopted the International Residential Code (IRC) as the model building code. Check with your local municipality to determine which model code they enforce and adjust your search likewise. You can find a Code Certified IRC Inspector by going to http://www.iccsafe.org.

Ask the inspectors on your narrowed down list for sample inspection reports. You’re looking for a home inspector who writes narrative type reports and who will include code numbers or the code itself when he finds them. I’d avoid inspectors who say they use an onsite “checklist” type of report.

Call or meet the inspector. You’re looking for someone who is knowledgeable and who can communicate well. If you talk to an inspector and have trouble understanding what he’s saying, it’s likely his report will be hard to understand as well.

Ask for references. Have the inspector send you several references and follow through checking them out.

Ask questions. Ask your inspector if he/she will come back out and re-inspect after the builder says all the repairs have been made. Some will, some won’t. Expect to have to pay for a re-inspection. Ask the inspector if he will communicate with the builder after the inspection if the builder has questions. Good inspectors will take the time to go over the report via phone or in person with the builder to ensure that all needed repairs are made.

As a home buying consumer, it’s your responsibility to ensure your home is built correctly. Not the builder, not the State, County or City. Hiring a qualified and reputable home inspector will go a long ways in helping you obtain a problem free home.

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Intending to Buy a Home with Hopes to Upgrade Someday to a Bigger One – Think Again

Buying a home has been known as the American Dream. But once you’ve bought it, how long should you hold onto it becomes the big question. Well the truth is, most of the time its not your decision to make anyways. Or at least the decision is so painful you hesitate indefinetly to make the next move. Fluctuating interest rates and home values, job changes or layoffs, a growing comfortablity with the location, realization of new Real Estate fees and closing costs, etc. inevitably effect your decision to make that new home transition.

Most new home buyers say they will stay in the home for a few years then upgrade to a bigger one with all the equity they gain. Others say they will move to a bigger home once they have kids or when their salaries increase. All of these reasons sound reasonable, however much of the time they are not reality.

In regards to home equity, the unfortunately reality is that home values in the same location rise proportionaly to each other. As a result whatever equity you have gained in your starter home, by itself does not increase your purchasing power to buy a larger home. Yes, it may give you the opportunity to fiance a larger home, but in the end you also have a much bigger monthly mortgage payment. The next question is, can you afford the new mortage payments.

Before making the decision to upgrade to a new home, you next have to figure out what your net proceeds will be from the sale of you existing home and what your future mortgage will be and whether or not you can afford it. Too frequently we forget that a good portion of our home equity is lost to the real estate commissions and the closing and moving costs to transition to the new home. Only after the net proceeds are calculated from the sale of an existing home can we understand how much additional funds we can put towards a deposit on another home. The key point to remember; it costs to move and it usually costs big.

Unfortunately home prices have far outpaced salary increases. Quite frankly that chasm seems to continue to grow. As a result, waiting for growth in your salary to buy the next bigger home is sometimes a poor reason to hold off from buying the bigger home in the first place, particularly if interest rates are low.

Once the kids arrive the decision to upgrade to a new home can become even more complex. Particularly when the kids get older and even if you are planning to live in the same general community.

The bottom line: You will probably be in a home much longer than you originally plan. Consequently, it is sometimes wiser to buy more home on your first home purchase rather than less. This is particularly true if interest rates are un-naturally low. So before you buy that first home think longer term and buy what you could be happy living in for 20 years, because you just might!

Unfinished Homes – A Great Way to Buy a Home

Manos entregando una casa

So you’re looking to purchase a new home and contemplating on whether or not it makes sense to buy an unfinished home to save money.

An unfinished home is great way to get into a new home and save dollars. Buying an unfinished home can lower your initial investment and keep the monthly mortgage payment lower. In addition, you might be able to buy an unfinished home with a larger foundation size, such that someday when you finish the home you’ve gone from a “Starter Home” to a large highly sought after custom home.

Typically an unfinished starter home (e.g. Colonial/Gambrel/Cape of around 24×36 or 26×36) means that the upstairs is unfinished. How unfinished is a question of how much sweat equity you are willing to put into it. I have seen some unfinished homes where the only thing done to the upstairs was a framed center bearing wall to support the roof trusses. Others have included all of the rough framing, electric and plumbing. Based on my experiences, not finishing the upstairs will save you around 15%-20% of the finished cost of the entire home. For example, a normally finished home of $200,000 would cost you around $160, 000 to $170,000 unfinished (upstairs not completed).

If the homes you are considering have attached garages planned for them, you could possibly save another $25-30K if you were to forgo the garage. Also, if there is an attached family room planned, you may achieve similar savings as the garage by forgoing it as well.

Another possibility for savings, if the home is planned to include a fireplace you could suggest to the builder to forgo the fireplace for the short term and have him build a cap on top of the jog in the foundation for the fireplace. You may be able to save several thousand dollars by eliminating the fireplace.

You need to remember though, when builders get a piece of property to build a home on they want to do everything possible to make as much money on their investment as they can. So you might get them to accept some of these ideas but probably not all of them.

The other thing to be aware of is what the banks will accept. Assuming you get a mortgage, they will want to make sure the unfinished home is livable and to local building codes. Thus the downstairs will probably need to have a room that can serve as a bedroom (with a door and closet). This means your future dining room, den or living room may need to be designed and built to support a closet and door that they may not have otherwise had.

The banks will frown upon unfinished homes that they may have trouble selling/auctioning if you were to default. So typically the downstairs rooms will need to have flooring installed, trim installed, etc. This will also hold true for landscaping. You may be able to save a little money on landscaping, but the builder will probably need to satisfy the bank with at least spreading some topsoil and grass around a 50 foot radius of the home.

Buying an unfinished home is a great way to enter into the housing market and to get a piece of the American Dream. It allows the potential buyer to grow into the home as their family and financial resources do so. Talk with your builder about the options you may have for buying a home unfinished. You could save a bundle!

For more information on building a new home, see the New Home Construction Bid Sheet from HomeAdditionPlus.com. The New Home Construction Bid Sheet provides extensive and important advice to the future homeowner on how to work with a general home contractor and his sub-contractors in order to ensure your home is built the way you want it to be.

5 Magic Points: Should I BUY or RENT my HOME?

Buying a Home is the American Dream. It is more than a place you put your hat at the end of the day. It defines you, protects you, and prospers with you. Yes, Home Ownership is a noble pursuit, but it always starts with this first, important question: Should I buy or Rent my Home? The answer, surprisingly, is not so obvious.

Now the question of “affordability” is an important one, but that’s not the subject of this article. We have a free calculator at our website. You’re welcome to use it. The subject of this article, however, deals with the questions that must be answered, before a renter can migrate into the magical realms of HOME OWNERSHIP.

Here are 5 MAGIC POINTS that you need to examine, on whether or not to BUY or RENT your next Home:

  1. EXPENSES
  2. COMMITMENT
  3. MONTHLY PAYMENTS
  4. TAX RETURNS
  5. WEALTH

1. EXPENSES:

Renting a home requires that you give a check to the landlord each month. That’s it. You’re done. Everything else is simply taken care of for you. When you OWN a home, you are in business for yourself, and this means that you must handle all of the expenses yourself.

  1. You are responsible, of course, for the monthly mortgage payment to the bank…
  2. You must pay all your utilities, including phone, gas, electric, cable, trash, water, etc.
  3. Don’t forget your responsibility to take care of maintenance. Not having enough money in the bank account is not a good enough excuse. If it’s broken, ya gotta fix it!
  4. Don’t forget your Homeowners Association Dues, your Membership Fees, Property Taxes, Special Assessment taxes, insurance…yada, yada, yada.

When you rent a home, you give the landlord a check. When you buy a home, you must ensure that all expenses are met and managed every single month, forever…

2. COMMITMENT:

Renting and Buying have different financial commitments.

  1. To rent a home usually requires a lease. Sometimes it’s month to month; sometimes it’s a 12 month lease. But, no matter what, there’s always a way out. Your commitment is limited to the time you choose to stay and reside there.
  2. When you buy a home, you usually sign a 30 year mortgage, which most people would argue, is like forever. You are committed to ensuring that the payment is delivered to the bank or lender every single month, on time. They don’t care if you want to move at some point. You can sell your home of course, but you can’t just break your mortgage, like you can break your lease.

Buying a home requires a long-term, financial commitment. Renting a Home simply requires that you cut a check each month you reside at the home of choice.

3. MONTHLY PAYMENTS:

It always appears that a renter will pay less each month on monthly payments. Let me shed some light on this subject. Examined closely, this is as far from the truth as the moon to the Earth. Let’s use an example:

  1. As a renter, you pay $800 a month, let’s say, that increases 5% each year. The math may differ with you and your landlord, but you get the idea. Barring rent-control, this is inevitable. Simple enough.
  2. As a Homeowner on a fixed rate loan at $1000 Principal and Interest per month, the payment never changes…Never…Not ever…
  3. In other words, the renter’s monthly rent will eventually SURPASS the homeowner’s mortgage payment…Much faster then you might expect.

In this example, our Renter’s Monthly Payments will exceed our Homeowners Mortgage Payment, in about 6 years.

4. TAX RETURNS:

A renter usually does receive a tax benefit from the State and Federal tax boards each year, sometimes referred to as a “renter’s credit”. But the Homeowner receives a deduction on the Interest paid on their loan. This is a huge benefit to the homeowner.

  1. Let’s use the same example with our $800 renter. At the end of the year, our renter might receive a $600 renter’s credit on their 1040EZ form when doing their taxes. Simple enough.
  2. Our Homeowner, on the other hand, paid a total of $12,000 in mortgage payments, of which about $11,500 went towards INTEREST. This INTEREST is a write-off.
  3. Let’s see…$600 versus $11,500. Hmmm. I like that math. That equates to a nice healthy tax return for most of us, come April of next year.

Take those thousands of dollars in tax return, and go on a nice Cruise around Jamaica!

5. WEALTH:

It’s arguably much, much harder for a renter to build wealth. There is no built-in mechanism for appreciation, whereas the homeowner has postured themselves wisely for the future.

  1. Let’s say we have a renter that wants to get wealthy. Great! They must go find a business to run, or a stock to invest in, or come up with a great invention, or be the next rock star, or follow a family friends “tip”, and go do Cattle Futures from August to September (just an example, folks…I don’t know anything about cattle…). In any event, most people would be concerned that our renter is following the proverbial “pipe dream” towards wealth.
  2. But let’s say we have a homeowner who wants to build wealth. Great! What do they need to do? Simple….Nothing…Pay the mortgage…Live in the house…Go work your job. That’s it. Real Estate appreciates in value, on average, over the long haul, like no other financial vehicle. It is a virtual certainty, and it is automatic. The homeowner controls the total value of the home. That’s the magic of leverage.
  3. Let me drive the point home: Someone might buy a house at $150,000, let’s say, and over the course of 7 to 10 years, it is completely reasonable to suggest that this very same house could be worth around $600,000.

Renters do not have a built in advantage for building wealth, whereas Real Estate appreciates in value as a virtual certainty. They don’t call home-ownership the “American Dream” for nothing!

SUMMARY:

The subject of deciding on whether to Buy or Rent, is not simple. In the end, it boils down to a question of complexity. Being a Renter is simple. Being a Homeowner is more complex, and yet, that does not mean that it is not within your grasp. It IS!!! There are so many people that are just waiting in the wings, yearning to help you get there. Real Estate Agents, Mortgage Brokers, Friends, Family, etc.

With all of these resources around you, just about anyone can own a home, and in this great country, the American Dream of Home Ownership is completely within all of our grasps!

But do me a favor. Give yourself the time to examine these important questions first. Look within. As we all get older in life, we yearn for more. Buying versus Renting is a common theme in this journey. As we wave goodbye to the younger years, we say so long to the simplicity of life, and we say hello to the promise of prosperity, wealth, and a better tomorrow. We also say hello to higher, more complex things. Often times, it’s simply the willingness to accept complexity that will get you to the understanding you need.

Best of luck on your journey, from Renting to Owning your next Home!

We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.