One of my favorite childhood stories is The Three Little Pigs. The tale of three curly tailed home builders with a lesson that hard work and a passion for building is more rewarding than extra moments of play time. While two pigs quickly built homes of poor quality giving them more free time to play, the third pig labored hard in quality construction building the best custom built homes in Pittsburgh (or at least that’s the version we were told). Compared to the other two pigs, the third pig’s extra effort paid off, his home lasted longer, was absolutely beautiful, and fulfilled the needs of it’s residents.
You might see where we are heading with this story, but I promise that this tale of three pigs is much more relevant to adults looking to buy a new home!!
Pig 1: The Preexisting or Foreclosed Pig
Pig 1 offers a home that is “affordable”, ready to be moved in right away, has everything you need and always promises that if you do not buy at this very moment, it will be gone!! All very good selling points but let’s take a closer look at this piece of pork.
What might be affordable now, doesn’t always translate to the long term. Let’s look at some basic math and look how out-of-pocket expenses can be higher, even though you are saving 8,000 dollars off the total amount of a preexisting home.
Say you have a Heartland Healthy Home for $275,000 (just throwing a number out there) this includes the Energy Star certification with all of the conserving, reducing, and high quality green materials and products that go into a Heartland Healthy Home, not to mention all the upgrades, square footage, and custom options that you want.
Now let’s say you find a foreclosed or preexisting home for $8,000 dollars less ($267,000). Built who knows when, room sizes that can’t be changed, a master bathroom that is undesirable, but what the heck it’s in your price point and the realtor promised someone else would buy it if you didn’t!!
Making the numbers easy, lets say the PITI (Principle, Interest, Taxes and Insurance) for the Heartland Healthy Home is $1,000 per month.
Since you saved 8,000 dollars on a preexisting home that’s roughly $7 dollars off per thousand dollars saved. Reducing a monthly payment or PITI to $944/month ($1000-$56)
$56 dollars less on your monthly payment sounds pretty sweet right? Right, but there is an inherent monthly payment (burden) that comes with purchasing a preexisting home: costly utility bills due to energy inefficiencies.
To earn the ENERGY STAR, a home must meet strict guidelines for energy efficiency set by the U.S. Environmental Protection Agency. These homes are at least 15% more energy efficient than homes built to the 2004 International Residential Code (IRC), and include additional energy-saving features that typically make them 20–30% more efficient than standard homes. Here is a little foreshadowing to the rest of the story: Pig 3 is a 100% Energy Star Builder!!
Now, let’s look at the cold hard numbers:
Heartland Healthy Home Pig 1
Home Value $275,000 $267,000
PITI $1,000 $944
Utility/Month $125 (25% savings) $200
Actual out of pocket spending per month
$1125 vs. $1144
So with a hypothetical (but not atypical) scenario you can see that what appears to be a 56 dollar savings actually costs you 19 more dollars of out-of-pocket money per month. The numbers used were generated to simplify the language and not actual figures, but you can expect higher out-of-pocket utility expenses per month increasing your overall out of pocket payment by “saving” $8,000 up front.
However, this formula is not entirely accurate!! It is impossible to predict and formulate the maintenance expenses of purchasing a preexisting home. How are the kitchen appliances? the floors? the foundation? will the roof need repaired in 5 years? what about the windows? or How about all of the above? and for what, $8,000? Repairing or replacing one of the above could cost you that much. Think about it… when you build a new home, you get a new home!!
Let’s just say that the Big Bad Wolf (or any wind) blew right through Pig 1’s energy inefficient house!!