Casa de Chostic

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.

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.

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 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 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.

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.

I thought I was moving pretty quickly.  I saw the house, liked it, got the mortgage pre-approval the next day, then that night… blink.  The house went to pending status.  Someone else was faster than me.  The house was on the market for 10 days.

Can I blame my agent?  After all, I initially contacted her just over a week ago and didn’t get any response until just a couple days ago.  But no, the blame game is pointless.  It’s best just to not get emotionally involved.

It’s something I’m getting quite used to.  The first prospect (you always remember your first?) was vetoed by the GF.  The second I had high hopes for until I saw its actual condition.  Way too much work in things I didn’t understand, so I gave up on that.  Then a period of mourning and half-heartedly looking here and there.

I likened it to dating.  Some people, after they break up or have a bad date, jump right back in and go for the next one.  Some people, like me, have to nurse their wounds and start up more slowly.

So, what have I learned so far? 

• Speed is important. 
• You have to get a mortgage preapproval letter before you make an offer.  This is good for 60 days and won’t initially cost much, but could cost a lot when the application is finally created.
• You need to have insurance lined up, and you take out the policy when you have a closing date.
• Don’t get your hopes up.

I wonder if this is going to be similar to how I do hiking.  When I’m starting to hike in a new area, I hike a short distance, then go back.  Each time, I hike a little further and go back.  By doing this, I develop a real familiarity with how the trail looks (from both directions), so I am more likely to recognize where I’m at if I somehow get lost.  So the next time around, these first couple steps are going to be more familiar to me.

And, just as importantly, “the war chest” continue to grow each month, so things will get easier and more options may become available.

Today, I need to start looking into insurance.  The property was built in 1962.  I was able to find a website to look up construction permits and discovered that the roof was last updated in 1994.  Ohhhhhhh.  Being in Florida, I am amazed the roof made it unscathed through the 2005 hurricane onslaught.  Thanks to my own insurance debacles on the first house, I know what the insurance company wants. 

Most importantly, you need to have “wind mitigation” features on your roof.  This is interesting stuff.  Did you know roofs were just set down on top of structures?  I mean, they were unattached.  So having your roof blown off in a hurricane?  Completely possible.  One wind mitigation feature is having metal straps physically hold the roof to the rest of the building.  The other feature is that the nailing pattern of the shingles is something like less than 4 inches.  If your roof was done after 2001, you have these features because it was a part of the building code.  This roof from 1994?  Not so likely.

Knowing this, what’s going to happen?  I can’t buy the house unless it’s insured.  I can’t insure the house unless the roof is replaced.  I can’t replace the roof until I own the house.  This is probably going to be my major question to the insurance company.

Well, I didn’t ask about that.  I just got a quote.  They took the property address and said insurance would be in the range of $771-1050/yr.  Once I get the closing date, I will need to call them back and actually create the policy.

Regardless, I did spot what seemed to be a water/mold spot in the ceiling of one room, so the roof is going to have to be redone anyway.  The inspection will determine how badly.  If I remember correctly, after the sales contract is accepted, I have 10 days to have an inspection done.  Since this is a foreclosure, the outcome of the inspection won’t have any bearing on the sale.  Well, I mean I can still pull out if the inspection is disastrous, but it’s not like I can tell the bank:  you need to fix this as a condition of the sale.  That will result in a big, bank-sized middle finger stuffed in my face.

Ok.  So here’s the deal.  This property I’m looking to buy is a foreclosure.  It’s a 3/2 being listed at $47,500.  But it’s gutted and far from move-in ready.  I have $24k in “the war chest” to handle this.  I plan on doing 20% down and would expect to have to do so because of the state of the property and it being a second house.  So, who’s going to give me the extra $38k?  It should be a breeze.  That’s pocket change to a bank – a rounding error.

I make my first call to a local mortgage broker.  When I explain what I wanted, he said ok.  I stated I hadn’t done anything with mortgages in over ten years.  He replied, good, because it’s all different now.  So I ask, where do we start?  Then he told me, “whatever you do, do not tell me the address.”  That’s kind of weird.  If I had to guess why, based on the current political climate, it probably had to do with preferential treatment of certain neighborhoods.  Sad.

Anyway, we discussed my current situation and he asked how much the property was selling for.  That’s when progress stopped.  He told me that he had no lenders that would lend that little.  What?  Nope, because of some regulations or blah blah blah, the least they will lend is $60k.  Even though he couldn’t help me, he did give me some more good info for what I would be facing in the financing process.  Nice guy.  I wish I could remember what he said.

So, I was pretty shot down by that experience.  The one thing I did remember to write down from the conversation is that the only banks who would lend small amounts were “the big four”: Citi, Wells Fargo, Bank of America, and Chase.  He also suggested my local credit union.  So I called the credit union with which I have an account.  The first person I tried calling was on vacation and the next one went to voice mail.  So I left a message for them to call me back.

In the meantime, I did some research online about this “regulation”.  I didn’t find anything, but I did find articles saying that lenders didn’t want to lend small amounts because it’s not profitable for them.  Well, that’s as good an explanation as any.  I recall how many times my mortgages were sold on the first house.  Everybody wants a cut.

So, which of the majors would I try?  I might as well go with Citi, since they have my mortgage for the first house.  I call them up and spoke with Josh.  He collected some info and then… said yes.  The APR would be 4%.  That’s as good as most all other places I’ve seen and I had been reading that a mortgage on a second house would be higher.  And that a small value mortgage would be higher still.  So, great!  He estimated my monthly payments at $181/mo. for 30 years.  30 years!  No doubt I’m going to be paying extra on that loan.  I jumped on it.  Yeah, I could have called all the others and haggled or compared or whatever, but the numbers were good enough for me.  Convenience wins out.  I can probably manage both mortgages with the same website login.

I’m not sure it was because of my history with them or because of my awesome finances and credit score that I was approved so easily.  Doesn’t matter.  They’re sending a preapproval letter via email.

From there, I get a sales contract and return it to them.  Then a bunch of other stuff happens, I wish I could remember it all.  The next independent step I need to accomplish is securing insurance.  I’ll need that to close.  I also need something like $3,000 for all the closing costs.

For the initial application, I had to give a credit card number.  They would charge me $2.25 (odd, huh?) now, and when I get the contract back to them, we do the full application and I’ll be charged the full application fee. It’s a real zinger: $470.

Still no call back from my credit union.

It’s been a little while since I decided to get another house – a second house.  The reasons are personal and not relevant to the end results.  But, here’s where I will be logging whatever I can as a reminder of what I went through to get where I am today (today as in future-today).

I’ve been searching for a cheap property to call my own for a couple months on and off.  My initial search was focused on tiny houses, like Ikea small, like <600 sqft.  Those houses are few and far between, and because it’s no longer “the way” to build small houses, you can’t find newer small houses.  I suppose that’s because of efficiencies of scale.  The ones I found were around 100 years old.  A house that old sort of introduces problems of its own.

Just this week, I’ve found a slightly newer, but larger, property.  It’s gutted, but I can live with that.  It’s about 10k more than what I was previously looking for, but the value is still good.  I looked it over yesterday and decided to move on it.

The first step is getting the financing for it.  I have enough in savings to cover 50% of the purchase price, but obviously I don’t want to blow it all.  After all, I have no cabinets, appliances, or even a water heater.  I also need to replace one pane of glass in a room.  The other stuff isn’t critical to moving in.  Well, maybe a working shower is needed.  Hot water first, though!

The property itself has many quirky qualities.  The garage was converted to the master bedroom, but the driveway wasn’t removed, so the driveway goes right up to the master bedroom windows.  There is a detached garage, but no driveway to it.  Past the garage is a large paved pad that looks like a place to park an RV.  In the back yard, there’s a cement block shed, another aluminum shed and an empty concrete pad for maybe another shed?  Craziness.

The interior is screaming to tell stories, but the walls can’t speak.  It seems someone was in the process of renovating the property and gave up or ran out of money or something.  Some walls are painted with a faux finish, some walls are partially torn out, bathrooms are partially plumbed.  The only cabinet in the whole place looks like a new vanity in the 2nd bathroom.  I have no idea why the previous owner stopped.  Did someone steal all the new cabinets and the water heater?

So, I’ll have to get cracking on the next step.  It’s been 10 years since I dealt with mortgages.  I have no idea what I’m doing.