A Home Inspector’s Weblog by Frank Schulte-Ladbeck

exploring homes and the lives in them around Houston

Archive for March, 2008

Zero Down Loans in the Current Market

I have been asked in this past week if zero down loans for mortgages are still available. Buyers are looking so closely at costs and their finances that they are looking for deals in many aspects of the home buying process.

I had one caller looking at how he could reduce my price, but there is only so much that I can do. I have seen clients looking at ways to have the price of a home come down, and I have been hired by a seller to inspect for items around the home which may cause the price to go down, so they can be taken care of before the sale. This trend of having a home inspection is increasing among sellers. Some buyers are going in with quite low offers thinking that the seller will simply accept these values. In Houston, this is not the case. I have seen some sellers price their homes below the appraised value to encourage the sale though.

Back to the initial question: can you find zero down loans? Yes, there are lenders who still will make this deal. A better question is do you want such a loan? When you come to the negotiating table with no money to cover the closing costs, or to pay part of the home on your own, the lender charges you more for such a convenience. This will mainly take the form of a higher interest rate. Over the course of a thirty year loan, even a 1% increase in the rate could cost you a great deal of money. I think that some consumers hide the cost of interest rates from themselves. A three hundred dollar television could cost you over four hundred dollars if you only make the minimum payments, and the same principle holds for your home loan.

If you are shopping for a home loan, I would strongly suggest that you have some money in the bank. (How about that tax rebate and your refund?) If you do find a zero down loan that suits you, then you still have the funds in the bank. However, you may find that the rebate/refund money could be a step toward home ownership, but you will need more than those funds to obtain the best deal.

The largest expense that you will have in your life will be your home purchase. You should absolutely look for the best deal, and you should make sure that you are not paying more than you are required, but do not skimp, because a major mistake could ensue. For example, if you do not have a home inspection or a WDI report (termite inspection), you could find out that you bought a house with a major problem. By not negotiating from a position of strength with your lender, you will find yourself paying more than you should.

A meadow in the backyard

I have been cutting the grass once a week for the past few weeks, but my grass has not been too high. It has mainly been some flower heads, which I do not mind, but I do have to keep things looking nice for the neighbors, I guess. I use a pushmower, which provides a nice bit of exercise. These mowers are cheaper than a fuel powered mower, and I think my neighbors are envious that I do not need to pay such a high gas price for fuel. I even own a push edger, which may not provide the same type of cut as a fuel powered edger does, but it still provides a clean line.

I think that is the main reason why these push mowers and edgers are no longer commonly used: they do not produce the nicely clipped look that their fuel powered counterparts do, but by the end of the week, our yards look the same.

I always leave the clippings on the lawn to act as a mulch, but this week I did add a little more to the lawn. Composted cow manure was sprinkled about the yard. I am not a big believer in using much of any type of fertilizer, but once year, I use one bag of manure for the front lawn, and one for the backyard. I just throw it about, and then I water it in.

The backyard is taking on more of a meadow effect. I am planting more herbs into the lawn, and now I am transplanting various groundcovers into this field. I have not been too keen on mowing much back here. My bulbs in the lawn are ready to bloom. It is certainly nice to sit back and watch the world pass by in this meadow. The birds seem to be enjoying it the most, but I loved the fragrances that arose from the cut yard. Mint in the grass is a wonderful scent. I cannot wait for the jasmine vines to come into flower by the doors and windows.

I am still interplanting vegetables in all of my beds. The cabbages have offered some touches of grey, and the beets have produced some dramatic reds. I also have whites and purples from the kales. My impatiens have been assisting in this colorful display (as well as the mums to a degree).

I think this is one of the few times of the year where you can love being outside in Houston. For the most part it is cool, and the flowering plants are starting to show off. As a home inspector, I would like to warn you again about mulch on your beds near the homes. I just saw a house with mulch up to the weepholes in the brick veneer, and when I pulled the carpet back, I found that the water had entered the house. The lesson: add mulch wisely.

Do you have some cash?

In a continuing effort to help new homeowners set up their budget, I thought it wise to go over the idea of cash. You know what cash is? The stuff that used to be in our wallets? Well, yes, that is one version of cash, but when you are speaking to people in the financial industry cash means a bit more than that definition.

Even with all of the somersaults of the stock market, I still think that you should have a basic portfolio which includes an S&P tracking stock, and a bond fund, like the one from Lehman Brothers. However, you will need to round out your portfolio with cash: CDs; T-bills; and money market mutual fund. When I was buying some CDs, I took my son to the bank with me, because I wanted him to learn about money. I have always involved him in the steps that I am taking. I started when he was young, so I know that he did not have a clear understanding, but at least he has the exposure. I encouraged him to ask questions, so he put this query to the banker: what music is going to be on the CD? He was five at the time. She explained that a CD was a certificate of deposit. It was like giving the bank a loan, so they could loan the money to others. You could pick how long you wanted to loan the bank money. The longer you loan, the higher the interest the bank will pay- that is the money that the bank will pay you. So no Rolling Stones, my son responded. No, she said. Could we loan money to them, he asked. I guess we could, she laughed. Good, my son said satisfied.

A CD is one of the easier ways to have your money in cash, while earning a good interest rate. Here is my method for setting up my CDs. I choose a one year term, which means that at the end of the year, I could take the money out, or I could roll it over for another year in the CD. In this way the money will be available if I need it, but I take this a step further. If the money is available in January, what happens if I need it in June? To resolve this dilemma, I have one CD scheduled to come due in January and one in June. However, I like the idea of having cash ready for each quarter, so I also have CDs coming due in March and September. The minimum amount for all CDs that I am aware of is $1000. With these four CDs, you have close to the basic amount for your emergency fund for your home.

T-bills refers to Treasury bills, which is like loaning money to the Federal government. They work in a similar fashion to CDs. Banks used to sell these bills, but most banks seem to be directing you right to the Treasury Department to buy them. You can do this over the internet now.

Money Market Mutual Funds are offered by firms like Vanguard or Fidelity, so they are not insured by the federal government (the FDIC that you may see posted on your bank’s door). The typically allow you to write some checks against the account, but the idea is to keep the money in the account. These firms do work hard to ensure that your account will not lose money, so they are relatively safe. The money market accounts provided by your bank are similar, but they are not mutual funds. These accounts are insured by the government, but they do not offer as high an interest rate to you.

I hope this gives you an idea of what is meant by cash. I find CDs to be the easiest for me, but all of these means are easy to set up. In our current market, these “cash” vehicles are needed for some stability.

Can I use my retirement fund to buy a home?

As banks are becoming tighter with their finances, home buyers are becoming creative in trying to find ways to locate the funding to purchase a home. I saw that someone used a search term indicating using their 403b to buy a home, and then I was asked this very question in a conversation, so I decided to post my thoughts on the matter.

Yes, you can take money out of your IRA, 403b, or 401k, but you will pay a hefty tax if you do (the capital gains tax). No one should ever (and I repeat ever ) take money out of their retirement account, unless it is same last resort situation. Buying a home should not be such a situation. In addition, you will be surprised by what you may need in the future for living expenses, so save the funds now for that eventuality. You can borrow money against these accounts. Each financial institution has its own policies about this type of loan, and there are advantages and disadvantages to doing this. You are basically borrowing money from yourself, but you have to pay fees to the provider for the account for managing this loan. Generally you are paying yourself interest for borrowing the money, but this interest is not as much as you may earn if you had left the money in the account in the first place.

Another concern in today’s market is that lenders do not want you to borrow money for the down payment. They are bound to give you a better rate, if you save the funds to do this on your own. There are instances of the banks turning down applications that would have been accepted last year (and we are not talking about subprime borrowers here). Before rushing into homeownership, take the time to learn about what will get you the best deal from the bank, and you may find that it is not that hard to have everything in place to get that loan.

Owning a home is the American dream, but hopefully going into debt is not the corollary to that fact.

Your Houston home inspector,

Frank Schulte-Ladbeck

The Flowers to Come

I think that this is a good year to concentrate on the vegetables of my garden. I noticed that food prices are still going up, and then there was the article in the New York Times this past weekend, which mentions that grain prices are rising too. Just what we need at a time of uncertain financial standing. I think that it is great that farmers will have an opportunity to earn a decent living, so I do not begrudge them this windfall.

I saw pictures from a flower festival in Hawaii yesterday. I would love to be at such a festival. What a wonderful way to celebrate the coming spring. I noticed that many of my neighbors do not care for planting flowering plants, But I love the homes that put on shows of vibrant color. I admit that I have been focusing on my backyard for more of this type of eye candy, but I have some flowering shrubs in the front. I like the fact that my antique roses give a light scent by my front path, but I have jasmine by the front and back doors, so they will really fragrance the air, when in bloom. I think people forget about the joys of these scents, since so many plants are hybrids bred for looks, and not for their fragrances.

One flower is easy to miss though. My apple tree is already in bloom with tiny white flowers. Houston is not true apple country, but this variety is a self pollinating variety, which can withstand our weather. Considering my childhood in the northern climes, I felt that I needed this tree to grace my yard. My thoughts turned towards its neighbor, my plum tree. It should be setting blooms soon too, and this inspired my post. Plum flowers are notoriously short lived. I have been letting my tree gain some heft before I start to work on having it produce fruit, but there is one step that you take if you want this tree to set fruit. Instead of leaving it to chance that a bee comes along on the day of the plum bloom to pollinate it, you should take a brush to the flowers to encourage the fruit production. By brushing the flowers with one brush, you are imitating the action of a bee by moving pollen from one flower to the next. Use a small painters brush for this task.

Fruit from your own tree will taste so much sweeter, so why not give this tip a try with your plum tree. You may not being producing bushels from one tree, but I imagine that every little bit will help with these higher food prices.

Springing Upon Us

With these last cold fronts passing through, my thoughts are not on spring, but it is just around the corner. I have been preparing my garden for that coming season, and I just spent a bit of money buying some plants and supplies for my projects.

Looking over my charges, I realized that I could quickly go overboard in buying items to make my yard look good; fortunately, I did not. About a month ago, I was talking to a friend about her garden. She was tearing out quite a few plants, since everything was so overgrown. My wife had wanted me to fill out our garden more, when we first bought our current home. The yard had been neglected for many years. My wife had fallen in love with this house, and she wanted it to be stunning in appearance for our visitors. Although she appreciated my efforts, my beds did not look lush. To save money, I had bought smaller containers, and I nurtured the plants. This year will be the fifth year of my efforts, and that is a magic number for gardens. You see, it takes five years for a yard to come into its own. During those years, the small plants started to fill up the spaces around them, so now my beds are looking full.

For new homeowners, the yard becomes a major project when they first move into their new house. I see two mistakes being made. First, they want the full plants right away. When the plants continue to grow, they find themselves with a crowding problem, which harms the plants. Secondly, they work on the garden for the first year, and then they discontinue their efforts. Plan out the type of garden that works for you. Perennials and shrubs require less work, while annuals last only a year, but they provide more dramatic colors. Some shrubs and small trees, like azaleas and crepe myrtles, produce lovely flowers, as does the vine bougainvillea. If you like to work in the garden at times, seek out annuals, but otherwise leave them alone. Buy smaller plants, and give them the space to grow. The tags on the containers will tell you the full size, so you can give it the space that it needs. Be satisfied with a sparser look for the first few years, and you will save money.

I would also suggest that the first year should be geared towards preparing your garden beds. Maybe transplant some plants to other locations. My backyard was full of trees that had started as weeds, so I spent the first year clearing them out. By the second year, I was beginning my beds in the front yard. The third year found me working on the yards on either side of the home. I was also evaluating the plants in the front yard. Some plants just were not doing well, so I had to take them out. I created my herb/rock garden by the entrance at this time. The fourth year saw my backyard taking shape. This year will see the completion of the garden space.

If you are not planning to stay in the house long, then large garden projects will not give you your money back. If you are staying in the home, go at your own pace. Your garden will look better in the end, and it will require less work, while costing less. If you want the fuller effect to please the one you love, buy some annuals to fill in those spaces till the perennials grow to their proper size. This tactic made my wife happy. I bought the flats that were the least expensive blooms.

The most important thing is to make a space for yourself to sit back and enjoy your surroundings. Why else would you go through the effort of producing a garden?

Changeable Weather

When I first came to Houston (many, many years ago), one of the first things that was mentioned to me was a fact about the weather. It was said that if you did not like it wait five minutes, and it will change. Our weather is not that changeable, but during the day yesterday, we had a thirty degree temperature drop. I think it is those drops which make us feel the cold all the more in Houston, even when it is not that cold.

I went outside to check on my plants this morning to see how they are handling this climate. Quite well really. My pepper plants are still going strong, and their biggest worry is that my daughter will come to attack them. Basil does not like the cold, but I have two plants that are struggling on. My main plantings this week have been more swiss chards and nasturtiums. I also planted onion sets, which will probably be more for next year’s harvest. I knew that we were in for more cold temperatures, but when I saw that the tomato plants have come in, I decided to give them a try. These plants do not do well in Houston. If you wish to spend the time nurturing them, you can get a crop, but I do not want to lavish that much attention on them. I like being in the garden, but I do not always want to work in it. I am just going to let them wander, to see if they fruit.

I was finalizing some pruning before spring, which will be upon us soon. If you have shrubs which flower in the spring, like azaleas, do not prune them now. You will destroy the bud growth, so you will have no flowers. The best time to prune such shrubs is after the flowers are spent. The plant can grow through the year, and then you will have another nice showing of flowers in the spring next year. Azaleas are quite common in Houston, and I guess that is why I never desired them in my yard. However, I had some bushes in the garden of this house when I bought it, and I have to say that I have enjoyed these spring blooms.

If you are looking for spring color, you will find many options at your garden center right now. It seems that they are already prepared for the coming season, but they now have in stock an item for summer color: caladiums. These bulbs are heat tolerant, and they can give you some vibrant foliage, which will last longer than a flower’s bloom. Check out the different types, and you may find one for your beds.