Update on the house conundrum:
After my broker told me we couldn't be approved for the dream home's asking price because we'd need 15% down, I felt very relieved, but also terribly disappointed. I started thinking (based on comments here and something he'd mentioned) about the FHA loan option. I looked it up and the loan limit for a duplex in my county is $407,800.
Out of curiosity, thinking we could try for a cheaper home at some point, I asked the broker if the 15% down requirement applied to duplexes if they fell within the FHA loan limit. He said no, as long as the loan didn't exceed $407,800, all you need is 3.5%. That was good news, because sometimes cheaper ones come up on the market (they just go really fast usually).
A while later it occurred to me to ask, what if we made an offer on the dream home where the loan amount was $407K? So with the $47K we could put down, that would take us to $454K, or $16K short of the asking price. To my surprise, he said yes, that would be fine, and he sent over an approval letter!
Well, that was fast! I told my friends and family, and we thought about it some more. As I said I would, I ran more budget projections and thought about worst-case scenarios. And, no matter how I squinted at the numbers, I couldn't get past the fact that if we didn't get the WV money and didn't sell the US condo quickly, we'd have a pretty tough first year and a half. Using up our savings meant saving up for the US and UK renos and just hoping not to have to put any emergencies on credit cards during that time. Plus, it meant not much fun money even if there were no emergencies, and one of the reasons we love the home is its prime location near restaurants, bars, shops, bowling alley, theaters ...
The thought of making that offer just made my whole body feel tense. At that point it was just NT and me, and he said that projection sounded worrisome to him. I agreed and said maybe we just shouldn't make an offer even though we were approved.
I went to pick up AS from something and told her on the way home. She offered a brilliant suggestion: Why not make an even lower offer and just offer to pony up what part of our savings we felt comfortable with?
I loved it. If we didn't use the UK reno money, just our US savings, the UK money could be our cushion while we slowly paid for the US renos and built savings back up. Then by next spring, when it was time to spend the UK money, we'd have US money to serve as a cushion. And when the UK renos were complete, we could rent it out again and start building up money over there, too.
So I asked the broker if I could make an offer of $438K -- $31K down plus $407K loan -- and he said yes. I told my real estate agent and she's reached out to the other agent. So we shall see!
I also did a mortgage calculator and believe that if the offer were accepted, the mortgage would be about $300 less per month than the original loan we were trying for. Further room in the budget!
I don't think they will accept the offer; it's $32K under asking price and we're stipulating that they'd have to pay closing costs, which is probably another $8K or so. But as soon as I made that decision, I realized the two bad feelings I'd had all week were gone -- the stomach-churning worry of stretching too thin, and the aching disappointment of not being able to put an offer on this lovely house. Now I feel like I've done my best without putting my family's finances under too much potential strain.
And, if it doesn't work out, we'll continue our search, but we'll look within the bounds of the FHA loan and the amount we feel comfortable putting down.
Archive for May, 2014
Update on the house conundrum:
Wow, this site can get a bit intense-- and critical! Nonetheless, I think of it as my personal record of my financial life, so I'll go ahead and post.
This morning my stomach was in knots as the mortgage broker emailed and called with messages about how it was going really well, looked good, it was going through -- and then he called and said it couldn't happen.
The down payment on a duplex needed to be 15%, he said. Could I come up with another 5%? Well, no. I'd already gathered all my liquid assets for 10% down, plus my friends had chipped in a bit.
He said he'd go ahead and send a $400K approval letter, and that we'd be approved for a single-family home at that amount, but not a duplex because we didn't have the 15%.
I was disappointed, but also relieved. This would have cleaned out our savings and it would have taken a year to get back on equal footing if we didn't sell our condo and if the WV money didn't come through. The not knowing on both of those unlikely, but possible, scenarios was stressful.
I'm still glad we tried our hardest to get that place, because it would have been the perfect home for us. I don't think another one will come up and tempt us anytime soon, at least not one that isn't snatched up immediately by a commercial buyer. If it did, our hands would be tied unless it was $310K or less -- and the ones at that rate tend to either be in less desirable (to us) neighborhoods or commercial buyers would buy them before we had chance to make an offer.
So now, we'll go ahead with the US renovations, we'll leave the UK money in the UK account (for the time being), and we'll continue to save up money (but without cutting the budget to the bone; I'd only do that if a perfect place was right in front of us).
We're going to have dinner with our friends tomorrow night and talk about the future. Hopefully they will want to keep renting where they are and wait for a better time to buy together. I still think it's a good idea; I just never dreamed it would take such a hefty down payment to do it.
Still waiting to hear back from the mortgage broker about whether or not we can be preapproved. Meanwhile, I thought I'd take a real look at a basic budget for us and see what our surplus or shortfall is each month.
The basic budget includes debt payments, condo dues, daycare, cable & cellphones, groceries, car share, and NT's tuition.
June surplus: $2482.78
July surplus: $2085.47
August surplus: $2630.21
September surplus: $2865.21
October surplus: $4831.88
November surplus: $4928.54
December surplus: $4920.21
January (and after) avg. surplus: $5592.18
So it's pretty much like I thought. If we could keep new housing costs to $2000 per month and started paying the mortgage in August, then August and September would be very tight. (Like, we'd struggle if one of us lost a job.) But starting in October it would get progressively less tight. At that point one of us actually could lose a job and we could continue to pay all the bills (including both mortgages).
So if (worst case scenario) we didn't get the WV money, we didn't sell the condo, we didn't get raises and one of us lost our job and couldn't get another one right away, we could still survive indefinitely.
That's good to know! All four of those are unlikely but possible, so it's best to be sure. We still need to see what the real mortgage payment would be, and I've got calls in to the utility companies to figure out what the energy costs would be, to make sure the $2000 number is realistic.
AS's student loan payment hit, with $138 going to principal. That takes May debt repayment to $928, exceeding the $900 goal.
Our debt right now is at $239, 248. It's weird to think that this may be its lowest point for, well, quite a few years. Here's a snapshot, for posterity:
US Mortgage $152,912
UK Mortgage 1: GBP33334--pays off GBP134/mo $52,677
UK Mortgage 2: GBP7027--pays off GBP28/mo $11,104
UK Mortgage 3: GBP7399--pays off GBP30/mo $11,693
Total home debt $228,386
AS loan $7,656
NT loan $3,206
Total student loan debt $10,862
TOTAL HOUSEHOLD DEBT $239,248
So, a lot's been going on, but I still don't know for sure whether I'm buying the house. Here's the update:
- Deposited the $5K loaned by our friends into savings. Now our savings accounts have just over $47K, enough for a 10% down payment on the $469,900 home (as long as we can get seller to pay closing costs).
- Found out that UK renos don't have to happen until NEXT July, and the current renter has renewed his lease until next May. This is GREAT news because it means we can indeed use the UK reno money for a down payment and build up the funds over the next year. Also our rental income is going up a bit, so that will help with saving up.
- Went back and forth with our realtor over whether the home we want is overpriced. I think we're all in agreement that because of the rent you could get by letting both units, the price makes sense. So we probably won't haggle other than trying to get seller to pay closing costs.
- Filled out a form for the mortgage broker and spoke to him. He said that we would easily qualify for that size loan BUT, because it's a duplex, the required down payment is 20%! Broker says he might be able to do some kind of second loan for the other 10% of the down payment. I should find out tomorrow.
- Made an appointment with our realtor to see the home again on Thursday evening.
- Found out the current renters are leaving. They could try to get us new ones, but I don't want the home tied up for 6 months to a year and then try to kick someone out. We'll probably ask them not to replace the renters, even though it will make the first couple months of mortgage payments tight.
So it looks like the new debt for buying this place would be:
$423K between the two mortgages
$5K to our friends
$15K or so on a 0% card for US renovations
$443K of new debt! But, hopefully we'd sell our current condo in a few months and clear out that $152K of debt, and if we got the WV deal ($50K), we could use it to clear up some of the debt (as well as help fund the UK renovation before it comes up).
But I figured out that if the worst-case scenario happened and neither of these things happened, we could probably still pay off our friends by the end of this year, and the US and UK renovations by October of next year. But I don't think our condo will sit on the market that long. We're willing to price it for the cost of the mortgage to make it move, and we now think our mortgage is less than the current value, so it should be fine. Once it goes away, that clears up $1750 per month that will speed up the paying off of our friends and renovations.
It feels scary, but it also feels like if we could do this now, we could make up the ground and be pretty much where we want to be for the foreseeable future.
I don't think I've really detailed what we're looking at! It's a duplex in the neighborhood we want, close to bus lines and car share cars. The first floor would be for our friends and is 2BR, 1 bath. The second and third floors would be ours and have 5 BRs, 3 baths (small bathrooms but a really big master bedroom). There's a mostly finished basement we would all share with laundry, a big all-purpose room, a kitchen area (!?), a bathroom and tons of storage closets and extra weird little rooms.
Our friends would have a big front porch and a smaller back deck. We would have a big 2nd story front porch and TWO smaller back decks. There's a decent back area that consists of a patio made of paver stones and a 2-car garage; we don't really have use for any of that but figure the space could be made over into a yard instead.
I still need to confirm utility costs tomorrow, but I reckon our costs wouldn't be much over $2000 per month. The mortgage will likely be about $2800, and our friends will pay us $1100. Our current place is $1750 including mortgage and association dues, so not a huge step up in cost, as long as we can ditch our current mortgage pretty soon.
I'll know more tomorrow and will update when I can!
The new home possibility is basically on hold until tomorrow when I can speak to a mortgage broker, though there have been a few more developments since that first heady discovery of the place.
Meanwhile, we've been painting up a storm! We've got the living/dining area, hallway, entryway and inside of front door all painted. That just leaves the two bedrooms, the bathroom and the kitchen. Oh, and when we replace the balcony door it will need painting, and the cabinets in the kitchen are going to get painted.
It looks all right with just oak baseboards, though I realize it would probably look even better with crisp white trim. I just don't know if we're up for all that work, and it would be expensive to hire someone to paint it all. (There's a LOT of oak in this place.) So I think we'll do everything we can before deciding, and see how much money we've spent and what it looks like with more things finished.
If we do purchase a new home this early in the process, we'll definitely be minimizing the staging in this place if possible. Looking at some of the other places in our building, really you just need enough furniture so people have a sense of space and where things might go. We'll see what we can get away with.
Developments on the possible new place: We looked at recently solds in the area and, though nothing quite compares, it seems to be a bit overpriced. We asked our real estate agent and she agreed. She's still analyzing data, but meanwhile she said she'd talk to the listing agent tomorrow and try to get more info about why it's priced the way it is.
Meanwhile, we're trying to prepare to hopefully get preapproved at the asking price, just in case. Between US and UK savings, we're about $5K short what we would need to qualify. Our friends really want this place too, so they loaned us that amount! I should be able to pay them back by mid-August. Or, if we don't get this house, we can return the money earlier than that. We just need it in the bank to have the equivalent of 10% down in there.
I've done the numbers and if we moved in by July, with first mortgage payment due in August, we'd struggle to make the first two mortgage payments and still pay our friends back. However, the place is a duplex and the part that my family would have is currently being rented, for slightly more than what we'd need to cover the mortgage payment. We believe they're month-to-month, so we might basically be able to choose the month we want them out. That would be helpful because we'd be able to pay our friends back and not have to come up with the money for the mortgage right away. We need to find out more about the rental situation before we make an offer.
There's a huge basement that would become available (clearly not being used by the slovenly upstairs renters), so we could start moving our excess stuff there right away, which would make staging our condo for sale a heck of a lot easier.
The other issue is that the down payment would wipe out the money we have saved for the UK and US renos. We found out that the UK renter is renewing his lease, so we've emailed to find out if that's contingent on renovating right away or if it actually pushes the reno date back a lot. That would be great news because we'd have time to save up the money for that again. We hope they'll get back to us tomorrow (today was a holiday in England too).
The US reno, however, needs to be done right away if we hope to sell and get out from under that mortgage payment (and the association dues!). So I see a couple of options, none of them ideal, but all of them workable and not ruinous in the long run:
- Ask my dad for a loan with the promise that we'd either pay him back when/if the WV money comes in, or by a certain date (sometime next year).
- See if we can take out a small home equity loan on the new place right away. You used to be able to do that during the housing boom, but there might be rules against it now. Same payoff plan; either as soon as we get the WV money or, if that doesn't happen, sometime next year.
- Put the renos on the CCs and (gulp) carry the debt for a while. Same payoff plan. (Hopefully we could find a 0% offer and pay it off before interest starts to hit.)
Any of the three would be taking on debt, but I feel confident I could pay it off in a couple months. If (as CCF brought up) one of us lost our jobs, we would still be able to pay the bills but wouldn't be able to pay off the debt for a while.
Anyway, August and September would be difficult if we had to carry mortgages on both places, but starting in October (when NT's tuition stops taking big chunks out of our pay) it would get quite a bit easier. And starting in January (when NT and I will get more take-home pay due to smaller flex spending deductions) it will get even easier. Next September, our daycare expense will decrease by about a third,
I'm curious to hear from the broker tomorrow to see if 10% down is a requirement across the board for places of this price. Because also, if we could do 5% or even 7% down, it gets a ton easier as well (because we'd be able to keep the money for at least one reno and might not have to borrow anything).
If the old place sells, it gets easy faster. And if the WV money comes, there's no problem. But I need to make my calculations as if neither of those things happen because even though both are likely, neither is 100% a sure thing.
And really, nothing is a sure thing yet. If this home falls through, here's our plan for the future:
- Slow down the home search, but focus on multifamily for the searching we do (now that we know the multifamily option could actually work).
- Continue the US reno, and see how long we can put off the UK reno so we can keep that money for a possible down payment in the future.
- If no other houses come up, making an offer early next year would be much easier.
But I really hope this place works out! It was the first place that satisfied most if not all our needs, and it was the only one so far I could imagine calling home.
On our first day of looking at multifamily places (in person), we found a place that would be absolutely perfect for us and our friends. x
It's too soon for our timeline, but if not one of a kind, it's one of not too many. There aren't that many places that tick all our boxes, even from online searches, so it was stunning to find one that did so and then some. We looked at several places, and when we got home, we all danced around what we thought, but soon discovered that we unanimously thought the same place was head and shoulders above the rest.
We're going to see how far we can stretch ourselves to make it work. I'm summoning all my mental strength and going to be doing a ton of budget projections to make sure we wouldn't be taking on more than we can afford.
If we stretched, it would only be for a couple of months to a year. But even that feels weird, so I'm going to look at the budget in detail to see what that would really mean.
Tuesday I talk to a broker to see if preapproval is an option with the assets and income we have. If we get preapproval, we make an offer.
If we make an offer and it's accepted, it's going to be a strange and crazy couple of months! But with five adults working together (us and our friends) I know we could pull it all together.
So, good vibes and thoughts please!
AS is finding humor in the fact that, now that my big writing job at work is winding down, I'm desperately looking for ways to keep the momentum going on our renovation/moving goals. It's true! In my defense, she's got her future employment to think about and NT has two more semesters of college until graduation. Right now all I've got to focus on is the home stuff.
So, here's what's going on in that area:
- 2 possible snowflakes could be coming that I can add to savings! A new co-worker referred me to his old company for a potential one-off freelance proofreading project. And, more exciting though much less money, a new acquaintance of mine has asked if I'll consult with her and her partner (boyfriend? husband? not sure) about their finances. And she wants to pay me for my time! So we'll see if either one comes to pass.
- Painted some splotches on the walls last night to get a sense of what paints we want to use. (Don't worry; I took "before" photos last week!) Our realtor really wants us to use gray throughout, but I feel like a bit of color at least in a bedroom or the bathroom would make the place feel more alive. Probably gray for the main living area and a darker gray for the kitchen; they're always flooded with sunlight during the day, so the gray won't look gloomy at all. Especially with bright white on the woodwork! But I know the realtor has strong opinions and much experience, so we'll see.
- Made an appointment with our realtor to go see some places this Saturday. It'll just be a quick jaunt, but should give us a more realistic view of whether the duplex option would really work.
- Added NT and I to AS's USB Visa. This is a first step in simplifying our credit card situation and hopefully helping our credit report.
- Left a message with a mortgage broker to get preapproved for a loan. Even if we're not able to make an offer in the next 90 days, I'd like to get a sense of what we really can borrow. And if the WV money comes sooner than anticipated, we'll be ready to go immediately if we see the right place.
We took it pretty easy this weekend, loving not having much to do. The summer weekends fill up quickly, so it was a treat that the first really nice (partly sunny and 60s-70s) weekend we've had this year was also nearly free of obligations.
I pulled out a few more things for the garage sale, which is in 2 weeks. I know we can still come up with more. We're going to try and have a rummage through the kids' toys while they're not around and pull out small stuff that we know they haven't played with for a while. I was trying to make the older one part of the process, but she's having a real problem letting go of anything. (Well, she did a good job the first time through, but we still need to get rid of much more. They have gifts pouring in from all sides and it's kind of out of control how many toys they have for their tiny bedroom.)
We met with our realtor and gave her all the info on what we're wanting to do, right down to the variables (with or without land deal money; multi-family or single-family).
She also gave us some advice on renovating and staging. Most of it was in line with the stager's and contractor's advice and what we were thinking anyway; as with anything, she differed on some points. We're taking some of her advice and ignoring some, we think.
It's been good though to talk to three people from three different sides of the process and hear that their advice has much in common, and matches much of our instincts. And I feel good about the things they've steered us away from, since most of the advice will actually save us money. (For instance, our realtor checked out our oven and said it didn't need replacing if we gave it a good clean.)
She did strongly suggest that we paint all the oak in the condo (cabinets, baseboards, built-in). It will take time but not much more money, so I think we're going to follow her advice on that. All of the places we've seen so far have them painted, so I think it's what's going in our area right now. That's something we can chip away at a little at a time, so we'll probably go for it.
I was going to paint samples on the walls this weekend, but AA (the 4-year-old) wants to help, so I think I'll wait and try to do it with her, little by little. It might drive the younger one nuts to not get to help, but I'll just try to get someone to take her for a walk or something to distract her.
The realtor did confirm that we should fix the window that's started collecting condensation between the two layers. It should only be a couple hundred dollars and, from what I remember of hiring someone to replace a living room window, is a pretty fast job.
So those are the things we'll be working on this week: putting up paint samples on the walls, decluttering and adding to the garage sale pile, and setting up an appointment to have the window replaced. If we feel ambitious, we could start looking for new light fixtures and lamps. We'll see if we get around to that. If the contractor gets back to us with a quote, we might put the kitchen renovation in motion, though who knows when it will be scheduled to start.
Things are moving ... slowly but surely!
I've pretty much gone on a spending diet for the past month and a half, after the spending spree that was March (aka birthday) month, and upon the prospect of the land deal kicking our new-home dreams into high gear. Ever since the prospect of that money was dangled in front of me, I've felt more determined to be able to achieve what I would with the money, whether or not I get it.
So not only has my family cut travel and charity out of our budget, but once I'd made up for my overspending of my personal money in March, I continued to minimize my discretionary purchases. I put in for wine every third week for the family, and I've accepted the occasional lunch or dinner invitation out. But other things I want, such as new clothes, more makeup, date nights, have just been put indefinitely on hold. I figure if I'm very good with my money for the next few months, I may be able to fund our hosting of NT's mom and sister in August without having to dip into funds that would otherwise go toward home savings.
Maybe it's the spending diet I'm on, or maybe it's just speculating about what will be next for our family once we're settled in our long-term home. But I've realized over the past month or so -- I'm still a spender deep down.
Not spending for spending's sake; but there are many things I think about and want to purchase, and would do so if I didn't feel like there were more pressing financial matters.
So at present, my view of the future (at least my ideal, though I know there are lots of variables not under my control) would be to buy the home and have enough in the budget to:
- increase retirement contributions (still need to figure out what we should be contributing but it's more than we do now)
- steadily rebuild the EF and medical fund
- pay off the remaining student loan debt at least a bit faster than the minimum
- pay the new mortgage at a pace so it would at least be paid off by the time I'm 65 (which would be 24 years from right now), whether that means a 15-year mortgage or just making extra payments every month
Those are my main priorities, and I would want to address all of them first. But if we had enough income where all of those were being addressed to a level I felt comfortable with, I know what I'd want to do with the remaining money: Spend it.
I've got such a long list, and I know AS and NT have held back on many of their own wants for a long time (there's only so much you can do with $80 apiece per week, even though it sounds like a lot). My wants that have not been fully satisfied for a while, in no particular order:
- Home decor/home improvement
- Wardrobe (clothes, shoes, accessories) and makeup
- Eating out
- Good quality wine
- Gourmet cooking ingredients
- Larger-scale philanthropy
- Going to shows (movies, standup, plays)
- Vacation home (pie in the sky and not very high priority)
Things that are not on my wants list (or very low on it):
- Vehicles (car, scooter, motorcycle, RV, etc.)
- Tech stuff (as long as I have something functional and nice in each category; TV, computer, phone, etc.)
It's hard to think of things I DON'T want, I guess because I don't dwell on them! Let's see, guns, country club memberships, horses/riding, plastic surgery ... I'm sure there are other luxuries that are so far off my radar that I couldn't even come up with them after sitting here for 10 minutes staring off into space!
So I guess what I'm saying is, I haven't really changed the core of me that likes certain things that cost money, and I've even added things to the wants list that weren't there before I started our debt journey. But I never again want to be the kind of spender that leaves my future self in the lurch. I've experienced picking up the pieces after myself for the past 7 years, and it's a lesson learned that I'll never ever forget.
The other $186 (which I did as a separate transfer to safeguard against the chance of overdrawing before our paychecks hit) showed up in the savings account.
I'm still not updating my sidebar until I'm sure my entire sidebar won't disappear, but that takes us to $39,879.15.
$13,411 is earmarked for US renovations, $20,014 for UK renovations. That means we've saved up about $6454 for downpayment/closing/moving costs. Not much, but it's a start!
We've spent $89 so far on US renovations (on the trade show where we met our contractor, and on paint samples and brushes).
We need $28,796 more to get a $29,750 down payment (7% on $425K home) plus closing costs of $4,500 and moving costs of $1,000. (All speculative amounts, of course, just to give us something to work toward.)
Looking ahead the next couple weeks, not too much is scheduled to happen in our renovate/save/move world. Our friend is eager to start scoping out duplexes; not that we're ready to make an offer, but to see if it's even feasible. So we moved our realtor meeting to this Sunday and are going to ask if she can schedule some showings for the following weekend.
Our contractor-prospect hasn't gotten back to us with quotes yet; I imagine if he doesn't get in touch by this Wednesday, we'll nudge him to see when we can expect them.
No word on the WV land deal; it's now 16 days into the "30 to 90 days" the gas guy said might be needed for attorney to certify the title. That's assuming the last person on the right-of-way path has signed and is getting his title certified as well; haven't heard anything more about that guy, so it could potentially be longer if he hasn't signed yet. (And of course it could all fall through if he decides not to sign, but the gas guy seemed to think it would be signed soon.)
AS has hemmed the curtains and they look great, so that's the first thing off our renovation/staging list! Small step but feels good to have something done.
NT's UK pensions:
#1: 17,105 pounds ($27,368)
#2: 19,653 pounds ($31,445)
#3: 4,452 pounds ($7,123)
NT's 401(k): $29,903
NT's Roth IRA: $7,037
AS's 401(k): $12,720
AS's trad. IRA: $1,682
AS's Roth IRA: $18,678
CJ's 401(k): $70,008
CJ's Roth IRA: $7,037
NT's flat: 140,000 pounds ($224,000)
CJ & AS's condo: $145,000
House down payment/moving fund (shared): $24,081
Total Assets: $606,082
Total Debt: $239,386
Current Estimated Net Worth: $366,696
April 2014 estimate: $357,895
Change in net worth: +$8,801
Summary: Big growth, and we finally achieved $600K in assets! Some of the increase is due to upward movement in our retirement funds; the rest because we've been saving aggressively for a home.
I decided to include U.S. savings for a home in our assets, since the money will either go toward renovating (i.e. increasing the value of our current home) or to buying equity/adding value in a new home. I did not include our UK savings, because the UK flat's value listed above is contingent upon the renovations that will wipe out our UK savings.
I will update my "Individual Net Worth" page shortly so you can see how it breaks out per person.
Notes on the numbers above: House value estimates are approximate. I don't have a way to check NT's UK pensions or flat value, so their values stay static for the purpose of this update (unless I happen to get some info by chance). UK asset values and debt amounts are calculated figuring $1.60 for every British pound.