The End Of That Story

This story has reached its end.  The seller did not accept my offer, which is probably just as well, since I was having a hell of time trying to scrape the money together.

I learned a lot in this process, so the next time I do this, I’ll be much better prepared.  For right now, I’m going to enjoy the Christmas holiday and de-stress.  The next chapter will probably come sooner than I expect and the war chest will be stronger than ever.

Fortunately, I didn’t get overly emotional about the purchase, although I was willing to do a lot of crazy things to make it happen.  That’s a fine line to tread, for sure.

Until next time…

Denied? I Don’t Even Want To Know

Two things have happened.  The first is that the house I’m pursuing has been “delisted”.  I don’t know exactly what that means.  The last time it went off market, one website said it was in “pending” status, and the website I see it on now says “delisted”.  But that website also shows it went “delisted” the last time too.

What does that mean?  My first reaction was that I didn’t win the bid.  Later, after thinking about it, I haven’t gotten any information from my agent, so maybe the seller has collected all the bids they want and has closed the bidding process while they evaluate them.  That makes sense, right?  So I’m not exactly out of the running just yet, am I?

Or am I?  My options for funding are running extremely thin.  I got an email back from the credit union.  They will not budge over $20k, not as a personal loan and not as the clever credit card option.  So, that leaves me short by $18k (ideally) or $10k (aggressively).  What’s left to do?  I can tell you unequivocally that I am not going to do some insane thing like take out a cash advance on a credit card, even though that could be accomplished.

Just for illustrative purposes to show the possibility:  I jumped on the Capital One website, since I have a high-limit card with them.  I can do a cash advance of $10k with them.  The APR for cash advances is… WHHHHAAAT!  24.9%!!!!  Ok.  Ok.  That would be fine.  Let’s see.  A $10k balance would be a little over $200/mo just in interest.  Assuming it’s still “like a credit card” like I calculated with my credit union, the payments still would be achievable in the short term.

But, we have to kill that 25% APR.  So, we initiate a balance transfer to someone who is running a 0% promo APR for balance transfers.  You want to know why banks do this, even though it seems they won’t make any money on it?  There’s a balance transfer fee, which is either fixed or a percentage of what you are transferring.  They get money.  Ok, off to NerdWallet so we can check Balance Transfer cards.

Well, surprise, surprise.  Chase has a card that has 0% APR for 15 months and 0% transfer fee if done within 60 days.  But just to point out how normal luck would play out, the next two best cards have a 3% transfer fee.  So that’s $300, right there.  But you get 0% for 18 months.  Not all bad news.

So let’s add this up.  My first month at Capital One would be $200 in interest.  My balance transfer would be another $300, then I would probably have some residual interest from Capital One because of the average daily balance calculation, so let’s guess another $100.  A total of $600 in interest and fees to get 18 months of financing, which I would eventually convert to a home equity loan anyway.  Not to mention the previously-discussed major hit to my credit score based on utilization, which would affect my home equity rate.  It’s doable, but far from ideal.  There’s a reason the boring and simple solutions are so much better than clever solutions.  You know the old adage, banks only lend to people who don’t need the money.

Back to reality.  What’s my last-ditch option?  The Internet.  Lending Club offers up to $35k personal loans at 7-9% APR (for 5 years) with a 1-4% fee.  The APR is pretty much in line with other personal loans, but that origination fee… man.  Let’s see, working on a $30k loan, that’s a fee between $300 and $1,200.  Worse, the fee is deducted from the amount you borrow, so a $30k loan may only net me $28,800.  Maybe this isn’t such a viable solution.  Any other options?  Yeah, a 401(k) loan.  But I can’t even stomach that thought right now because of reasons.

Right now, I’m not even sure what’s going to happen.  All I know is that I haven’t paid any earnest money yet, so my only loss at this time is a few credit inquiries on my credit report and a whole lot of time.  I’m still safe to bail if I feel this is just too risky.

The Bank Run

Well, that was interesting.  Over lunch, I went to my local credit union at which I am a member.  I met with the branch manager (but I’m not sure if she was the actual manager or just had a manager title).  Anyway, I explained the mortgage situation and she said she would have to refer me to an outside department that would call me back probably on Monday.  That’s not good enough.  I didn’t want to be handed off.  I wanted to discuss my issue.

“Orrrr…” I interjected.  Then I pitched her the idea of a personal loan.  She asked how much I needed and I told her $34k.  Something in her face told me that wasn’t a good number.  I asked, “too much?”  and she said their personal loans only go up to $20k.  I pressed a little further, “never more than 20?”  And she said, unless it’s an exception.  Well, let’s get ourselves an exception.

We started in on the application process and, as expected, my credit qualified me for the maximum of $20k.  Then we move to the exception part.  She wrote in an application note the details of why the loan needed to be $34k and sent it to underwriting.  Soon (pretty quickly, I thought), they responded with some questions.  Those got answered.  Then more questions.  More answers.  I emailed them a copy of my latest paycheck.  I gave them balances of other funding accounts.  And we waited and chatted.

I ended up leaving to give her time to have lunch and let them munch on the credit risk.  But while we were talking about this loan, she said to herself, “I should have submitted it that way.”  What’s that?  Well, It’s a pretty damn clever idea, that’s what.

The idea is:  She submits the application for a credit card, then, when approved, immediately does a cash advance into my checking account.  You’re probably thinking, what the fuck?  A cash advance on 34K at probably 18-22%?  Insanity!  But the credit union is running a cash advance promo, 4.5% for 36 months until the end of this year.  That’s pretty good.  That’s a better rate than the personal loan.

Oh, but wait, it’s for 36 months, not 5 years.  How the hell can I pay that?  Jesus, that’s $1,000/mo.  But no, it’s a credit card.  Your minimum payment is only 2% of the balance, which is $680, a little less than the $700/mo for the personal loan.  Hey, that’s pretty awesome.

Oh, but wait.  I ask, “But how will it get paid off at 2% a month?”  She smiled and said, “It won’t.”  And I realized, it’s a credit card.  Just like every other credit card.  Your minimum payments will take a balance into timelines approaching infinity.  I know that very well and I‘m surprised I even had to ask the question.  Still, a clever idea and still a potential option.  It’s actually a pretty good option because I really only need some floating money until I can get the home equity loan.  36 months is plenty of time.

There’s one real significant risk with the credit card approach and it’s one that most people would not consider.  A fair amount (30-45%) of your credit score is based on credit utilization.  I’m talking about adding 34k to my available credit and immediately using 100% of it.  My credit availability isn’t bad, spread over five cards, but we’re still talking a utilization level well over 30%, which is traditionally when bad things start to happen.  But the negativity isn’t permanent; nothing ever is.

So, when I left, I hoped I had all the questions answered.  The bank manager would call me when she had more information.  This is all dependent on whether my offer is even accepted.  On that front, my sales agent told me it wouldn’t be any issue to switch the payment in the contract to cash after it’s accepted.  So that’s good.

Then I got the call back from the credit union.  I was only approved for $20k, not the $34k I needed.  I had to tell her that wasn’t good enough.  To her credit, she said she would call them back and plead my case.  I fired off an email saying I would accept $30k.  That will lower the war chest to $6,000, still enough for a hot water tank and insurance.

Then I got a call back from another person at the credit union.  I’m not sure it was a return call from my previous attempt or from today’s visit.  It was someone from their mortgage department, though.  So, I switched gears (this took a little umm-ing and hold-on-let-me-think pauses) and talked again about a loan that would let me buy without having the required stuff installed.  It seems the more I discuss it, the more the story changes.  It becomes more matter-of-fact and less oh-my-god-what-do-I-do.  A lot of the things I thought were important early on are not important to mention now.  The lady was helpful in that she listened and seemed to try to come up with solutions for me, but not helpful in that she didn’t have something she could sell me.  We left that conversation with her going to do more research.

You can’t say I’m not trying.

Fire Up The Calculator

I’m giving some fair consideration to the idea of buying the house in cash with a personal loan and then paying off that loan with a home equity loan.  That gets me around whatever issues a mortgager has with the condition of the house.  Yeah, screw mortgages.

So then, let’s do some rough math.  A personal loan has an APR of about 9% and a max term of… ohhhh… 5 years.  I need to borrow $38k, and that works out to a payment of about $800/mo.  Holy shit.  I could handle that for a few months, but not for very long.  Ok, assuming I can stomach that, a home equity loan has an APR of about 6% for a max of 15 years.  That’s a payment of $322/mo.  That’s nothing like my original budget of $181/mo for 30 years at 4%.  But between that and nothing at all, it’s a viable option.

Now for some finer math.  My initial numbers were still working with the amount I would finance if I put 20% down, which was $9,500.  With a war chest of $24k, that left $14,500 left for repairs, insurance, etc.  If I pull out an extra $4k and borrow $34k, that makes the personal loan $700/mo and the home equity loan $288/mo.  Then I have $10k remaining for repairs and updates.  That’s an even more viable scenario.

The war chest is growing by about $600/mo, which will put me in a deficit as long as I have the personal loan going.  I do have other funds that can make that up, but I want to try and keep this as safe as possible.  I would hope to be able to get the home equity loan within 6 months, so that would be $600 gone from the war chest in the time I maintain the personal loan.

There’s one unknown issue at this point: the roof.  If the roof needs replaced, that would destroy my savings entirely.  However, this is dry season and many months until next hurricane season.  And who knows, by then, my housing situation may be 1000% different.

I think I’ll be stopping at my bank during lunch break.

It’s Not Looking Good

Yesterday was a whole lot of bother.  I sort of opened a can of worms when I asked the mortgage broker if I could get the loan when the property didn’t have a kitchen or a hot water tank.  He said no.  I asked him what other options I had.  He said none.  I asked about a 203(k) loan.  He said they don’t offer that product.

I’m not completely giving up yet.  I consulted with a couple of co-workers who are in the foreclosure rehabilitation business.  I figured they would be good resources.  The one surprising thing I learned is that because of my employers relationship with Fannie Mae (the mortgage holder), I have to disclose that relationship to the listing agent and also tell my manager I am pursuing a Fannie Mae property.  But that’s a personal detail I’ll have to keep in mind for potential future purchases.

Our discussion focused on what makes a house habitable and how can that be accomplished.  They suggested I call the county office and ask them.  We also thought maybe I would be able to put a clause in the purchase contract something like “Purchaser will pay for necessary improvements to property in advance of closing to attain certificate of occupancy.”  I was a little skeptical something like that would work since the HomePath addendum I got the other day made very clear that there are to be no alterations to the property before closing.  But it sure sounded good.

That afternoon, I called the county offices and got transferred to the Permitting department.  I’m not entirely sure they understood what I was looking for.  I wanted to know what was needed to attain a certificate of occupancy, and all the information I got was what type of work will require a permit.  Water tank: yes, screened in porch: no, plumbing or piping: yes, altering walls: yes.  I’m not doing any of that.  He also suggested I work with the bank to try and have that work done by them at my expense.

So, I emailed my mortgage agent and said I was going to pursue that option.  He clarified the house must be livable at the time of appraisal, not at closing.  Fine.  Whatever.

Around that time, I got an email from my sales agent and she said there are multiple offers submitted.  The term she used was “highest and best”, which required a bit of investigation.  That term means that all offers are being collected and one will be chosen from them.  “Highest and best” is pretty much a message to buyers saying, “you get one shot at this, make it your final offer because there’s not going to be a counteroffer.”  So my agent asked me if I wanted to up my offer.  I said I’d just go as-is at the asking price.  Then I asked if we could put that clause in the purchase offer to pay for required improvements.  No, it was too late.

At this point, I’m sort of doubtful that my offer will get selected.  If it does get selected, I doubt I’ll be allowed to modify the terms of the offer.  So where does that leave me?  I do still have some options, believe it or not.  Before I spell those out, I read of an interesting trick I may have to use sometime.  If there’s a multiple offer situation, bid a few dollars over what you are offering.  For example, if you think three people are going to offer the full purchase price, because who would pay more(?), up your offer by $13 (any small, odd number would work).  Yours then technically becomes the highest bid.  It’s like being the last person in The Price Is Right, except you’re bidding up, not down.

Now, my available options.  The first thing I could do is find a lender who will give me a mortgage with the property in the condition it is in.  That could require a lot of running around.  The other option is to get a personal loan and buy the house with cash, then get a home equity loan after the sale (since I’ll have 100% equity, right?) and that would become my “mortgage”.  The interest on the personal loan will be pretty high, but it would just be temporary.

The Semi-Known-About Landmine

This is something I’ve been avoiding discussing, but today I figured it would be better to find out sooner than later (especially after a $450 mortgage application fee).  The house I’m planning to buy is gutted.  It doesn’t have anything in it.  No appliances, no counters, and no hot water tank.

Whenever I would talk to realtors, they would bring these things up using terms like “habitability”.  They said if there wasn’t at least a stove, no lender would approve a loan, so essentially you’d have to pay cash.  Today, I did a lot of research into this “habitability” thing and what I read seemed to imply that it was a requirement for FHA loans.  I didn’t think I was getting an FHA loan, just a conventional mortgage.

To be sure, I emailed my mortgage agent and asked the question.  He reply was that yes, it is a problem.  The house must be livable and receive a certificate of occupancy.  I will call him later today and see what options are available to me.

One thing I have been reading – in the near-constant absorption of knowledge about housing – is a mortgage type called 203(k).  This is a construction loan intended for such situations.  The situation being, you can’t get a loan on the house because it needs work, but you can’t work on the house until you own it.  Sounds like I’ve said this before.  Oh, yeah.  I did.  I have also read a lot that these loan types are a serious pain in the ass and most people regret doing them.

However, we’re not talking about a $20k advance like most people are.  A new water heater is $1000, and if a new stove is required, maybe $500?  I don’t understand the stove thing.  I would think a decent mix of homes are sold without appliances, and the new owners just buy new ones.  I’ll spend some time and maybe make some calls asking about certificate of occupancy just to see what the minimum standards are.

Here’s the important thing.  It doesn’t even bother me.  Whenever I was getting into a stressful situation, whether it was a job interview or a first date, I would always tell myself, “Don’t worry about it, just do it.”  And I always made it work.

The Additional Contract Step

Today, I got a hurried email from my agent.  There were two additional forms that needed to be filled out to submit the offer.  They needed done ASAP.  These were pretty curious contracts and they related directly to the status of the house.

I mentioned the home was a foreclosure and it is owned by Fannie Mae (FNMA).  FNMA has a program called HomePath, which is actually pretty cool.  HomePath restricts the sale of the property to investors for a period of time, to give actual occupant owners the first chance at buying the property.  I’m really negative on house-flippers, so I like the concept of HomePath.  These contracts spell out some things about buying a foreclosure in the HomePath program.

The first is a 13-page addendum primarily concerning the as-is condition of the property.  And that means really “as-is.”  When the deal closes, you may get a house that’s uninhabitable.  It may have tenants, it may be hazardous, it may have liens on it, you may not get any keys for the property, anything can happen.  Yikes.  So, you really need to be good with your title insurance and home inspection.

The other one (and this also sort of covered in the first) is that you must live in the house.  The purpose of HomePath is to sell to people who are going to live in the house, not resell it or even rent it.  The first agreement says you can’t sell the house for more than x dollars within y months.  The second agreement says you will move in within 60 days and you will live there at least a year.

Pshh. It’s just words, right?  Well, if you break the second agreement, you get fined $10,000 plus legal fees.  That’s right.  FNMA is serious.

The Contract Review Step

The sales contract has arrived for my electronic signature (woo hoo, technological progress!).  I’ve read all 13 pages of the contract in its entirety, something that is probably considered very quaint nowadays.  Buried in the pages are a couple of important dates.  The first is the acceptance date.  It says I should have an answer within three days.  That’s a lot better than I expected.  The other date is the planned closing date, which is 1/28/2016.  I suspect that number is a lot more flexible.

The contract also has some important numbers.  The one that is news to me is the earnest deposit amount.  It’s $1000, twice what I expected.  I made a bank transfer of $500 from my savings account in anticipation.  Now I have to whip up another transfer.

I also got some additional timeline information out of the contract.  I have to apply for the mortgage within 3 days of acceptance of the offer.  The mortgage must be completed in 45 days.  While that’s going, I have 12 days to do an inspection.  If the inspection is a disaster, I can cancel everything and get my $1000 deposit back.  Finally, I need to have insurance 15 days before closing.

Unfortunately, my agent misspelled my name on the electronic signature application, so I wasn’t able to sign it.  I alerted her and we’ll have this sorted out soon.

The Sales Contract Step

The email I sent to the agent last night wasn’t responded to, so I’m keeping her feet to the fire.  I called her up and said, let’s go.  She has an appointment first thing this morning, but then will be sending me the contract to sign and return to her.  She would then submit it to the seller.

In my packet from the mortgage company, I noticed that one of the things I had to submit with my application was a copy of the “earnest money” deposit check and a bank statement showing that the check cleared.  I didn’t know when that step happens.  I asked my agent and she said that it would happen after she found out who would be handling the transaction from the seller’s side.

I also contacted my mortgage agent and clarified what he meant by “giving consent” to the preapproval.  He just wanted to know if I should keep it active and that I was going ahead with the purchase.  Well, now I guess I am.  Who knows what tomorrow will be like, though.

At this point, it looks like the steps of action are:

  1. get sales contract
  2. sign and return it to the agent
  3. send a copy to the mortgage company
  4. start uploading supporting documentation for mortgage application
  5. write earnest money deposit check and submit it to agent (remembering to get a scan of it, front and back)
  6. wait for the check to clear and upload proof to mortgage company

There’s probably going to be a couple steps in between there, but that looks like one pathway I need to walk.

Researching this term, “earnest money”, turns up some good information and some good tips.  It’s basically saying, “I’m serious.”  Looks like I’ll be putting up maybe $500.

Let’s Start Again

Over the weekend, I got an email from my mortgage agent asking me to confirm that I still wanted to go ahead with the pre-approval application.  This confused me because I thought we completed pre-approval.  I mean, I got the email with the letter attached saying they approved me.  I had also emailed him saying the property was off the market and we’d have to wait to go forward.  So yesterday, I emailed him and reiterated all that.

When I got home from work, I had the bank’s welcome packet in my mailbox.  One letter was all about my credit score and credit agencies and getting more information on that.  The other letter had a whole raft of stuff in it:

  • a copy of my pre-approval letter
  • a copy of the mortgage application, prefilled with my information (some of it I can already see isn’t correct)
  • a list of documents I need to provide (8 items)
  • a breakdown of closing costs
  • a list of 10 nearby housing counseling agencies so I can get a second set of eyes on my application to be sure I’m not being taken advantage of.  Times sure have changed.
  • a disclosure that the title company Citibank is using is significantly owned by them, which may mean they are getting preferential treatment, maybe?

The last three items are new to me since I last remember going through the mortgage process.  They have to be a result of the “predatory” practices from the last housing bust.  I appreciate the cost breakdown, and I like the reminder that I am allowed to shop for and choose my own title company if I want, but the counseling thing?  That’s scary.  That says to me that there’s still people who are getting into the homeowner game without proper preparation and knowledge.

So, I have all this stuff but I can’t do much with it because the house is off the market.  I checked the saved search my realtor sent to me and there was nothing new on it.  I put the link in my bookmarks and spent the rest of the night prepping for Christmas.

As I was getting ready for bed, I tested out the bookmark link for the saved search to make sure it still worked.  The property I’ve been looking at is back on the list with a status of “back on market”!  I fired off an email immediately to my agent to get going on the sales contract and get it in.  I guess I will need to work on that mortgage application after all.

Now, I wonder why the house came back on the market.  Did the potential buyers find a dealbreaker during inspection?  I would assume they secured the financing first, but maybe it didn’t go through?  Maybe I’ll get my chance to find out.