So everything went good at the bank today. We had been pre approved by another bank already but with my work schedule changing and after not getting some answers we were waiting on we didn’t want to take any chances. We decided to maybe stick with a local bank that uses a committee and not a general application / computer approval system for this loan so that there wouldn’t be any surprises at the last minute when our documentation showed slightly different figures than were originally discussed. You never know with these yahoos.
We knew this bank probably wouldn’t have an issue approving us either – We finally have great credit on our side. I emphasize the word finally because it was a long hard road to get here. Ten years actually. After my husband’s bankruptcy when were first dating and settling out a ton of delinquent charge accounts I had when I first turned 18. Kids take note: that 10% you can save at the checkout lane isn’t worth it. A few universal lines of credit are great and help you build good credit if you use them wisely – a card for every store you frequent? Not such a good idea. Especially when you use retail therapy regularly. So anyway, the point is it was a long journey to get here but we did and now our credit can finally work for us instead of against us.
The options we are faced with now in terms of buying a new home are:
1) Go with a conventional loan and pay 20% down through the local bank. This way our loan is already 80% of the value and therefore won’t cost us the mortgage insurance premiums every month. So this would be saving us money each month but costing us more up front. Plus with the farm we’re looking at, 20% down is a lot and would be liquidating savings we’re not sure we want to use.
2) Go with a conventional loan but pay 5% down through the other bank that had already pre approved us. This would mean we’d be paying MIP each month (which would be around $200 per month on top of the payment) but would be coming with MUCH less out of pocket down. Plus after 5 years, provided our loan was 80% or less of the value of our home, we might also then be able to apply to have the MIP removed.
There’s also some other ways to tweak this that could help us save money but it’d just be a matter of whether the seller and bank would go for it. There are so many types of loans: FHA (requires 3% down usually); HUD; USDA (0% down); Conventional (Min 5% down) etc. Each have different requirements. For example, we can’t get the USDA loan with a barn on the property but it has to have a house. So, if we could get creative and everyone went along with it, we could offer the home owner the same total amount of money but ask them to divvy it up and sell us the house and majority of the land on one purchase and the barn and surrounding land on another. That way we could do 0% down on the bulk of the property and the seller would still get what our total offer would be for the whole property. Sounds good right? The trouble is, what saves me money loses the bank money and, well, I’m sure you can imagine how banks feel about losing money. It’s worth a shot though I guess so now we’re just trying to figure out how to approach this so we can see if one of the banks will be on board with doing it that way. If not, then it’s back to option 1 or 2 with the property as a whole.
As I explained this creative plan to my husband I felt so smart thinking of doing it this way. It’s a shame it took us getting screwed on our first home to learn but we always learn better the hard way don’t we? We bought this house in 2005 during the boom and before the economy crashed. So we got in easy with little down, hardly any effort, inspections that flew through and usually came out to be right on the sale prices regardless of what they were (because nothing was really being scrutinized and everyone was getting loans). Times were great. Everyone had a house. And then the Titanic sank. Our home value is now about 65% of what we paid for it. That’s a pretty big difference – especially when you’re trying to move. Being upside down in your mortgage isn’t a great selling feature because it means we don’t have a lot of wiggle room unless we’re going to take a hit. At this point though I would consider a little loss just because it would free us up that much more to buy a new house. But it wouldn’t make it suck any less in the long run to lose all that money.
Live and learn is the point I guess. We were young and naive like so many when we bought this house and just went with everything they told us because it was all so easy. We didn’t even know until we closed that our mortgage payment wasn’t just the loan amount but would have this MIP added on to it on top of the amount we had been discussing. We also didn’t understand how property taxes played a part in it all. So it came as a bit of a surprise when we had been planning for one amount the whole time and then found out our monthly payment was almost $400 more! You learn that when something is too easy it’s usually because the hard stuff is going to bite you in the ass. Nothing comes without a price. Now we also know the types of questions to ask and just knowing that we CAN ask questions period. Just because one person says one thing doesn’t mean it’s gospel.
Renting is something we’ve considered but what worries us, aside from having months without a tenant where we’re just paying for an empty house, is getting tenants that would destroy our house. Knowing the tenants would be ideal…but just not knowing them so well that they feel they could skip rent any given month and it would be okay. Because it’s not. Not when we would still be paying the mortgage on the place!
The realtor came by this afternoon and walked through the house. She is the Vice President of Sales and is also realtor for the couple of the house we want to buy so she knows our hopes. After telling her the idea I came up with on financing the place to keep us and the sellers happy she said I should be in real estate because it’s genius and she had never even thought of it. She also said it sounds totally doable and she has someone that handles USDA loans that she’ll get in touch with to see about getting the ball rolling. Another perk? The property is actually already parceled off in a way to make this work so it wouldn’t even need to be rezoned to do it. If our offer is acceptable this could all be clear cut and easy. She looked at me like I was fucking Einstein…Then she told me that selling our house for anywhere near what we owe on it isn’t going to happen because of all the foreclosures. Gotta take the good with the bad though right? Eh, it keeps ya humble.
At one point though I had to remind myself that at the end of the day she wants to make a sale. So before she left I at least got her to promise she wouldn’t market my creative financing idea to anyone else until we had our chance with it. Thank God for ethics oaths and a good old fashioned handshake.
So now it’s just a matter of trying to figure out how we can draw up this offer and what we’re going to offer…and also finding someone to rent our place. (So for anyone in the area looking – give me a holler!) And for anyone else out there in our position: Just remember to think things through very carefully and make sure you understand everything. Ask questions if you don’t understand. Ask them multiple times UNTIL you understand and don’t sign your life away until you know exactly what you’re getting into. If you think you may have a better solution that could save you money, give it a shot. The market is still hurting right now so you never know what sellers and lenders are willing to do to help you make it happen. And lastly, don’t misuse or underestimate your credit. Credit was something no one really taught me about growing up so no wonder I went all YOLO apeshit when I turned 18. Don’t learn the hard way too. It can keep you from having to fork out lots of cash.
So anyway, to be continued and again, wish us luck! 🙂