Foundation Concepts:
- Home ownership is an asset building strategy that has helped many families to improve their financial strength and create wealth. However, while there is a great deal of information available about how to buy a home, there is less information about how to maintain the value of the home you buy, both in terms of the physical tasks that must be done and also on how to finance the cost of those repairs.
- Routine Maintenance, like dripping faucets, snow removal, cleaning the eaves, are tasks that will cost the homeowner a lot of money unless they are able and willing to do it themselves. There are lots of how-to books and workshops at sites like Home Depot that can help you learn the skills you need.
- Systems, such as plumbing, electrical, structural, heating and air conditioning are more complex and need the attention of professionals. These systems have an expected life, and the inspection that was done when the home owner bought the home generally gives an estimate of when these systems need to be replaced. Knowing this time line is an invaluable tool to help the home owner begin to plan for these anticipated repairs.
- Best practice involves setting some money aside each pay period in a home maintenance account. Repairs and replacement can be costly and most home owners will not be able to cover them as a routine expense. By setting money aside in advance, home owners will be able to attend to needed repairs and replacements quickly and with the minimal negative impact on their finances.
- In recent years banks and other lenders have been very aggressive about offering Home Equity Lines of Credit to home owners. These lines were often used for things other than home improvements and now that property values have dropped, many homeowners find that they owe more on their homes than they can sell them for. An alternative is a Home Improvement Loan that is restricted in terms of its use and has a fixed amount to borrow, with a typical loan amortization.
Discussion Questions:
Do you think that Sally will be able to hold on to her home over the long run? What sorts of steps will she have to take to make that happen?
What are some of the routine maintenance chores she will need to take on:
- Lawn care
- Snow removal
- Minor plumbing problems
- Cleaning the eaves
- Minor carpentry
- Changing furnace and air conditioning filters
- Painting rooms
- Replacing light fixtures
What are some of the major repairs or replacements she may be faced with:
- Roof
- Exterior Painting
- Driveway asphalting
- Eave replacements
- Furnace/Oil burner
- Electrical system
- Plumbing
- Foundation
- Window replacements
What is the difference between a Home Equity Line of Credit and a Home Improvement Loan? Do you think it is a good thing to use the equity that you have built up in your home to make it possible for you to buy other things? A vacation? A college education for your child?
What are the implications of owing more money on your home than you can sell it for? |
