November 30, 2016 – Top three criteria to determine if a military family should build or buy a new home, presented by Andy May, COO AAFMAA Mortgage Services. Many Americans dream of building a new home. The American dream starts with housing, and designing the layout of a home that serves as a family’s oasis should be exciting. However, military families need to get back to the reality of what it takes to make this investment a success.
The first criteria is a simple one. Does the military family have the financial resources to build a new home? Andy May has built several homes and knows firsthand that building a home is time consuming. One spouse should commit nearly a full-time effort to building the dream home. Time is money. A simple rule of thumb for the financial resources necessary is to have approximately 20% of the post-value of the home in cash. This should cover change-orders, workmanship that isn’t up to standard, and mistakes that occur in the layout of a home. Andy May’s first home had such a mishap. The builder overlooked the location of plumbing. With a quick decision, the size of the interior windows were changed and the plumbing change was cost-free (to the builder). Decisions come quickly and a homeowner must make changes on the fly.
If the military family doesn’t have 20% in cash, they can still build a home but compensating factors (such as other assets and income) should be present.
The second criteria to determine whether to buy or build is whether the military family will gain an advantage in terms of floor-plan layout, lot-to-home layout relative to the surroundings, or location.
To build a home is a major undertaking and many (there are approximately 92 million homes in America, according to the US Census Bureau, 2015) homes already exist. Existing homes may require some upkeep, but the fact is that there is a ready market of homes with comparables and pricing well known (less risk). Additionally, building in rural areas increases the investment risks to the homeowner because demand for resale is lower in rural areas. The recent changes in the appraisal industry from approximately five years ago also negatively influence rural construction.
The third criteria to determine whether the military family should buy or build is knowledge. Is the military family knowledgeable about the costs, time, and process of building a home. To tell if the military family is knowledgeable, the following items should be understood: i) Land contract; ii) Builder contract; iii) Financing agreements; iv) Realtor contract; v) Insurance agreements; vi) Title insurance; vii) Subcontractor agreements; viii) Required cash throughout the process; ix) Potential for exogenous events (weather related events, environmental events, etc.); x) A firm understanding of the military family’s professional team (financial and background check). And lastly, the military family’s ability to handle stress and ambiguity during the process relative to an investment in what is by most standards, one of the largest purchases a consumer will make.
While this article does not intend to dissuade a military family from building, it hopes to educate and illustrate that building a new home requires knowledge, wisdom, curiosity, and a financial acumen. As a military family, call AAFMAA Mortgage to better understand construction mortgages.
AAFMAA Mortgage Services. 844-422-3622 (844-4-AAFMAA). Equal Housing Opportunity Lender. http://www.aafmaa.com/mortgage. Physical location 639 Executive Place, Suite 203, Fayetteville North Carolina 28305. NMLS license number 1423968. 103418.Tags: AAFMAA, AAFMAA Mortgage Services, military family, military mortgage, State-licensed loan officers