~56~On Buying a House, Part 2

The other day, I posted about the processes we went through and decisions we made prior to finding our house.  Today, I'm going to outline the steps we took from the moment we found the house to close. 

*FINDING THE HOUSE*

Jake discovered our house at the end of January while perusing the Realtor.com website.  I had previously saved the listing in my "favorites", but never looked at it close enough to schedule a showing.  I think that part of it was because it was originally listed outside of our ideal price range, so I never took it seriously.  In December 2012, it was price reduced into our search boundaries.  Thankfully, Jake made me look at it again and we agreed that it would be worth looking at.  I quickly contacted my realtor and scheduled a time for us to look at it. 

*HOUSE SHOWING*

It took us a couple of tries to view the house.  The first time, our realtor got sick and asked to reschedule.  The second time, one of the seller's children got sick and asked to reschedule.  We started to get antsy about getting in in a timely manner, especially, when we were informed that two other people were coming to look at the home before we were able to go due to all of the rescheduling.  

During the showing, we considered the amount of space that was available, the layout of the home, and looked for our must haves.  This was honestly the first home that didn't make us say, "I really like it, but…."  It has all of our must haves, plus some.  It was completely move-in ready and aside from some paint and a little updating, didn't need anything done to make it feel like home.  The carpet was new, kitchen remodeled, newer roof, newer furnace, newly painted siding.  We were very excited about the possibility of making this our home and made sure to let our realtor know.  After Jake and I discussed the desire to pursue the house, we set up a second showing with Jake's parents to get a second set of eyes looking it over.  We wanted to make sure that we didn't overlook anything that might cause problems down the road.  We got the seal of approval and decided that we wanted to put in an offer. 

*PUTTING IN AN OFFER AND GETTING IT ACCEPTED*

Once we decided to make an offer, we had to decide what to offer.  We used the recommendation and expertise of our realtor to guide our decision.  We looked at what other homes in the area had sold for and considered any areas that we'd need to put money into in the near future.  We settled on a low-end offer that was $8,000 less than what it was currently listed at to feel them out and provide a starting point.  We asked that they pay all closing costs, and leave all appliances (the listing only offered the stove/microwave/dishwasher, but withheld the fridge/washer/dryer).  

Putting in an offer was a much more official process than I had thought it would be.  We met with our realtor at her office, filled out, and signed a purchase agreement that stated our offer price and conditions.  We also wrote a check for an earnest money deposit.  This basically tells the sellers that you're serious enough about the property that you're willing to put some money down on it.  These funds do not go to the sellers themselves, but rather are held in a trust account and credited to the down-payment/closing costs at closing. I was most surprised by how quickly we were expected to get a response.  This was written into the purchase agreement-requiring the sellers to respond by noon the following day.  We heard back that evening.  

The sellers countered our offer, raising it $6,000 from our initial offer, agreeing to closing costs and the fridge.  Prior to our offer, they had two accepted two other separate offers and both of them had fallen through before they made it to closing.  The sellers were a bit hardened about the whole process.  As a result, they asked us to increase our earnest money deposit to $1000.  We didn't have a problem with this because it all goes towards your amount due at closing anyway.  If anything falls through between then, the deposit is returned. They also asked for a two day difference from closing to possession.  This baffled us a bit, but after talking to our realtor, we learned that the reasoning was that since they can't close on their new house until they'd finished closing on their old (the one we're buying), they might not be able to move until the day after we close.  The two day buffer gave them some wiggle room.  The timing was perfect and we intentionally scheduled our closing date in the middle of my spring break to allow ample time to move and get settled before going back to work.  This 2 days to possession prevented that perfectly laid out scenario from happening.  In our counter offer back, we asked that if they wanted a 2 day buffer, that we close 2 days earlier so that we'd still be moving in on the same day.  Since they were still planning on keeping the washer and dryer, our new offer was $1500 less than their counter.  Their response came the next morning.  They raised our newest offer by $1000, but included the washer and dryer.
We decided to accept!  

The negotiation process was honestly really stressful for me.  I hate the unknown and even more so, I hate waiting.  It was practically killing me.  I kept going back and forth on whether or not we should agree to a higher price.  I kept saying that I never wanted to go as high as we did, but then I realized a couple things that helped me see why it was ok.

1. We were getting everything we asked for in our original offer, but for $6,000 more.  Was I really willing to give up this home over $17 a month ($6000/30years/12months)?  Was I really prepared to walk away from the house and be okay with it.  In the end, the answer was no.
2. There were no other homes in this price range on the market that we'd seen in the last year that had newer everything.  It was worth the piece of mind knowing that we probably wouldn't have to spend a bunch of money on large repairs shortly after moving in.  I'd rather pay a little more now than potentially a lot more later.

*I will note that the final purchase price was within our monthly budget that we set for ourselves when we first started looking at homes. Had the sellers wanted more than what we could have comfortably afforded, we would have walked away.*

*INSPECTION*
Within 10 days of an offer acceptance, we had to schedule and complete an inspection, which was paid by us.  From what we heard, most inspections cost around $250-$350.  Luckily, a neighbor of Jake's parent's was a certified inspector and was available to complete our inspection.  We knew that we could trust him to tell us if anything was wrong with the house and he also did it at a lower cost of $200.  During the inspection, myself, Jake, and our realtor were present while the inspector worked the entire house-exterior and interior making sure everything was in good, working condition.   It passed with flying colors!  We had also contemplated having the fireplace and chimney inspected because on the disclosure, the sellers weren't sure if it was working or not.  This would have been a separate inspection.  We didn't get it scheduled within the 10 day window, but we agreed that if it didn't work, it wouldn't be a deal breaker for us.

*SETTING UP A MORTGAGE*
We had originally planned on using our current bank to finance our mortgage, but discovered during our pre-approval process that they no longer do FHA loans.  However, they were able to refer us to another lender that does do FHAs.  In addition, our realtor recommended a mortgage lender that she has done business with a lot. We decided to shop around and see who could give us the best rate.  In the end, our realtor's recommendation gave us the best rate at 3.25%  He was extremely helpful throughout the process and very knowledgable.  We communicated exclusively through email.  It took less than 12 hours to get a pre-approval through him and after our offer was accepted, he was prompt in sending us the paperwork and letting us know everything we needed to do to move forward.
The biggest thing was a 45 page mortgage application.  On it, we signed or initialed several pages, verifying our banking information, employment, and debt.  Also included in it was our estimated monthly payment-known as a good faith estimate, and amount due at closing.  After submitting the application, all we had to do was wait, while underwriting did their work.  While a pre-approval is a good indication that you'll qualify for a mortgage in the amount that you've requested, nothing is set in stone until the underwriter gives you the green light.  It took us almost 4 weeks from when we submitted our application to when we were officially set to close.  Those 4 weeks were agonizing!  While we were waiting, we avoided doing anything house related for fear of jinxing ourselves.

*MISC ITEMS*
1. Ordering furniture
We started looking at furniture the week that we found out we were clear to close.  We did a first look, thought about it, and then returned to the store with the best deal and furniture the next week.  We're so glad we did.  We didn't think about items being out of stock and needing to be ordered from the warehouse, which we were informed could take 3-4 weeks.  We're so glad that we went when we did to order our furniture because even with ordering a month in advance, our bed frame will not be here in time for the move and we'll have to wait an extra week to get it. (see what we got HERE)
WARNING: DO NOT purchase large amounts of furniture on credit or open any new lines of credit.  Even if you've fully been approved, adding large amounts of debt before you close on your home can cause you to lose your financing.

We put a 25% down payment when we ordered it and secured our shipping date.  We will return after we close to pay another 25% and finance the rest because the store is doing 21 months of interest free financing.

2. Finding a renter to sublease the apartment
Our lease on the apartment that we're currently living in isn't up until August 1st.  With the way mortgage payments work, we wouldn't need to pay our 1st payment until May.  This meant that we needed to get someone into our apartment until May, but would be better if we could get someone to start renting in April giving us a payment free month.  I was skeptical at first about getting someone to rent it for such a short amount of time.  However, after listing it on Craigslist, I had gotten at least 5 interested responses within the first 12 hours. Luckily for us, we had been living at the apartment for so long that our rate was locked in at a low price (over $100 less than they typically go for now) and would carry over to whomever took over our lease.   This made our unit a hot commodity.  By the end of the week, had someone locked in to rent starting April 1st!  This was a huge sigh of relief.  While we were prepared to do it, the idea of having to pay both a mortgage and a rent payment for 3 months did not sound like fun.

3. Homeowners Insurance
Once we were set to close, we needed to set up our homeowners insurance and get the information to our lender because this payment is escrowed into our mortgage payment.  A friend of ours is an insurance broker for his own business, so we contacted him to see what rates we could get.  We also checked with Nationwide, our current provider for renter's insurance.  Our friend got us an amazing quote through West Bend that was almost half what Nationwide quoted us, and with better coverage.  I was pretty impressed with how low homeowners insurance is per month.  We were able to get a rate of about $600/year.  In addition, we were able to bundle in our car insurance for a much lower rate than we had currently been paying.  (I'd tried bundling our renter's/car insurance, but separately, they were cheaper).

4. Utilities etc...
About a week before close, I spent a lot of time on the phone getting utilities transferred, cancelled, and added.  We transferred our electric service, added gas, water, and trash, and canceled our current water and trash.  In addition, we set up forwarding of our mail, set up of cable and internet (we made the switch to DirecTV), and canceling our current car and renter's insurance.

*GOING TO CLOSING*
Friday before we closed, our mortgage lender sent us an email letting us know what we needed to bring to closing.  It was just 2 things: A certified check for the amount due at closing (which he also let us know what that amount was), and our driver's licenses.  That's it.  We closed on Tuesday morning at 9am.  It took about 40 minutes.  We met with our realtor, our mortgage lender, and an attorney.  We signed a bunch of papers, were given a key to our house, and walked out as homeowners!

Unfortunately, we weren't allowed to move in until Thursday, two days later.  After closing, we went shopping for a few things for the house,  pay off the rest of the furniture we picked out, and then back to our apartment to finish packing.



We are now all moved in and slowing getting everything put together.  We are loving the new house already and so excited to show it off to our friends and family.  I will be back within the next few weeks to update on our progress.

Until then,

~55~On Buying A House, Part 1

For most people, the largest investment they'll ever make is buying a house.  Recently, Jake and I purchased our 1st home.  We are all set to close in just 12 days, but there was a lot of research, time, and waiting that was involved in the process.  There is a lot of information out there about buying a house from websites such as Homes.com, Realtor.com, Zillow, and other expert authorities on the topic.  However, in my own research, I did not find anything that clearly explained the process through the eyes of a buyer.  Therefore, I thought I'd share my perspective and experiences of buying a house.  This first part will outline the information, research, and decisions we made or considered prior to making an offer.

**Disclaimer: I am by no means a real estate professional or expert.  The information presented in this post is simply a summary of my own perspective and experiences regarding the home buying process.**

*DETERMINING A BUDGET*

For the past 2 years, Jake and I had discussed buying a home, but hadn't felt completely ready quite yet.  It wasn't until about a year ago that we started seriously looking.  In March, 2012 we met with a mortgage loan officer at our local bank and discussed what things we need to do and consider before purchasing a home.  We also discussed what we could afford.  Prior to meeting with the bank, we took a look at what we're currently spending on rent and determined what we'd feel comfortable spending per month on a house.  When we went to the loan officer, instead of asking him how much we could afford and going from there, we told them what we wanted to spend per month and asked how much house we could get at that rate.  We knew that the bank might tell us that we could afford more, but we wanted to make sure that we felt comfortable with the cost.

*FINDING A REALTOR*
We stumbled upon our realtor by happenstance really.  We were looking on Realtor.com and found a property that we were interested in seeing and I sent an email to the listing agent to set up a time to do so.  She let us know that if there were any other houses we were interested in, she would be happy to show them to us.  We liked her a lot-and she seemed to really understand what we were looking for, so we decided to stick with her.  She was very knowledgable about the home buying process-particularly with first time home buyers.  She was easy to communicate with and was always prompt in returning calls or emails.  If we hadn't found her, we would have asked our friends for their personal recommendations.

*FHA vs. CONVENTIONAL LOANS*

There are 2 major types of home loans that we considered when starting the process, FHA (Federal Housing Act) and Conventional Loans. After weighing the pros and cons of each, we decided to go with an FHA loan.  FHA loans only have a minimum of 3.5% downpayment; whereas conventional loans usually require 5% down.  While ideally, we'd like to put more than that down, realistically, with what we were paying in rent, that just wasn't going to happen within the timeframe that we were wanting to buy a house. Typically, FHA loans have a slightly higher interest rate than conventional loans, but with the way the market is, we were able to get an excellent rate of 3.25%.  Also, while it wasn't a factor for us, FHA also has a lower minimum requirement for credit scores than conventional loans.  

Regardless of which loan is chosen, if you put less than 20% down, Private Mortgage Insurance (PMI) is required.  This fee is escrowed into the monthly mortgage payment and is calculated based on purchase price of the home, downpayment amount, and credit scores.   It is imposed as an insurance to lenders in case the borrowers default on their loan.  Once either 20% of the principal balance is paid off, or 20% of the value of the home is added, PMI payments cease. However, it is the borrowers responsibility to keep track of this and bring it to bank's attention once either of those points have been met. 

The major difference between conventional and FHA loans is the type of home you can buy.  In order to be FHA approved, the home must be in good condition, without any structural issues.  FHA can be very strict on this and even something as insignificant as peeling paint on the windows can prevent a house from being FHA eligible.  Therefore, a "fixer-upper" is not going to qualify for an FHA loan.   However, FHA does have what they call a "rehab" loan, known as an FHA 203K loan.  These loans provide upfront money to make renovations and repairs to a home, of which, the cost is rolled into the mortgage.  For example, if we bought a house for $100,000 that needed $40,000 in repairs, the lender would provide the $40,000 needed-paid directly to their approved contractors-and your actual loan/mortgage amount would be for $140,000. 

*SHORT SALES*
Over the years time that we spent looking at houses, we learned a lot about the different types of sales a house can be sold as.  Within our price-point, many of the houses we looked at that also fit many of our "must haves" were listed as short sales (SS).  This put my researching into overdrive.  Here's a summary of what I learned:
1. The owner owes more on the home than it is worth. 
For example: They bought the house in 2000 for $200,000 and still owe $170,000 in 2013.  However, the home is only valued at $150,000 today.  The owner may be selling because they no longer can afford the home and need to downsize their living costs, or they may be relocating and thus sell the house,
2. The list price is set by the seller, but must be approved by the bank.
Remember that the bank is the one taking the hit by basically giving the home owner a pass on the difference between what is owed and what the home sells for.  This is why the process is actually not so short.  It could take as little as 30 days, but can also take as long as 3-4 months to get approval. The term short doesn't come from the amount of time it takes to close, but rather the fact that the home is selling short of what is owed on it.
3. Just because the house previously sold for $200,000 and you buy it for $150,000 does not mean you've gained $50,000 in equity.  
The whole reason the house is selling for less now is because it's not worth as much.  It's quite possible to get an approved offer that's lower than the homes current value; however, the bank is going to want a sale price as close to market value as possible.
4. You might have a harder time getting an FHA approved loan on a home that is also a short sale
Remember, FHA loans have stricter guidelines on the types of homes you can buy and they condition that they are in.  A lot of the short sales we looked at needed some work.  One home was in the middle of a remodel project when they ran out of money.  The basement was only 1/2 finished.  The upstairs was missing framing around the doors.  Only half of the kitchen cabinets had the proper hardware on them.  Other homes weren't kept up once the seller realized they weren't going to make any money off of the home anyway.  Additionally, SS are going to be sold As-Is.  The bank is losing money as it is, so they're not going to pay extra to have things fixed that would cause the home to fail inspection.

In the end, the home we bought was a traditional sale.  While we weren't opposed to a short sale, they do take a lot of time and patience.

Next post, I'll talk about the process from choosing a house and putting in an offer to close.
Until then,  

~54~Hooray for March!

If you remember last year's post at all, you know that I am a huge fan of March.  There are always so many wonderful things going on during this month, that it is pretty darn hard to top.  Now if only the snow would stop and the sun would come out.  This month in particular is going to be pretty spectacular, I just know it!

Aside from it being National Craft Month, here are the top 5 exciting things going on over the next 31 days: 

5. Orchestra+Ballet

I will once again be playing with the Des Moines Community Orchestra accompanying the Des Moines Ballet Company in this year's production of Snow White.  Last year's Wizard of Oz was nothing short of amazing, and I am hopeful that this year is as well.  The performance will be on Sunday, March 31st (also Easter Sunday) at the Civic Center downtown.  While it is A LOT of work, it is incredibly fun. 

4. My parents/grandma are coming to visit

I go home to Minneapolis several times a year to visit family and friends, so it's a special treat when they come here to visit. (It's true, Minneapolis > Des Moines) In celebration of Easter, our new house, and my birthday, I was able to convince them to come see the ballet and have Easter brunch at OUR HOUSE!

3. Spring Break

 2 weeks from today, I will be heading home to Minneapolis to see some friends, and to do a little shopping at IKEA for the house.  These 10 days off will be a much welcomed break from work.  

4. My birthday

I will be turning 28 at the end of the month.  I have no idea what I'm going to do to celebrate, but I always look forward to spending it with family, friends, and good food!

5. The house!!!

 As mentioned in previous posts, we close on March 19th and move in March 21st.  Jake and I are beyond ready for this exiting move and are anxiously counting down the days! We also officially have someone lined up to sublease our apartment starting in April, so we'll have a month free from living expenses!  

What exciting things do you have going on in March?  

What's your favorite month?