New Home Construction Mortgage Updates
and Money Saving Tips
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1. Mortgage Update
I don’t know whether it is safe to say that the “dust has finally settled” in the mortgage market, but I guess I am going to say that. As of this writing here are several
Credit scores - There has been a bit of tightening in the credit score requirements since the mortgage crisis first ensued. Surprisingly thought it has not been that significant. If you have a credit score in the mid 600’s you can probably find a bank that will loan you money.
Types of Loans – Construction loans are still available but they may be somewhat hard to find. Refinance or new home purchase loans are still quite easily sourced; however, many, many banks have gotten out of the residential construction part of the loan business.
Stated Loans - Another type of loan that has become difficult to obtain is a stated loan. If you have W-2 income or can use the taxable income on your tax return (not your gross income) you can apply for a “full docs” loan. However, if you are self employed or work in a job that pays you as an independent contractor and you receive a 1099, you will have to qualify for a stated loan. Stated loans are very difficult to find. Moreover the credit score requirements for these loans, when available, are typically above 700.
No Money Down – You probably don’t need me to tell you this, but the days of no money down, 100% financing are gone. You will need a minimum of 5% down and probably more commonly will see requirement for at least 10%. Of course the magic number of 20% is required if you don’t want to pay private mortgage insurance (PMI)
Owner Builder Loans – For those of you looking to do owner builder projects, be prepared for a more difficult time of it. If this is of interest to you, click here, and I can try to assist you with finding financing. There are some sources of financing remaining but here again, many of the banks that provided this type of financing in the past are gone, - - or they no longer offer these programs. Click here if you are interested in this type of loan.
Debt to Income – In the hay days of the real estate boom, banks were approving loans for people with debt/income ratios as high as 65%. When I bought my first house, this percentage was 38% -- and as of today—most banks are now at 45%. This means that the loans being issued are much more secure… but it also means that you can borrow a smaller amount of money than you could in the past. Let me give you a specific example. If you earn $60,000 per year- you would have been allowed monthly debt payments of up to $3250/month. Today, at the 45% level, you are allowed total monthly debt payments of $2700/mo. That difference on a 6% mortgage is a decrease in borrowing power of approximately $80,000.
In spite of all of the changes, assuming you have good credit, good income, and low debt, it is a good time to be buying or building a new home. Prices are down, builders and subcontractors are looking for work, and land or lot prices have also retreated in many markets.
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In Depth, Home Study Course
The Successful Home Building Training Program is normally provided in a seminar format at a cost of $395. These training seminars are attended by both consumers planning on building a new home, as well as builders that want continuing education. The Home Study version of this seminar is now available to you for a cost of $97 (plus shipping). The Home Study Course was assembled by a licensed building contractor who has built more than 500 custom homes, and has a Masters degree in Adult Education from Florida State University. Click here to see the Table of Contents and find our more about this valuable resource.
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|Virtual Tour Craftsman - Plan of the Month by Architectural Designs
- Start with a beguiling craftsman bungalow home plan created in the 1920s and re-think it for today’s building and living requirements, and what do you get? A four-bedroom design that works for those it shelters and charms them as well.
- A detached two-car garage is an added bonus with this house plan.
- See a virtual tour and rotate the plan in your browser.
| Featured House Plan: HBF26329SD
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|Plan HBF17617LV – 2839 Sq. Ft.
- You'll find plenty of space to enjoy the outdoors in this traditional house plan -- available in two- and three-car versions -- including a covered porch, a screened-in porch and a deck.
- A sitting area surrounded by windows is available in the master suite, as well as a luxurious bath and two walk-in closets.
- Upstairs you'll find two large suites plus a huge bonus room with bar over the garage.
- Related Plan: For a two-car garage, see house plan 17616LV
2. Money Saving Tips
When you build a new home, there are many ways you can save money. One of the most obvious is for you to do some of the work yourself. Landscaping and painting are two of the more common tasks that many homeowners are probably equipped to handle. Don’t overlook such pedestrian task… they might save you a lot more than you think. Painting the inside of your new home will cost you thousands of dollars if you have your builder do it. The same goes with landscaping.
Another easy way to save money on a new home is to buy stock house plans. If you have a truly unique design in mind that you cannot live without, then you will need an architect, but for the vast majority of people, stock house plans will do just fine.
Over the years as I have talked to people building new homes, I have repeatedly seen cost of $10,000 or more when an architect is hired. Compare this to a stock house plan that you might purchase for $600-$1000 and then throw in a couple hundred more for changes and a couple hundred more for reviewing and sealing by a local engineer. When it’s all said and done, a set up buildable plans from a stock house company should cost you $2000 or less, compared to an architects fee of $10,000. There are many good house plan companies. I recommend you take a look at Architectural Designs. They not only have a great online store, but you can also purchase their magazine in most book stores.
Yet another way to achieve significant savings when you build a new home is for you to buy some of the items directly, rather than putting these items into your specification that the builder bids on. Why? Because a builder will mark up everything he touches. The amount varies but a good number to start with is 15%.
Let’s take three examples. I was recently working with a woman that had received a bid for her flooring of $24,000. Assuming the standard 15% mark up, the builder will make $3600 on this one item. Two more items that you could and should purchase on your own are the appliances and the lighting fixtures. Again, the amount that one could spend on these items varies greatly. But if these two items account for a $10,000 in your builders bid he will probably make $1500. And this is just the beginning. There are many other items you could buy directly, exclude them from the contract, and save the markup from the builder.
This concept is one of the most important concepts discussed in the House Building Guide. We walk you through the steps of how to do this and provide you with a sample set of specifications and a sample building contract. Do builders like this? No. Will builders agree to it? Some will and some won’t. Others may agree to it, but will try to make this money back by increasing their fees in other areas of your project. So if you want to employ this strategy to save money be sure you do it the right way. The House Building Guide walks you through the steps of doing this the right way. It’ll cost you $40 bucks but will save you thousands and that doesn’t include the value of all the convenience savings tips mentioned, or the other many valuable task lists and timelines included.
I get many calls from people who say… “I have already selected a builder” will the House Building Guide still help me?” Well the answer is yes and no. Yes, it will still be a great resource, but… it may be too late to save a lot of the money you could have saved. The lesson--- don’t wait until later—until you are in the middle of the process. If you are going to implement this strategy to save money, buy the guide at the beginning of your process.
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3. Energy Conservation and Saving Money
One last way to save money is through energy efficiency products and the rebates associated with them.
ENERGY STAR is a government-backed program helping businesses and individuals protect the environment through superior energy efficiency. Last year alone, Americans, with the help of ENERGY STAR, saved enough energy to power 10 million homes and avoid greenhouse gas emissions from 12 million cars - all while saving $6 billion.
However when it comes to building your new home, not only can
Energy Star appliances save you money by lowering your utilities bills for years to come, but the Energy Star program can save you money now —today— on the purchase of new appliance. Many manufacturers, partnering with the government’s Energy Star program offer generous rebates for the purchase of many different types of appliances. If you go to the following page on the Energy Star website and enter you zip code, the available rebates will be displayed.
In addition to the Energy Star program, most local electric and gas utilities offer rebates for more energy efficient appliances. Unfortunately there is no ONE place you can go to find these. You will have to do some research on the Internet for your own local utility— and perhaps even make a phone call.
For example, here is one website which covers the State of California.
If you search only under the category of residential rebates there are 212 at the time this newsletter is being written.
Every state does not have such a website, but with a little work, you should be able to find a website for your State or utility company that lists available rebate programs.
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