Chicago Loft - photo credit by Lavender & Lilies

Finding a home in the perfect location at the right price can be difficult. It seems that most urban areas offer very small homes or homes that are extremely expensive.

Picture this; you find a terrific urban neighborhood that offers walking or biking to local shops and restaurants and the school district is distinguished, unfortunately the only house you can afford is under 1,000 square feet and you know that size just won’t accommodate your family’s needs. An alternative to a smaller abode might just be to raise the roof, literally, by adding a loft. Creativity is a plus in this scenario, you can A.) convert your attic into a room, B.) add a loft to a volume ceiling (higher than just a vaulted ceiling), or C.) raise the roof and build up.

Take the attic for instance; most families don’t use the entire portion of the attic for storage. With the help of a contractor, you can convert a portion of your attic into another room. Apparently, rafter attics are the easiest to convert without raising the roof, truss-built attics require more work to convert and may require an architect. A contractor will make sure your walls and floor will support the weight of an addition. Within your plan, a contractor will also make sure fire exits are available and take into consideration windows, sky lights, and air flow. Resource for attic conversions.

Can’t covert the attic? What about a vaulted-volume ceiling? If your ceiling is high enough, you can build a loft room or just a sleeping loft to add a little extra space. Sleeping lofts are quite popular in cities like New York where space is limited. Narrow ladders can be tucked away during the day and brought out when it’s time for bed. Resource for loft conversions.

West Hollywood Cottage - photo credit Sunset.com

Sunset.com recently showcased a small cottage in West Hollywood. Originally only 600-square feet without much land to work with, the couple built up and doubled the square footage. Adding plenty of windows, using bright white walls and geometric designs and colors gives the illusion there’s more room than what’s actually there.

Would you consider a smaller home in a better, or more prestigious, neighborhood? Would you add on?

A couple of years ago, when property values plummeted, I was inspired to finally begin the journey towards purchasing a home. I live in an area of very high property values compared to the rest of the nation, hence why I waited so long. I knew I had to do three things: improve my credit, pay down my debt, and save for a down payment. I’ve completed two of these three things with the last one being a bit more challenging for me. However, I know I should buy a home in the near future before things swing the other way.

Why is now a good time for me to buy?

Zestimate Historical Data Chart

Housing prices have fallen to an all time decade low while rent has continued to shimmy up. I currently pay a hefty price for a rental when I could instead be paying one-third less and own something in a comparative neighborhood. If I were to continue living in the area I currently reside, there’s one neighborhood in particular I’d choose; it’s the neighborhood in which I grew up in. It’s still a safe, primarily residential, middle-class neighborhood.

Using Zillow to focus on this neighborhood’s housing prices, I selected one property for sale to focus on to analyze buying viability. This particular property is similar in square footage to my apartment, almost 1,600 square feet, and has been updated with granite counter tops and refurbished wood floors. It’s definitely a “starter” home but not considered a fixer-upper. Using Zillow’s Zestimate chart, the property I analyzed has dropped over 10% in value over the past 10 years. That’s a huge drop considering this same property increased 35.22% by the end of 2002. It’s currently selling for a reasonable price of $345,000; steep for a “starter”  home in most states, but a deal in Southern California.

Of course, this is a short-sale home, meaning there’s a lot of messy paperwork surrounding this sale I’m sure. Researching the sales history, this home sold for $315,000 in 2003 and then $540,000 in 2005. Ouch! That was a 71% increase in two years. However, at $345,000 with a 20% down payment and a 3.75% interest rate (lowest interest rates in history!), the monthly mortgage payment would be $1,510 including tax and insurance – that’s $700 less than what I pay in rent.

So Why Am I Not Buying Just Yet?

I can’t predict what will happen to property prices over the next couple of years; they could go down or they could go up. Yet, that’s not why I’m hesitating to purchase property. My two biggest roadblocks to my decision are: 1. I still don’t have my down payment saved yet. As much as I’d like to save 20%, my goal at the moment is to save up 10% of $350,000 and I’m just not there yet. and 2. I may not be living in my current neighborhood within two years. Crime, graffiti, population increases, and the lack of job possibilities have made me rethink the area I live in and I don’t know if I want to live here another 10-20 years. If I purchase a house, that’s the minimum amount of time I’d live in it.

So for now, I’ll continue to rent, work towards my savings goal, and keep my eye on property values. If I see them begin to inch up at an alarming rate, like it did in the early 2000′s, I know I will have missed the boat…again. However, I think it’s safe to say we won’t be seeing that kind of increase anytime soon.

Are property values in your area declining or reversing?

My obsession for residential home designs continues. This is an interview with Kai, the owner of ShelterKraft Werks, a company that builds homes out of shipping containers.

ShelterKraft Werks Container Home

Could you tell me a little about what motivated you to build container homes?

Well, I’ve always loved the challenge of building small spaces - everything from secret forts when I was a kid to a neo-classic dog house.  The idea of using containers first occurred to me when I was working at Starbucks as a store architect, looking out of my office window at the Port of Seattle, with all of the big ships, stacks of containers and cranes, I began fantasizing about stowing away in a Hamburg Süd container and getting shipped to Germany to within 5 kilometers of my grandmother’s house. For the next 10 years, as I pursued various long-distance sailing and architectural adventures, I kept thinking about what it would take to make containers livable and how many ways you combine and stack them – like  playing with giant Legos!

In the fall of 2009 I came back to Seattle and met my partner Anne. With her extensive business experience and my design, engineering and construction background we began to explore the possibilities of starting ShelterKraft Werks. We got excited about how containers could provide a truly sustainable housing method, that also offered something more cost-effective in this new economic era as people are seeking ways to reduce their footprint both ecologically and financially with an awakening interest in small homes. From my sailing experience, I could see ways to make elegant and effective use of small spaces to create comfortable and functional living environments inside even a single container.

It all came together as a culmination of my lifelong passions and Anne’s entrepreneurial experience. What inspires us is the philosophy that ALL people should have a safe and secure place to call home. A home that’s affordable, appealing, durable, and sustainable.

How much do they cost (at minimum)?

ShelterKraft’s fully-built container house lines start at $35K for our CargoCottage(tm), a single 8′ x 20′ container that sleeps two, with kitchen, sitting area, and bathroom/shower. We offer a range of “stock” models up to a 2-bedroom house made from 2 40′ long containers with a base price of $68,000 (http://shelterkraft.com/products/stock-house-models/).

We also offer backyard office/studio spaces with a half-bath starting at $17,000 (http://shelterkraft.com/products/ecottages/).  We can also design custom houses that include additional containers, or stacked (multi-story) structures.

The price per square foot drops a lot as you build larger spaces, since a big percentage of cost goes into the kitchen and bath. On average, it costs 25-50% less to use containers than to use traditional (stick frame) construction for a comparable space.

What information do potential container home owners need to know- such as land requirements, plumbing and electrical, etc.?

All of the ShelterKraft houses come ready to install on the customer’s site, with electrical, plumbing and engineering (which can also include solar, wind, or other alternative energy and water systems). The customer needs to take care of preparation of the site, although we can provide consultation on what’s needed.  Depending on the particulars of the site and whether the house is a single container or multi-container structure, a home owner need only provide simple site preparation: a flat gravel bed or concrete slab with RV hookups (for a single container or more temporary structure), or a concrete foundation or pilings plus utility stub-ups (for a more permanent structure).  More information about site preparation and installation is included in our FAQ: http://shelterkraft.com/faqs/

As I mentioned in on your blog, we have had tons of interest in our homes and our biggest barrier seems to be finding creative financing solutions to under 400 sq.ft. houses (the FHA/HUD minimum size limit to a ‘viable’ house).

*Little House notes: These container homes are amazing. I’m also curious about the financing of these homes. Further research will most likely produce a follow  up post on  how to finance homes under 400 sq. ft.

Would you consider a ShelterWerks home for yourself or a guest house?

It’s that time of year again when I pull my credit reports and review my credit score. One of my on-going goals has been to improve my credit score so that when the time comes to purchase a house, I can get approved at the lowest possible interest rate. So far, my score has been consistently improving. However, using various methods to check my overall credit health, I came across a grading system a few sites like Credit.com and CreditKarma.com use to explain why my score is what it is.

A credit score is determined by a few factors:

• 35% is based on payment history  – I score a B in this category. Just a few late payments a few years ago dinged me in this area.
• 30% is based on credit to debt ratio – I have an A+ here.
• 15% is based on credit age (the older the better) – I have an A+ here as well.
• 10% is based on the types or mix of credit -  I scored an F in this category (see my rant below).
• 10% is based on inquiries – I scored an A- here.

All of my categories look pretty good, except the credit mix. I’ve always been an “A” student, so seeing an “F” in one category made me see red. Using Credit.com, each section has a description that explains the possible reasons I received a particular grade in each category. Examining my credit mix, the only reason I could determine I scored an “F” is because I don’t have a mortgage. Here is an explanation from Credit.com in the credit mix category:

Credit Mix via Credit.com

I’m sure that the amount of student loan accounts don’t help (and it’s really not 11 – they’ve just been bought, sold, and rebundled a few times). However, the description states, “…consumers who have mortgages are more stable than consumers who do not.” Oh, really?!

I don’t think I can completely agree that homeowners are more credit worthy given the whole housing boom fiasco. During the peak housing boom years, pretty much anyone who applied for a home loan got one – and without their 20% down payment. Now, we’re seeing the repercussions – people are short selling and foreclosing at a higher rate than ever before. I’m pretty sure that these “home owners who secured a mortgage” aren’t more stable than me who has been paying rent on time for years (and years).

Let’s replay this – during the housing boom, a potential home buyer didn’t have to have stellar credit. These less than stellar candidates were granted home loans they really couldn’t afford. Now, many of them are foreclosing and short selling their homes and some are living mortgage free until there homes are sold or the bank kicks them out (Squatter -a person who settles on land or occupies property without title, right, or payment of rent.) Now as a renter, if I were stop paying my rent, I’d be given 30-90 days before I had to leave, not months upon months of mortgage free living. Aren’t I, the renter, the more stable consumer?! Don’t my years of rental payments count for something?! Why is it that rental payments aren’t factored into credit worthiness and therefore counted towards my score?

I’m not saying that people who are in precarious financial situations (such as a job loss or unforeseen medical bills) deserve to be bullied and picked on for foreclosing – sometimes bad things happen to good people. My rant here is that renters who pay their rent on time for years should be considered credit worthy. Somehow rent payments should be factored into a credit score.

What do you think? Should on-time rental payments be counted towards a credit score? Are home owners really more credit worthy than renters?

The following is a guest post from Wayne at Young Family Finance, where he writes about the financial challenges for young couples and families, like choosing between daycare or stay at home parenting.

Are you at the point where you want to buy your first home? The middle class strive to own their own homes. Building wealth in real estate is one of the easiest ways to set up an easy retirement. I know that my parents followed this route and will retire in 5 years with a mortgage that is paid off. Think about how much less your expenses will be in retirement with a paid-off mortgage. It all starts with getting into a house at an early age.

When you are considering buying a house, many people will point out to you the hidden fees that come when purchasing your new home. It is great to know what you are getting yourself into, but without a down payment, buying a house isn’t an option. So, how should one save up a down payment? Here are some creative ways to save the 20% required for a home.

Set Your Goal

Before you set about the task of saving for your down payment on your house, you first need to establish your goal. How much do you need to save? Traditional advice recommends that you save 20% down when purchasing a home. You may be able to qualify for a loan that requires less, but the more you save means a lower mortgage payment. Figure out how much you are wanting to spend on a house and calculate what that means for your down payment. Having this concrete figure in mind when you start saving will help speed up the process. It keeps you moving towards this goal.

Reduce Your Spending

One of the first things that you can do to actually start working towards this goal is to reduce your spending. Many people often fail to save up for a house because they do not want to make any sacrifices. They want to have the benefits of home ownership without putting in the hard work to save extra money. If owning a home means that much to you, you should be willing to give up certain things. Can you give up eating out for a couple years to save for that down payment? Or perhaps you can give up cable and going to the movie theaters for a certain time. If you cut your spending, you will be surprised at how much faster your down payment builds up.

Increase Your Income

If you are looking to speed up the process even more, why not work to earn extra money? A few extra dollars here and there may not seem like a lot, but it adds up in the same way that cutting back on your expenses does. Try to think of ways that you can bring in a few extra dollars. Can you sell unused items or perhaps help out your neighbors in some way (for example: baby/pet sitting)?

If home ownership is your ultimate goal, starting with these three steps will help anyone reach this goal. Find creative ways to reach your goal and celebrate your progress as you go along. Before you know it, you will be living in your own house.

What things can you do to save for your down payment? Or what did you do to save for your first down payment?