Mark your compass now….
Everyday each individual is faced with a decision–a decision that is the only choice we truly have power over–that is, the attitude in which we face each day. Good and evil are not easily separated. Positive and negative thoughts rain on our attitude and set in place the foundation of how we look at the day. We find that our attitude is tested and directed every day, not necessarily by any given situation, good or bad but the reactions to it. This, the rudder of reaction, will either turn our ship of thoughts outward to the open sea or inward towards the reef of negativity. Thus we start each day by making a choice to set the mind-set sail to catch the positive or negative trade winds.
Never confuse activity with productivity. It is the quality of work done–not the quantity. Always set a deadline for each activity and a goal to finish all tasks early. Advance this goal as you get more proficient in time management. Remember to do peak period scheduling. Organize your work load and life so that you are working when you are the best equipped physically, emotionally, and psychologically.
Here’s a thought for you today:
It is one of the most beautiful compensations of this life that no one can sincerely help another without helping themself.
Unknown
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You’ve looked at dozens of homes. Your REALTOR® is about to tear her hair out with frustration. You are paralyzed, letting one great home after another pass you by. Why can’t you make a decision?
Buying a home can be an overwhelming process. There are so many decisions to make and any of them can mean serious financial consequences. A home, after all, is hardly a liquid asset. Nor is it a growth investment, according to Wall Street definitions. It’s your greatest financial debt, even while it puts a roof over your head. As it appreciates, it also needs repairs and maintenance. With all that weighing on you, no wonder you’ve got commitmentphobia.
Yet, you really want to buy a home. You know that few purchases will provide you the quality of life that a home of your own does. There are plenty of advantages, as well – tax breaks, rising real estate values, a stable environment for the family, to name only a few. So you stifle your worries and keep looking for homes. You just can’t find the one that’s just right for you.
It might be time to back this train up and examine what is causing the conflict between wanting to buy and being unable to make a decision. There is a cause, and it’s name is money. The question is, which aspect of money is stopping you from moving forward?
Fear of spending too much
Lenders will loan you money at the top of your ability to borrow. Realtors will suggest that you will be happier in a “bigger, better” home, eliminating the need to “trade up” in a few years. Stretching to buy the most home you can possibly afford is a good strategy, but only under certain conditions – that you have confidence that your salary will rise, that your income is stable, and that you can handle large surprise expenses.
If you’ve been pre-qualified, you are already looking at bigger, better, more beautiful homes at the top of your range. But something isn’t quite right. Even though you may feel that your income is stable, a feeling is telling you that if you buy in this range, you won’t have enough in reserves should something happen. Those are your instincts talking, and you should listen, because your desires have been doing the talking up to now. Your instincts are telling your desires to scale back a little.
That means backtracking. Talk to your Realtor and ask her to show you less expensive homes. You can’t go wrong buying slightly under your ability. In fact, many financial advisors tell their clients to budget about 25% of their income for housing in order to position them to build reserves for savings, investments, home improvements, emergencies and dozens of other reasons. That’s almost six percent less than lenders will allow you to borrow. Just think what else you can do with six percent of your income. You’ll still have your house, you’ll just have more to do other things with.
A conflict in goals
Many couples purchase homes with the idea that they will have a child, so stretching buying power to have the extra space makes sense. But if you are trying to accomplish two big financial goals at the same time – buying a home and adding to your family, then something has to give.
You can’t have it all – peace of mind, a large mortgage, and burgeoning expenses all at the same time. Something has to give and the way to do that is simply to prioritize your goals. In what order of importance do you want things to happen? What is most important to you? Whether you are planning a family, returning to graduate school, paying off a student loan, or buying a new car, you surely realize that your financial pie can only be sliced so many ways. Your mortgage is the largest, and the larger it is the smaller the other pieces.
Problems in the marriage
This is one of the toughest issues to address, and one your Realtor can’t help you with. But just as you are listening to your instincts about the amount of money you should spend on your new home, you should be paying even more attention to your feelings about your marriage. And only you can answer the question – will we still be together in five years? You should at least be able to predict being together long enough to pay off the interest on your loan! Or you’ll be selling your home without the benefit of building any equity and equity only comes with appreciation and mortgage reduction.
Buying a home will not fix a poor relationship. It will only make things worse. So you have a decision to make and it isn’t which house to buy. It is whether or not you want this relationship to survive. If you decide you want the marriage, then you must pour your efforts into fixing its problems, including your share of the blame. Be willing to change some things, compromise on others, or accept many things as they are. If you can’t do all of those, then to dissolve the partnership is your only other choice. After you have solved the problems in your relationship, you will find your home more easily.
Fear of the future
Fear takes the fun out of a lot of things, but there is reasonable fear and unreasonable fear. Unreasonable fears have no basis in reality, so there is little you can do beyond getting professional help for your anxiety. Reasonable fears you can handle on your own with a little common sense.
Fear can be tamed by looking at the worst case scenarios compared to the best case scenarios. So examine the questions that are really bothering you.
What if we can’t make our payments? This question can be balanced by a best case. What if we manage our money so well that we can make double payments? So the fear here is manageable – it comes down to how confident you are about managing your money. If you aren’t sure of yourself, get help. Ask someone whose money management style you admire for advice on how to manage your money better. Then stick with it.
What if the value of our home goes down in value? Would you feel as fearful if you asked yourself whether your property will go up in value? Property can go up or down, but all property requires maintenance or it surely will deteriorate in value. This can be easily prevented by having enough budgeted or in your reserves to perform scheduled and unscheduled maintenance. Look at the properties surrounding the home you are considering. Are they maintained with pride? Are they being updated? Then your chances are good that the neighborhood and your home will retain its value. Rest assured that there will always be a buyer for an attractive, well-maintained property.
Because it is not a liquid asset, real estate is not as volatile as you think. It goes down slowly and rises comparatively slowly. And home values even when depressed may get a resuscitation after a few years. Your best hedge against the future is to keep your property in desirable condition.
You can’t predict the future. The only thing you can do is prepare yourself to handle what may happen.
So money isn’t the root of all evil, but it is the root of indecision – at least when you are paralyzed about buying a home. Thinking through the money issues can help you get moving one direction or the other. For some of you, just reading this article will put your jitters to rest. For others, you may realize that a home isn’t in the cards for you right now, and that’s OK. Wait a few days or weeks if you need to. Use the time to regroup. It is far better for you to work through a few obstacles than to jump into the largest investment of your life without confidence. If you can work through your fears, get your finances in tip top shape and proceed, you’ll find buying a home doesn’t have to be a paralyzing decision. In fact, it can be one of the most exhilarating things you’ll ever do.
If you are worried about cash flow, then making disproportionately large house payments will tarnish the joy of home ownership, unless you can find ways to cut down the other pie pieces. Work to improve your cash flow. Accelerate your credit card pay -offs Don’t incur new debt. Rebudget your expenses and eliminate unnecessary expenditures. Make compromises – vow to cut down if you can’t cut something out. Be willing to move timelines for meeting your goals. Don’t be influenced by others to live beyond your means. Set your sights on an affordable home, and you may find your dream home will appear right before your very eyes.
Comments Off Consider the pros and cons to each
As you embark on your venture to buy a home, one of the first decisions to make is whether to buy new or purchase an existing home. Each choice has its advantages, and there is no single answer that works for everyone.
You may be drawn to the shiny new, energy-efficient appliances, the great room, and the beautiful master suite offered in a new home. But you may also like the charm, the canopy of trees that drape over the sleepy neighborhood streets, and the increasing value of an existing home you’ve been eying.
Here are some things you’ll want to ponder as you decide which route to take.
Existing homes
Existing homes offer many considerations for potential homebuyers, including:
- The neighborhood. Many people are drawn to developed neighborhoods for the sense of community that has been established. The mature landscaping and developed trees are often a considering factor.
- Maintenance and repair. If you’re considering an existing home, be sure you have a good handle on the working status of all major systems. Hire a professional home inspector to check out the house. As appliances and systems age they naturally require repair and replacement, something which may be reflected in a purchase price.
- Home improvement. If you enjoy small repairs and home improvement projects around the house, then an existing home would be your cup of tea.
- Existing features. When you buy an existing home, you typically don’t have to worry about buying the extras, such as blinds for the window, a security system, or a landscaped back yard.
- Land. In most metro centers, new homes may have less land than newer properties. Why? Because of changes in land-use patterns.
- Location. Existing homes are often found in older, more convenient metro core areas rather than outlying suburbs.
- The opportunity to remodel. In some cases buyers may prefer an older home in a particular location which can be modernized or expanded. In effect, use the existing home as a base to build a unique property.
- Price. In general terms, existing homes tend to be less expensive than new properties. As well, existing homes are likely to come complete with items which may represent new home extras—blinds, landscaping, built-ins, etc.
- Track record. When you purchase an existing home, you know how much the property has appreciated over the years — in effect, you have an index of sorts which measures the community’s marketplace appeal. At the same time, like stocks and bonds, you know that past results do not guarantee future marketplace performance.
- Taxes. Depending on your state, you will likely have lower property tax rates. Also, many older households aren’t required to pay for local bonds associated with new development, such as schools, parks, or road or transportation improvements.
- Traditional layout. If you like the formal living and dining rooms, an existing home will likely satisfy you.
Comments Off Armed with your down payment and your pre-approval letter for a mortgage loan, the next step is finding the house that will best meet your family’s needs. With realistic expectations, patience and plenty of research, you’ll be well on your way.
Once you narrow the search to neighborhoods you like, you’ll want to determine the maximum house price you can afford. Even though you’re pre-approved for a set loan amount, it doesn’t mean you can afford it. You’ll want to factor in other expenses, including retirement and college savings, vacations, and home maintenance and repairs, when you calculate how much you can afford for a monthly payment. And don’t forget to budget for homeowners insurance and property taxes. There’s also homeowner’s assocation fees, especially in newer developments.
Next, differentiate your needs versus your wants. You need three bedrooms, but a fourth room would be nice for a play room or guest room. You need a two-car garage, but a larger one would be nice for storage. You need a functional kitchen but want hardwood floors. You need two bathrooms but want a luxurious master suite. You get the picture.
As you begin your house-hunting venture, prepare a checklist. Break it down between exterior and interior characteristics. Make notes on each feature and make notes. Some people give each a 1 to 10 score, which is fine, but the first few houses you see will score differently than the last few because you have many more to compare against. Also, after viewing many homes, the numbers begin to lose meaning.
Some of the exterior features to rate might include size of yard, quality of fence, paint condition, roof condition, window conditions, garage, back yard. When it comes to interior, think about square footage; the floor plan; condition of walls; the size, quality, and functionality of the various rooms and closet and storage space.
Your checklist should also include any other factors you deem important—the amount of traffic, the appearance of the neighborhood, safety in the area, the reputation of local schools, etc.
Here are some other suggestions from industry experts:
- Take a camera with you to capture an image of each house you look at that makes it to the “maybe” list.
- Don’t make a hasty decision, especially if you feel yourself becoming guided by emotion. Selecting a home takes time, thought and analysis. You should carefully weigh the pros and cons of each house you like.
- Review your checklist and notes and compare it against your needs, wants and budget.
- Bring your spouse, friend or family member with you to get a second opinion. They may notice a shortcoming that you’ve overlooked.
- Find out how much utilities and maintenance cost.
- Stay on top of newly listed houses via a Multiple Listing Service on the Internet.
- Remain in close contact with your agent. This is extremely important if you’re in a strong seller’s market and/or in which homes that are priced right go fast. You want a good agent who will alert you of new listings and who will show you the houses as soon as they’re listed.
- Be prepared to look at the potential of a house rather than what you see in front of you. Set your priorities and decide what can be sacrificed. It’s more important that the layout of the house and the number of bedrooms you need fit your needs and that all major systems are functional versus your dislike for the avocado green carpet or the lack of landscaping. Those types of cosmetic shortcomings can be easily remedied once you buy the house.
If you find a house you like, offer a competitive bid. Keep in mind you’ll likely be competing against other offers—especially if interest rates are low and the spring buying season is in full bloom.
And don’t forget—once you make an offer, make it contingent upon the findings of a professional home inspection. If any major defects surface, you’ll want to have the leverage to renegotiate or back out of the deal completely.
Comments Off Designers know what colors work with each other. Use their work as your guide when selecting paint. Photo: iStock.com
In all the years we have been including staging consultations as part of our listing services the same question from sellers arises, “What colors should we paint the rooms?”
Often, sellers automatically assume that white or light beige are the safe bet colors. The best look a home for sale should have is one that inspires a sense of calm, warmth and space. That’s a lot to expect from just one little paint chip. Here is the thinking and how to accomplish it.
When a home is painted in colors that create a calming influence, buyers will want to linger in them longer allowing them to envision their own furnishings and personal belongings in the space you are trying to sell. If the colors are harsh, overbearing or unusual, the brain reacts in a way similar to the “fight or flight” syndrome — “That is just awful, let’s get out of here!” Definitely not a reaction you want.
The same can happen when rooms have no personality and feel cold and empty. Or when every room is painted in a different color giving the home a chopped up and cramped appearance.
Interior designers know their colors
Where to start? It’s easier than you think. Go to a fabric store, particularly one that carries home decorator fabrics that must be ordered. They are the latest trendsetters. Find one that appeals to you keeping in mind the colors of your existing furniture. Take home a small swatch that shows all of the colors used to make that fabric. That’s the hard part and it’s already been done for you.
Designers work consistently to come up with not only a pattern but a range of colors that complement each other to make that fabric appealing. Borrow from their expertise. Those colors definitely work together and should be the basis for your selection of paint colors.
Now comes the tricky part. It’s fine to use the neutral colors for walls, ceilings and woodwork. The accent colors however should be used sparingly. The safest way to use accent colors is through things like accessories and window treatments. Consider those colors on pillows, artwork, matte board colors in framing.
Accent colors are a condiment
If you start painting walls with an accent color, you may inadvertently cause the room to appear to be closed in. If you want to create an accent wall to highlight a fireplace for example, then select a color two or three shades lighter or darker from the same wall color paint chip strip. This allows the desired feature to have prominence without closing in the room.
Taking that same piece of fabric, you can apply the theory to the other rooms. For example if you want a bedroom to have a bit of color, use one of the colors on that same fabric sample. Just be prudent. If the color seems strong, tone it down using a much tamer version of the color. (Match it on the color strip and go lighter by four or five shades.)
The point is, one piece of fabric should be your guide to painting the whole interior of your house. The overall appearance will be one of spaciousness and good taste. It will also help to draw buyers into each and every room. Don’t be afraid to use the same color but a shade lighter or darker in other rooms or hallways of the house. It gives continuity which is purposeful. The flow of the house will feel open and be perceived as larger.
The designers have trained and worked hard to come up with color schemes that are visually pleasing to the eye. After all they want to sell their fabrics. Why wouldn’t you want your house, the very product you are trying to sell, to have that designer advantage?
Comments Off Price is the No. 1 culprit
If your answer is price, you’ll be right a good majority of the time. If your home isn’t selling, buyers think the value of your house is less than the price you want.
For all the time and effort that goes into buying and selling, the economics of the process is relatively simple. Anything is only worth what a buyer is willing to pay and a seller willing to accept. This is the same whether it’s a pack of baseball cards or a $1 million house.
Although the economics may be simple, arriving at that magic price is difficult. Just think of the cost, time and energy that companies put into pricing a product so it succeeds in the marketplace. It’s no different in real estate.
If you’ve taken the time to educate yourself on the local market and are diligent in hiring a professional agent, and are willing to listen to her, you can get a lot closer to the magic number. But you are setting yourself up for disaster if you don’t do your homework and go with what you “feel” your house is worth. Worse yet, is interviewing agents and choosing one solely because she says she can get you more than what the other agents think the house will sell for.
These are some of the most common mistakes sellers make when setting a price:
Price based on need
What you want to make from selling your home means absolutely nothing to buyers or the marketplace. So setting a price based on what you want so you can retire, move up, start a business, etc. will almost certainly fail.
Price based on ego
Your neighbor sold for $200,000 last year so you want $210,000 because you “know” your house is better. Regardless that the market dropped five percent since your neighbor sold. Nearly every owner thinks their house is the best on the block, or at least better than any of the ones that have recently sold or are on the market. Unfortunately for sellers, your opinion doesn’t carry any weight with buyers. Only their opinion matters.
Price based on greed
Even if it’s been shown that your house will likely sell for around $250,000, you insist on listing it for $275,000 because “you never know, someone could come along who just has to have it. Besides, if we don’t get any bites we can always lower the price later.” The problem is it won’t take long for buyers to realize your price is unrealistic and think you are, too, and won’t want to deal with you unless the house is “a steal.” The listing languishes, so you drop the price, but not enough, it sits even longer and pretty soon you have a listing that’s been on the market so long buyers decide there is something wrong and steer clear.
The solution is to get the price right. This is done by using what is called a Competitive Market Analysis (CMA). If you’ve hired the right agent, this is the first folder out of their briefcase when you meet to list your home. A CMA breaks down the sales price of homes that are similar to yours in location, size, age and condition.
Your agent will also consider the listing prices of homes on the market, but these are used more to identify the competition. Even with a strong agent and CMA, your price may not be on target. That’s because the market is always changing and your agent should be updating your CMA whenever anything comparable to your property sells.
Not every reason your home isn’t selling will be the price, although they will be related to it. Here we have that value vs. price issue. If buyers perceive imperfections in your listing, they will want a discount, so if they’re not buying, your price is not discounted enough for buyers to believe the value to them at least equals that of your price.
For example, if your lawn is brown and the landscaping worn, buyers will want a discount. The problem is that a seller will not consider this a major issue and attach a much lower discount than a buyer will accept.
This is why it is imperative that sellers do everything they can to eliminate any issues buyers may have with their house before listing. Obviously, you can’t do anything about a bad location, such as being near railroad tracks, or that you have just one bathroom. But you and your agent should have factored these drawbacks into the listing price.
Here are some of the most common reasons buyers are turned off by a particular house, so make sure these are addressed before lopping thousands of dollars off the asking price:
Put on a good show
This is the second biggest reason a home isn’t selling. Buyers often talk of “connecting” to a house. This is not likely to happen if your house is not company-coming-over clean and ready to show like a model. This goes for the outside as well. If you don’t want to put the effort into doing this, then you’d better adjust your price to compensate because buyers will only consider your house because it’s a good deal, not because it “speaks to them.”
Can’t buy what they can’t see
If you make it difficult for people to see your property, then chances of a sale at the price you want drops considerably. Selling can be a nuisance, but it’s a necessary one. If you don’t allow a lockbox or require appointment-only showings, you are the culprit to the house not selling.
Out of your hands
It’s not always the seller’s fault that a house isn’t selling. Sometimes the market changes and buyers disappear. Maybe a new home development has opened nearby and they are “stealing” the customers. Or maybe you’ve received bad advice from your agent. Any of these can affect whether your house sells, which means you need to consider the reasons and make the necessary adjustments.
Comments Off There are always appropriate steps to investing in real estate and hopefully, you’ve garnered many of them right on these pages. However, there are also inappropriate steps sellers can walk down when it comes time to put their house on the market.
For instance, the seller in Virginia, who thought the half bath the builder had located at the front of the house would really be better situated toward the back of the main level (though all the other similar models had the powder room in the same place for the previous 20 years). He got hung up on this detail so much, that he just had to move it — and did — for thousands of dollars, just so he could get it on the market the “right way.” His hang-up may have settled some deep-seated emotional need for him, but it didn’t draw any more buyers, and it drained his bottom line. You might say, that was a costly mistake.
Real estate broker and author Sid Davis has identified in his book “A Survival Guide to Selling a Home,” another seven costly mistakes that many sellers make when it comes time to put their home on the market. In my business, I’ve seen each one of these mistakes played out and it just makes me shake my head as to why, sellers forge ahead with unwise strategies, instead of listening to the voice of an experienced professional.
The seven costly mistakes
Mistake 1: Putting the home on the market before it’s ready. Most times this happens because the seller gets impatient or is a procrastinator and has pushed himself up against a moving deadline without getting the pre-sale work done. So it comes on the market with the horrible carpet (that gets replaced during the marketing of the home); or they are painting it while it goes on the market. Presentation is everything — so get the work done before marketing the property.
Mistake 2: Over improving the home for the neighborhood. This happens with additions, bump outs, and upgrades that make the home stick out from among its competitors so much that it’s an anomaly, instead of a nice addition to the community.
Mistake 3: Pricing the home based on what the seller wants to net. This pricing strategy always ends in failure. Sellers can control the “asking” price, but they don’t control the “sales” price. The market does. It doesn’t matter what the seller wants, the price is determined by the black-and-white, matter-of-fact reality of the market.
Mistake 4: Hiring an agent based on non-business factors. Make sure you’re hiring a professional with a proven track record. It might be nice to hand over your largest asset to your nephew who just got his license — but make sure he has a mentor to keep your deal from going south.
Mistake 5: Getting emotionally involved in the sale of the home. This is one of the biggest challenges home sellers face when putting their house on the market. Once you decide to sell your house, it’s no longer a home, but a commodity. It needs to be prepared as a commodity, marketed as a commodity, and priced as a commodity. It doesn’t matter what you “want,” only what the market can bear on pricing. People are going to come in to kick the tires, so to speak, and you can’t get emotional about how they may or may not appreciate the nuances of your home of seven years.
Mistake 6: Trying to cover up problems, or not disclosing them. Most states have a property disclosure/disclaimer form — use it wisely. Just because you disclaim doesn’t mean you cannot be sued later for the leaky basement, or dilapidated heating/air system that’s discovered 30 days after settlement.
Mistake 7: Not getting your ducks lined up before trying to sell. This would involve financing, reading the fine print on your current mortgage to ensure no pre-payment penalties, not listening to the particulars of your local market, etc. If your local market is dictating lower home prices, then lower it early, not later — it will cost you more. If the local market dictates selling your home first, then buying second, do it in that order, or vice versa.
Avoiding these mistakes is not that difficult. There are plenty of resources (like this publication) and professionals, who are there to help you step over the pitfalls. Do the research early, and listen to that voice in your head (it’s probably the whispers of the finance, real estate, insurance person who’s warning you of a hole you’re about to step into). Sell well.
Comments Off Building your own home can be a truly rewarding project and a lesson in frustration all framed beneath one rooftop.
“When I was 10 years old my dad was 42 and he started building his first home from scratch … when I was 42 and my son was 10 we started [building our] house,” says Jim VeNard.
The Arizona resident, built his first custom home six years ago and quickly figured out that patience is key, especially because of the critical role he played in the process.
“I was a general contractor; I pulled my own permits and worked with a home designer because in Arizona you don’t have to be an architect. Then you send [the designs] to an engineer to get approved,” says VeNard.
VeNard built a 5,000-square-foot home in Mesa, Arizona for a little more than half-a-million dollars. The home is now worth approximately $1.2 million.
Do your due diligence
If you’re considering taking on this challenge you’ll want to do your homework first. This advice could save you thousands of dollars and endless headaches.
I interviewed financial expert Kevin Daum, who is a co-author along with Janice Brewster and Peter Economy, of the newly released Building Your Own Home for Dummies. Between the pages of his book is valuable information that takes you from concept to dream home and even shares problems and resources.
Unlike VeNard, most people don’t build their home alone. Less than 25 percent of those building homes actually attempt to do it themselves; instead most will hire someone to handle the construction and oversee the process. However, Daum says that many books are geared toward the owner/builder person who plans to be a general contractor; he said he wrote his book to addresses the rest of the population.
“The bulk of [those building custom homes] are going to hire an architect, hire a contractor because they have to work for a living to pay for it. But they’ve been widely ignored by most of the marketplace in the books that are out there,” says Daum.
Here are some important tips to help you custom-build your dream home.
Don’t undereducate yourself: gather as much information as you can before you dive into the process, use multiple sources and ask for plenty of advice from experts.
Don’t underestimate the amount of liquidity needed to build a home: “The American public is deeply misguided in thinking that equity is considered cash not just in construction but in everything; it is very, very wrong; it’s a depression-era mentality that is not applicable any more,” explains Daum.
“Equity is equity and it is not liquid and from a bank’s standpoint they don’t care how much equity you have. You could have a half-million-dollar lot that is completely paid off and if you don’t meet their reserve requirements, their liquidity requirements, you will not get a construction loan,” says Daum.
New home and neighborhood should be equal
Decide what you want to build before you buy the lot: it’s critical to realize when building your home that the two main issues, the ability to finance it and secondly to protect your investment are basically the same issue. Matching the size and price of the home you build with the neighborhood can help protect your investment.
“You’re not going to build the Taj Mahal in a 1,500-square-foot neighborhood because nobody is going to buy it; by the same token you’re not going to build a 1,500- square-foot shanty in a 5,000-square-foot neighborhood because if you do that you’re going to spend more money than the property is worth,” says Daum.
When designing the house, design the whole house including picking all the materials: building a home is not the time to leave anything to chance.
“Spend three more months with the architect, spend $5,000 more with the architect and spec out every single detail — every hinge, every doorknob, every cabinet knob,” says Daum.
“The point is, when you have a custom home, if you do that extra work and have your contractor check on availability of certain items … you’re going to know exactly what you’re dealing with and that’s your absolute best remedy against having cost overruns. Pick the items before you start,” cautions Daum.
Realize that what you spend may not be what your home is worth: “If you go into a million-dollar neighborhood and you spend $2 million [building your home] that does not make that house worth $2 million because people who are spending $2 million don’t necessarily want to buy a $2-million house in a $1-million neighborhood,” says Daum.
So if you’re ready to go for it, here’s one last bit of advice from VeNard, “You’d better be in a really strong marriage and you’d better be in a situation where that person is going to give you enough freedom and flexibility to do what you have to do on the fly because you don’t always have time to say ‘Hey we have to do xyz’; sometimes you have to just make those decisions and move forward.”
Comments Off Why not do both?
Let’s see. Do I want to refinance now or wait until I finish with my home improvements? Or do I go ahead and get a construction loan, complete my addition, then refinance both my mortgages when the addition is complete? Do I need the value of my new addition to increase my appraised value? These are questions many in America are asking, improve now or refinance now? Why not do both?
Historically, when one wanted to use the equity in their home for home improvements there were two distinct ways. Obtain an equity loan based upon current appraised value or get some building plans and specifications together, along with a contractor’s bid and get a construction loan. What are the differences?
First, let’s look at the similarities. Both are usually second mortgage loans. Liens that subordinate to a current first mortgage. The equity loan is based upon the current market value of the home and the construction loan may use the “as finished” value of the home. That’s the value of the house after the improvements have been completed. It’s common during a major remodel of a home to have the cost of construction to surpass the current value of the property. And without any equity in the home, lenders aren’t as inclined to offer their best programs when someone is automatically “upside down” with regards to value.
Many times, second mortgages will carry a higher rate than a first mortgage or in the instance of an equity loan or line of credit the interest rate itself will be an adjustable one. Low now, but higher later.
That presents a problem. If you elect to take a construction or equity loan, then that rate may be higher than what’s currently available for a first mortgage refinance. And if your construction period will last for two or three months, then there’s no guarantee that interest rates will be where they are now. You run the risk of getting a construction loan while keeping your fingers crossed that interest rates stay low. At least until you have time to build on your house and refinance your new note. Until now.
Some lenders offer a mortgage refinance that does both. Refinance a current first mortgage into a lower rate while at the same time borrowing enough for home improvements. How is this done? Both Fannie Mae and Freddie Mac have programs that allow for a homeowner to refinance their current mortgage using today’s low fixed rates while at the same time borrowing still more money for home improvements. Again at today’s low rates, not at higher or variable construction loan terms.
For instance, you want to make some improvements on your home such as an extra bedroom and an extra floor. Your current mortgage is $180,000 while your house would appraise at $200,000. Not much room there for an equity loan is there? Your improvements will cost $100,000 and your new value will be somewhere near $300,000 when construction is finished. Using this new mortgage program, you will now be able to not only refinance with the most competitive rates available, but you’ll also be able to borrow enough for home improvements while using the “future” appraised value of your home and all the equity that comes along with it.
So quit thinking in the past. Not all lenders will offer this program, so you might need to shop a bit. But don’t think that a construction loan and a regular refinance are two different animals. They don’t have to be.
Comments Off If you’re shopping for a home and can afford to buy one, you couldn’t be in a better position right now. In many parts of the country, housing inventory is high and both home prices and interest rates are low and as a buyer, you can take advantage of that.
With so many properties on the market, you can probably take a more leisurely approach to house hunting without getting into a fast-paced bidding war. There is a caveat, however. The best homes priced properly for the market conditions will always be in higher demand.
As you begin your search for the right home for you, it pays to keep in mind things you need to check carefully so that they don’t cost you big bucks in the long run.
Kitchen
If kitchens matter to you, you might want to be fairly selective about them when looking for a new home. The2009 average price for a minor kitchen remodel for a midrange home is more than $21,000 and the cost for a major remodel is more than $57,000 and the costs are substantially more for higher-end homes.
Look carefully at the appliances, cabinetry, counters and floor. Those are the elements that cost more to replace. If possible, you want newer appliances to save money on repairs and energy costs; solid-wood cabinets; and solid-surface counters, such as granite, stainless steel, butcher block or engineered stone. Your floor choices include wood, cork, laminates and tile and it’s a matter of what’s comfortable and durable for your lifestyle.
Bathrooms
Following kitchens, bathrooms are also expensive rooms to remodel at a 2009 national average of more than $16,000 because of the fixtures and plumbing. Make sure you see no leaks or evidence of leaks in tubs, toilets and flooring. Sharing bathrooms can be one of those pain points for families so make sure you get what you need.
Roof
A roof is a big-ticket item with an average 2009 replacement cost of more than $19,000 although adding a second layer to a roof is not nearly as expensive as replacing the entire thing. Inside the house, you can check the attic, ceilings and skylights for signs of water damage, look for places where the roof deck is sagging, and see if you can detect any light coming through. If you do see light coming through, it is likely not a problem if the roof is made of shake shingles. Outside, inspect for cracked, ripped, curling or missing shingles and damaged flashing. Also look for rotting, buckling, blistering or algae growth, which could also be signs of trouble.
HVAC
An old heater can be hard to repair and eats up energy at a pace faster than newer units. Furnaces can start at about $5,000 to replace and if you buy a combined unit with the air conditioner, add on several thousand dollars. You may need to replace the heat pump or air conditioner if it’s older than 10 years and a furnace or boiler if it’s more than 15 years old.
Basement
The extra room you gain may be a huge headache if the basement floods. Look for water marks and find out if the house has a system for removing water.
Other areas of concern that might cost money down the line are the driveways and sidewalks, chimneys, insulation and windows.
If you find a house and your offer is accepted, you’ll be dealing with a home inspector who can fill in the gaps with a professional’s eye. The thing is, if you really want the home, you don’t have to let problems deter you. You are in position to negotiate a price reduction with the seller or insist repairs be made to the property before your offer is finalized.
If you can afford a house, you can afford the luxury of taking your time to find the right one for you.
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