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Time To Build A New House?

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By ILYCE GLINK Tribune Media Services

The Tampa Tribune

Published: February 1, 2009

With all the talk about home values going down, is now a good time to build a new house? Are building costs in sync with market value? I wouldn't want to build at a cost of $300,000 only to find later that the market value of the house is less than what it cost to buy the land and build.

That's a great question - one that doesn't have an easy answer, unfortunately.

There are hundreds of builders who have gone out of business or have taken millions of dollars in write-downs for land they bought and didn't build on.

At the same time, if you own a vacant lot in the middle of an established neighborhood, you may be able to build a great home that will not only retain its value but increase it over time.

Here's some extra credit homework that might help you make your decision: If you're planning on building a 2,300-square-foot home with modern conveniences and upgrades and it will be located in a neighborhood where homes are selling for $100,000, you're likely to find that building will not be economically feasible.

But if homes are selling for $400,000 in that neighborhood, you might find that building a new home is cheaper than buying one. The key is to understand the true value of homes in the area and know what type and size home can be built there.

You might want to sit down with a contractor to determine what the average cost to build a home runs and then see where things go from there. In some parts of the country, building costs can run under $100 per square foot, while in other areas the amount is significantly higher. If you put up a manufactured home (pre-built in a factory, shipped in pieces to your location and assembled in a day), the costs might be less than $80 per square foot.

Finally, if you're building a new home in a neighborhood of new homes and values have remained stable, you might be able to find an architect, a contractor and building trades willing to work for substantially less than they would have a year or two ago.

Take a look around at how many new homes there are in your neighborhood of choice, how many are in foreclosure and what's selling. Imagine it doesn't change for five years or more. That's where you could be in the worst-case scenario.

But if you're planning to build and stay there for 10 to 20 years, unless you're very unlucky and you buy in an edgy neighborhood that never takes off, that length of time should see home prices stabilize and ultimately rise.

Is it true that effective Jan. 1, it is required to put 3.5 percent down on the purchase price when buying a home?

The Federal Housing Authority has indeed raised the minimum down payment from 3 percent to 3.5 percent as of Jan. 1. This assumes that your housing cost-to-income ratio is no more than 31 percent.

In other words, you cannot spend more than 31 percent of your gross monthly income on your mortgage, homeowners' insurance premium and real estate tax payments.

For details, go to www.hud.gov.

We want to change the title of our house to my niece who lives in Switzerland. She is separated from her husband. Would that be a problem?

You might want to rethink that plan. There's no reason to change the title over to your niece, particularly since she doesn't live in this country.

If your goal is to make sure she receives the property after your death, the easiest thing to do would be to set up a living trust, put the title to the property into the trust, and name her as the sole beneficiary. That way, you're leaving her an inheritance (which she receives at the current market value of the date of your death and not as a gift on which she - or you - may owe gift taxes). This also helps if she is getting separated from her spouse. You wouldn't want to give a gift that could possibly be construed as being part of the marital estate.

Please consult with an estate lawyer or accountant before you do anything.

Write to Ilyce Glink at Real Estate Matters Syndicate, P.O. Box 366, Glencoe IL 60022; or e-mail thinkglink@aol.com.

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