Discussion: Homeownership is often thought of as the \"American Dream\". Discuss
ID: 2821995 • Letter: D
Question
Discussion: Homeownership is often thought of as the "American Dream". Discuss this with your classmates: Discussion Home ownership is a huge expense. Is it realistic for you? What are your thoughts as you researched the answer for your assignment's response concerning fixed rate or adjustable-rate mortgage loan. Do the thoughts of insurance, maintenance, liability make you want to retreat to a nice safe condo or to rent a nice apartment or even a home? What about that first car? Do you actually need a new car that you can't afford or do you just want one? Lots to discuss.
Explanation / Answer
America is changing the way it lives. Owning one's home has always been considered a significant part of the modern American dream — it meant pride and security, control, stability and goodbye to landlords.
The Great Recession, which began in late 2007 and lasted for nearly two years, is still having an impact on the U.S. housing market. Since the bottom dropped out a decade ago, "new home starts" — used to describe when construction begins on a new home — have been sluggish.
That was until October, when they hit a nine-year high, then dropped in November, suggesting Americans are confused about where and how they want to live.
Some of the confusion stems from memories of the housing market "bubble" of easy money and credit that burst in December 2007 and was a main cause of the Great Recession. More than 20 million foreclosures were filed during the decade. RealtyTrac Data indicates 7.3 million consumers lost their homes between 2007 and 2014.
"Housing was a great part of the recession," said housing expert and New York University professor Lawrence White. "Housing prices fell dramatically from their peak in 2006. Nationwide, the average value of a home dropped 30 to 35 percent. We certainly learned in the recession, investing in a house is not a sure-fire way to build wealth."
However, White says, housing plays a major role in the economic health of the nation.
But for potential homebuyers, it has become a lot harder to get the credit necessary to buy a house. Plus, there's more paperwork when consumers do qualify.
That leads to a depressed market. Another issue: a lack of inventory, says Pamela Woodward, who owns three real estate offices in New Jersey.
"The political climate, at least for now, has people skittish and nervous about the economy," she said.
On the plus side, Fannie Mae and Freddie Mac — two government-backed mortgage companies — are raising the amount of money they will guarantee, for the first time since 2006. That will make it easier for buyers to qualify for larger loans, and to get more home for their money.
The real cost of your home
You need to know about those hidden costs so that you can:
You probably know that in addition to your mortgage you’ll pay property taxes and insurance. In addition, you may pay homeowners association fees, and may face higher utility bills compared with what renters typically pay.
But even these substantial costs can be dwarfed by your expenses for repairing, maintaining and upgrading your property. In fact, one study commissioned by The Wall Street Journal back in 1998 found the cost of maintaining, repairing and upgrading a typical home to current standards over 30 years was almost four times the purchase price. That estimate may be high, but the financial planners I interviewed agreed that homeownership costs inevitably exceed first-time homebuyers’ expectations.
“No new homeowner, myself included, can ever feel fully prepared for the maintenance costs and renovation costs associated with homeownership,” saysBrunch & Budget’s Pamela Capalad, a financial planner in Brooklyn, New York, who bought her first home four years ago. “Just last month, some brand-new pipes burst in our boiler room and there went $2,000 in repairs just like that.”
To help you get prepared, here are 20 Hidden Costs of Home Ownership.
1. Your heart. You may set a budget for how much you can spend on a new house, but then you find something you love — something you can’t stop thinking about — and even though it’s $50,000 or $100,000 over your budget, you buy it anyway.
2. Property taxes. You might think — “I’m paying $1,200 in rent. For that, I could be paying a mortgage and own my own place!” Well, yes. But if you’re only plugging in the principle and interest rate into your mortgage calculator, you’re missing out on a huge expense right out of the gate — property taxes.
3. Insurance. It costs a lot more to insure a home than, say, a one-bedroom apartment. So even if you had renters’ insurance, you’re going to have to up the budget for insurance. And, there are a lot of factors to consider when it comes to insurance. Thought you saved more by buying an older house? Well, guess what: It’s going to cost more to insure it because the electrical, heating and plumbing are older and more prone to disaster. Wait, did you fall behind on credit-card payments during the recession but thought you were in the clear because you always paid your mortgage? Well, guess what: Insurance companies can periodically check your credit score and raise your rates based on their assessment of your “risk” level.
4. Appearance. Before the first thing in your house even breaks, there is going to be something that you want to change because this is YOUR HOUSE and when people see YOUR HOUSE, you want them to know that you have taste.
“You don’t want it to look like the worst house on the block,” said Neil Ellington, the executive vice president of CESI Debt Solutions.
So, you add shutters, a paved walkway up to the house, flower boxes, landscaping … it’s amazing how much you spend on the outside of the house that you never had to spend on an apartment.
5. The Lawn. First of all, if you decide to contract the lawn out, it’s going to cost you $100 or so a month for someone to cut the lawn, plus another $100 a month for weed killer, pest control and fertilizer. Plus, any extra you decide to spend on new trees, bushes, flowers or fencing.
6. Add-Ons: decks, patios, sheds and additional rooms. That shed probably set you back a few Benjamins but guess what? It’s also going to bump up your taxes. Any addition or improvement you make, whether it’s a shed, deck, kitchen renovation or expansion of your master bedroom, is not only going to cost you for parts and labor (which can run into the thousands) but it’s going to make your taxes go up. Every year.
7. Maintenance. A co-worker thought he was catching a break on maintenance costs because he had a fireplace but it wasn’t a working fireplace. Well, then someone told him the chimney — you know, the non-working chimney on the outside of the house — needed to be repointed because the bricks were loose and could fall off and hurt someone. So, he has to pay more than $1,000 to have a mason come in and stabilize that purely aesthetic chimney. How charming!
There are a million unexpected maintenance costs like this. You’ve got to reseal the driveway, restain the deck, clean the gutters, repair and eventually replace the roof, repair any cracks in the siding, patch the front steps — and that’s just the outside! On the inside, you’ve got to repair the appliances, fix any plumbing leaks, replace filters, seal your doors and windows, drain the water heater and clean the chimney. Plus, patch the walls, replace the toilets, repaint, restain the floors or replace the carpet and regrout the bathroom.
8. Cleaning. Cleaning a house is a lot of work. Whereas you might’ve had one vacuum and set of cleaning supplies in an apartment, now you may want to have multiple vacuums and sets of cleaning supplies so you don’t have to lug them up and down one or two flights of steps.
Beyond the cost of multiple sets of supplies, cleaning takes time and energy — something you might not have, especially if all the adults in the home work. If you opt to hire a cleaning person, that’s going to cost you $100 or more for every visit, which can add up to over $1,000 during the year.
9. Time! Time is “the No. 1 thing — your biggest cost — of being a homeowner,” Ellington said.
You don’t realize what all your rent went toward and when you have to do it yourself, it costs you a lot — a LOT — of time.
“The time you used to spend with your kids, now you spend on lawn maintenance or changing a lightbulb!” Ellington quipped.
10. The furnace and air-conditioning. So, you buy a house and the inspector tells you that the furnace is only four years old and that you may have another 16 or more years left on it. You figure you’re in the clear, you’ll be long gone by then, right? Wrong. A lot of people will tell you you’ll get 20 years out of a furnace but it’s really closer to 10, Cecala says. Then, consider the fact that if the furnace is four or more years old, it probably isn’t energy efficient. So, instead of repairing your furnace or air conditioning units for the next few years, it’s probably better to shell out the cash for a new furnace or central air.
11. Wiring – cable, phone, Internet. When Amy Martin and her husband bought their first house a few years ago, they discovered that their cable service was spotty — some channels worked but others didn’t. When they went to get it repaired, they were told that they were “leaking” cable because the wiring in their house was either not the right size or connected wrong. The wires on the outside are the utility company’s responsibility but any of the wiring on the inside of the house is YOUR responsibility. So, they had to bring an electrician in for 3 to 4 hours to rewire the home.
12. DIY. With the rise of home-improvement channels, everyone, it seems, has DIY — do-it-yourself — fever. Lay down your own flooring? No problem! Strip the bathroom, knock down a wall and put in a new master suite? No problem!
13. Extra stuff the guy finds when he comes for something else. So, you bring in a guy to help you with the kitchen remodel and while he’s outside on his smoke break, he reaches under the front porch and pulls out what looks like a handful of straw. In fact, that’s rotting wood from your front porch — you know, the one your precious little girl bounces on when she’s playing with her friends
14. Safety. From fixing the front porch to installing an alarm system, adding motion-detector lights or lighting a footpath, those extra safety features are going to cost you extra money.
15. Pest control. If you saw a bug or a mouse in your apartment, you just called the landlord. When you own your own house, there’s no one there to hear your screams. Dealing with termites, cockroaches, mice, bats or the latest pest craze, bed bugs, costs a lot of money. Spend a couple hundred dollars for routine maintenance and it will save you lot more later if you have to get the place bombed and throw out some of your furniture or replace the floor because the varmints got to it.
16. Savings. Do you know how much money you can save by installing new windows, a programmable thermostat and energy-saving lightbulbs? A whole lot! But guess what? In order to save a lot, you’ve got to spend a lot up front. While you’re focused on the savings, your money is slipping out the back door.
17. Emergency. Like Douglass, you generally don’t realize until after the FedEx truck has backed up into your house and you’ve had a bouncing, baby girl that your neighborhood is prone to power outages. And remember, power outages usually happen at the worst times — when it’s ridiculously hot out or freezing cold, which means you'll probably be desperate enough to spend a lot of money to be comfortable!
18. Kids. Not only are you kids going to cost you money for diapers, baby food, clothes they're going to grow out of, jeans, soccer lessons, dance classes, phones and college, but they’re going to cost you a couple thousand in damages over the years. They're going to draw on the walls, run into the screen door, put a baseball through a window, spill cranberry juice all over the living-room rug — and more. When it’s a rental, the most you had to worry about was your security deposit. Owning your own home, you’ll reminisce the days when that was all it would’ve cost you.
19. Nearby construction. Make sure you know who owns the land around you and what the zoning laws are. If you buy a home with an amazing view and then someone comes and builds a 20-story condo building in front of it, that’s going to cost you big time when it comes time to sell your house. Likewise, if nearby land is designated for commercial use, you never know when a gas station will go up or a giant shopping center that will make your road busy and slash your property value.
20. Buyer demands. Congratulations! You’ve made it through 1-19 on the list. But don’t take a rest just yet — 20 is a big one. It’s important to keep up with routine maintenance — buying a new furnace, replacing the roof and fixing that wobbly board in the porch. Because when you go to sell your house, those are the things that a buyer is going to notice — and they could cost you the deal. After getting the home inspection, it’s not uncommon for a buyer to demand that you replace the furnace or get a new roof as a condition of the sale. You’re already going to have a lot of costs (paying the real-estate agent, closing costs, moving costs, etc.) so you don't want to have to tack on another $10,000 or so for repairs — or worse, have them knock money off the sale price because of it.
Before you buy a house, it’s important to figure out if you can afford all the costs of a new home.