Friday, January 18, 2013

The Crunchy Couple Buys a House, Part 2: The Process

For a little bit of background on how our household operates, I'll tell you that I handle most of the house/money stuff, while we call Crunchy Husband the "bread-winner" because he works more hours than I do, even though we're about halfsies on income.  I am usually the one who makes sure the bills are paid, does all the paperwork for property taxes and DMV-related issues, and does all the negotiating and paperwork on purchasing vehicles and houses, but CH is always there to sign away his rights.  As an added bonus, he is kind enough to do our state and federal taxes every year.  God bless Crunchy Husband. That is the best part of this whole marriage thing.  Someone else does my taxes, and I don't have to pay them.  I cannot stress how much I hate taxes.  Who doesn't?  Except a crack-head crazy CPA?

Anyway, the best responsibility CH has is to fix things that I have broken.

Like when I ran over a deer that the person in front of me killed and ended up with a rib in my tire.  Needless to say, it deflated almost immediately, and I was stranded on the side of the highway because neither myself or my brother-in-law had the upper body strength (or jumping-up-and-down-on-the-four-way strength)  to break loose the nuts on the tire bolts.  CH ended up having to drive from work with is impact gun to help us.  The next morning, I woke up, and CH had already gone to the tire shop and gotten my tire replaced and was in the process of putting it on my car.

Then, there was that time I forgot to check for steel wall studs in our apartment before I tried to install curtain rods and found out that not only can you not drill a screw in them, but they aren't spaced the same distance from the window, and I really should have used a stud-finder instead of drilling about 19 different holes between the 9 holes that I actually needed for the 3 curtain rods.  Okay, so he didn't help me that time, but CH had a good time making fun of me and telling me I should have asked him to at least borrow his stud-finder.

TL;DR:  Unless I need him to fix something I've broken, I don't have too much help on this whole buying a house thing, and it's a little overwhelming.

For anyone who has bought a home, you know the immense amount of paperwork that involves.  It seems as though there is always something else the bank needs you to provide, another artifact that the underwriter forgot to mention the last time.  For those of us who haven't ever completed the process before, it can be confusing, and to say the least, aggravating.

Part of me wonders why they don't just tell you from the beginning every single document they may or may not need from the get-go.  Just so that you can get it all together at once and provide it, and there are no more questions asked.  Then, the process is as smooth as possible.  I have found, this is certainly not the case.

So how did I do it all so far?  I will tell you.

(1)  I sat down and figured out our debt-to-income ratio (DTI).  I actually do this every month in an Excel worksheet, to keep track of our progress on paying down our debt, and where we need to cut back.  I took all of our loan and credit card payments (even those nasty student loans that will be coming due soon), and added them up and got a number for our debt every month.  Then, I took this number and divided by what we make monthly before taxes.  (Debt/income=%DTI)

(2) Once I figured out the DTI, I figured out what house payment (monthly mortgage, property tax, and homeowners insurance) we could make and be within conventional, FHA, and VA loan limits.  These limits include the maximum percentage DTI your housing payment can be (%A) and then the maximum percentage DTI both your housing payment and all other debt can be (%B).   The limits are expressed as (%A)/(%B).  For conventional loans, it is 28/36, for FHA, it is 31/43, and for VA it is 41/41.

For example:  CH and I make a combined income before taxes of about $70,000.  This is a monthly income of approximately $5800 (it's $5833, but for simplicity's sake, let's round down).  For our DTI to be within conventional loan limits, we would have to have a housing payment less than 28% of our income every month, which would be $1624.  Then, our total debt, including a house payment, would have to be less than $2088.

(3)  Once I found houses within our price range, I went to the bank and got us pre-qualified.  That was the easiest part, but also nerve-wracking.  I am definitely one of those people that flips out every time I have to wait on a loan approval decision (usually, for no reason). It required a lot of paperwork.  Bank statements, W-2s, 1040s, pay stubs, and essentially a lot of forms that have federal identifying numbers.

(4)  We made offers on houses we liked, one at a time.  The purchase contract was a fair amount of paperwork as well.  First, we made an offer on a home that was a foreclosure.  Unfortunately, our offer was about to be accepted when someone swooped in and offered $30,000 more than us in CASH.  You can't beat that.  No inspections required, no loan paperwork   Offer rejected, and no trying to play ball.  You can't compete with a cash offer like that.  The second house we made an offer on, we negotiated back and forth with the seller on.  In the end, his asking price was way too high for the area because he had relocated and was upside down on the house.  He wouldn't come down the extra $5000 to accept what the house would probably appraise for.  Essentially, he wanted to make enough money to cover his fees so he wouldn't be more in the hole, not offering, that letting it sit on the market for another year was going to cost him even more money.  Offer withdrawn.  Although it hurt to walk away from a house we really liked, I was not willing to go through this whole process to be denied because the loan-to-value ratio was too high.  I may be a naive first time home-buyer, but I'm not an idiot.  I've been through this process before.  The third house, and the one we are actively pursuing, the offer was accepted after we negotiated with the seller.  We are getting the house for $39,000 less than what the house was originally listed at several months ago, but only about $4,000 less than what it is currently listed at. So far, so good.  We're happy, and the seller is happy that we accepted her counter-offer.

Also a side complaint, our bank had to provide several prequalification letters because we needed a new one every time we made an offer on a house that was a different amount.  This was frustrating that we couldn't just get a general prequalification letter without an amount listed.  Then, we could have kept in mind the top limit of our prequalification, and could negotiate until a final offer was accepted, and then provide a specific pre-qualification letter with the amount of the offer listed.  Two letters instead of 10.

(5)  Once the contract was accepted, we filled out the actual loan application.  It was a mountain of paperwork like you couldn't imagine.  Let's put it this way.  When the bank mailed us a copy of all of the documents, it was so large that the mailman could not fit into the mail box.  Because there are two of us, we got two copies.  Two huge envelopes packed 'til near explosion with papers.  I didn't even know they made envelopes that big.  I think they would have saved money if they had just mailed them both in a flat-rate box.  I'm sure the mail carrier loved us that day.

(6)  Good news!  Appraisal ordered, fees paid.

(7)  We waited, and waited, and waited.  In the meantime, ordered a personal home inspection.  Worth the $350.  Some things needed fixed, some of which, we're sure the appraiser is going to mention.  Wrote a letter requesting repairs from the seller.

(8)  The underwriter wanted more paperwork.  More forms with federal numbers.

(9)  We chose a closing attorney, and decided to get both the bank title insurance (required) and owner's insurance (optional, but recommended).  Saved a bunch by shopping for our own lawyer, and probably ended up with the same lawyer that the bank would have chosen anyway.  Read a bunch of horror stories online about all the things that can go wrong if you don't get owner's title insurance.  It cost $200-300 and is worth every penny because it covers any lawyer/court fees associated with your title for the entire length of your buying process AND ownership of the home.  Why spend all that money to buy a home only to find out nothing is truly legal?

(10) We waited, and waited, and waited.  

(11)  More good news!  Seller agreed to repairs, and the appraiser somehow magically made the trip out to inspect way before the bank's estimate of his timeline.  Good news, but hoping he didn't mark down things that the seller will be in the process of fixing.  Or anything out of the blue that we weren't expecting.

(12)  Waiting on the appraiser's report, and waiting, and waiting.

(13)  Then, we'll have to wait on the underwriter's review.  I'm sure there will be more waiting, and waiting, and waiting.

TL;DR:  In essence, it is a lot of anxious waiting.  As long as everything is good with the appraisal, and the underwriter is satisfied, we are estimated to close in early to mid February.  I am hopeful, but not going to go overboard with expecting everything to go through with no problems.  For example, we will need to buy a washer and dryer.  Although they are currently on sale and go off sale at the end of the month, I don't want to take a chance on not being to close and have no where to put them.  I could take a chance on buying them and returning them if things didn't work out, but where would I store them in the mean time?

Our deadline for closing is at the beginning of March, so we still have some time, even if things slow down a bit.  We're fortunate enough to not have been still waiting on the appraiser to actually show up to the house to inspect it.  From what I understand, it could have been 30 days from the date of order, and instead it was about 5 days.  We are currently about 2 weeks from the date on which we actually completed the full-length loan application.  Looking back, it seemed like a lot longer with all the paperwork, bank visits, and phone calls, but it looks like we'll have a pretty quick closing if everything continues to go smoothly.  Of course, that could be because we have been in the middle of this house-buying process with all three of the homes since early November.  Maybe this time, we will end up with our first home.  Wish us luck!

Have you ever bought a house?  How was the process?  Did it go pretty well or was it a nightmare?  Share your story!

No comments:

Post a Comment