Setting Roots

I am an active duty member of the U.S. Navy, which caused me to have some experiences in my home-buying adventure that are unique to military men and women, now as a homeowner I am about to have another one of those experiences. I will soon be deployed to the middle east in support of Operation Enduring Freedom. As a single (unmarried) homeowner, I am facing some unique challenges in how to prepare my home for a long time away.

My mother will be living in the home, so I do not need to worry about mail delivery. However, she is elderly and will not be able to do many of the chores. I have winterized my pool, basically by putting in a lot of Chlorine and Algaecide, and instructed my mother on how and how often to run the pump to keep the water somewhat filtered. Last winter I found I was able to get away with just having my pump run 1 day a week for about 10 hours, and the pool remained clean enough to keep it easy-to-open in the spring. I am not as worried about ease of re-opening this year, because when I return I want to re-paint the pool, which should be an interesting project to write about here at Setting Roots.

I have my bills set-up for auto-payment, and I will be paying my homeowners fees in advance. My homeowners association was kind enough to give me a deployment discount too! I have amazing neighbors who assist my mom with getting to the store, and one who will be caring for my lawn while I am gone.

Additionally, I have set-up an emergency fund to pay for anything else that might arise. If someone were not going to be living in the home, I would also turn off the breaker to my hot water heater and my kitchen appliances. I wish I did not have to go, I would love to be able to stay and finish projects around the house, and document them here, but alas, duty calls. I intend to continue documenting my experiences and offering advice to first-time home buyers when I return. Until then, please feel free to leave comments on existing posts, and please feel free to send suggestions for future posts.

Wish me luck.

I wanted to make a quick post and ensure everyone knows that the U.S. Government is NOT offering help to home owners via mail or at any site on the web. All assistance to home owners is in the way of tax rebates, or assistance refinancing and the like. The government is not sending out offers in the mail, and will never send you an offer via e-mail. If you get one of these, please ignore them! They are most likely a scam.

Sadly, these things are popping up more and more, and many people are being taken by them, please do not allow yourself to be one of the victims of these scam artists. If you are curious about what help the U.S. government is offering, the best thing to do would be to contact either the Internal Revenue Service (http://www.irs.gov) or the Federal Housing Administration (http://www.fha.gov) directly. Get your information straight from the source, to avoid being the victim of a scam!

As always, please feel free to leave your comments, and send me your questions! Your feedback so far has been great.

An important part of the home buying process is having an inspection done. Typically, you will have 7-10 business days to have an inspection done once your offer has been accepted. There are several important things you should know about the home inspection.

1. You are entitled to choose your own home inspector. The Real Estate agent may suggest one, but you are NOT obligated to use the one suggested. Choose someone you trust.
2. The seller may have already had an inspection done, but you still have the right to get your own inspection done as well. Do not rely on the inspector that works for the seller, always seek a second opinion.
3. An inspection is NOT an appraisal. The inspector should not tell you what he thinks the home is worth.
4. A good inspector is there just to give you the facts, to find faults, concerns and failures to meet code. He may tell you what needs to be done to correct a deficiency, but a good home inspector should not offer to fix it for you or recommend people to do the work. His job is simply to give you the facts, not refer you to people to correct the deficiencies.

With all that in mind, I would suggest that you accompany the inspector during his inspection. Again, you have the right to be there, and most home inspectors won’t mind having you there or answering your questions. Remember, you get what you pay for, so don’t necessarily rely on the cheapest home inspector. Also, one reason to accompany the home inspector is to trust byt verify. A friend of mine paid $450 for a home inspector to come inspect a prospective purchase. The guy walked through all the rooms, flipped on lights and turned on faucets and said everything was good. Naturally, my friend refused to pay. You want a home inspector to be curious, to dig deep. You WANT the inspector to find faults, so you don’t find them when it is too late… Make sure the inspector tests every electrical outlet, inspects the attic and the roof. If the home you are inspecting includes a pool, be sure that the inspector you choose inspects pools and pool equipment as well.

Finally, remember to take the report with a “grain of salt“. The inspector will find problems with the home. Likely he will find problems that you did not notice… That’s okay. Not all issues are (or should be) deal breakers. You may be willing to over look something minor like a cracked base-board or a leaky faucet. But some thing more serious like improper electrical wiring, or termites should give you pause. If it is correctable, you may ask the seller to have it fixed before you close on the house, or you may decide to call off the deal altogether. Make sure, that when you decide you want to bid on house that you have not “fallen in love with it” to the point that you are willing to over look major defects, shoddy craftsmanship or other problems, because once you buy the home, those problems become YOUR problems.

Wow… so one lesson that I definately learned the hardway is that it is very difficult to work a full-time job, find a house, close on the house and try to keep a blog about it, all at the sam time. Especially when your job involves a good deal of traveling, as mine does. So I decided that I do still want to maintain this blog, but now I will simply back-fill on my experience with buying the house, and what I learned along the way.

I also intend to document my adventures as a first time home-owner, and the projects I undertake along the way. I also would like for people to leave lots of feedback in regards to their own experiences. Advice is also always welcome. So with that in mind, I hope you’ll join me as I continue writing about my experiences, Setting Roots.

The binder, or binder fee is a “good faith” fee that you pay when you make your bid. A binder is typically at least $500, but can technically be any amount. The more you offer, the more serious the buyer knows you are.

The binder can benefit you, because it comes off the final price of the house at closing. So if you are offering $200,000 and pay a $1000 binder fee at bid time, you will only owe $199,000 at closing.  Now like I said, the point of the binder fee is to demonstrate that you are serious about your offer. So once you pay the fee, if you back out (with a few exceptions), the seller gets to keep the fee.

So When Does the Seller Keep the Binder, and When Do I Keep It?

To put it in a very simple form, the seller gets to keep the fee if you back out of the bid for any non-legit reason, basically if you just change your mind for no good reason, or get a “bad feeling“, they get to keep the fee. If you back out because they misrepresented the home in someway, or because the home inspection finds major flaws that they are either unwilling to fix, or you deem are beyond what you are willing to accept, you can back out and get all or some of the binder back. Be sure to read your bid contract carefully, and make sure you understand everything you are signing.

Like I said, this is a very simple explanation, and I am in no way a legal expert, or a contract lawyer. If you have any questions about the details of the bid, and what the terms are, feel free to ask your agent before you sign, or have a lawyer take a look at the contract before you sign it.

OK, so you’ve looked through MLS Listings, and real estate ads, and gone to the open-houses and have done a thourough search, and you have finally found the home you want to buy. So what happens next?

I’ll tell you how it went with me…

My real estate agent (who was simply fantastic) sat down with me and took notes about everything I was looking for in a home. She insisted that nothing was too trivial, after all, this is one of the most major decisions you will make in your life… That night she e-mailed me MLS listings for about 96 houses available in the area I wanted to look in.

I went through that list and sent her back a much shorter list of homes I was interested in seeing, based solely off of the listings. We then began visiting the homes. At each ones I would take notes on the pros and cons, and I would write down any questions I had so my agent could hunt down the answers. After looking at a lot of houses I finally found my dream home, I knew it was the place I wanted to bid on, that’s when the REAL nitty-gritty of Real Estate begins.

The First thing we did was to go back to her office and look at what they were asking, and discuss what a reasonable offer would be. This would be the amount we deliniated in the bid contract, which in and of itself wound up being nearly 50 pages! Aside from the offer, this contract also specifies how much (if anything) you want the seller to pay towards closing, how much you want them to cover in repairs (if needed), or that you accept the house “as is”. This is also the point at which you pay your “binder fee” (more on that later). Then we sent the bid-contract over to the selling agent. This is when the lengthy negotiation process began.  This seemed to continue for days, tweaking the details here and there. Once both parties had reached an offer we could agree on, we began the closing process.

For me the closing process involved all of the following:

• I received a copy of the selling agent’s home inspection
• I arranged to have my own home inspection done, and my own WDO (Wood Destroying Organism) inspection done. Both of these were completed by the same inspector on the same day. He was VERY thorough.
• My bank arranged to have the home appraisal completed (you will get a copy of the appraisal at or after closing)
• My bank had me sign some final paperwork, lock in my final interest rate and sent my package off to “Underwriting”. Underwriting took longer than anything else in this process.

So I started this site with the intention of keeping it up to date while I was in the process of buying my home. I quickly realized that was not going to be realistic. Especially considering that I am in the Military and my job consumes a large portion of my time. So I completed my home purchase, and I now intend to back fill everyone on the process and what I learned.

Additionally, I will start posting updates about my adventures in being a first time home owner, what I learn as I go, and various projects I start. I look forward to not only being able to help all of you possibly learn from my experiences, but I really look forward to getting advice and tips from  my readers. Buying and owning a home takes a lot of time, patience and money, any tips are welcome.

I am very proud to say that I have already been able to help one of my fellow service-members buy his first home as well. He’s one of my junior guys and needed a lot of help. He clearly had no idea what he was in for when he decided he wanted to buy a home. He thought he’d be able to get it all done in 9 days! That is clearly not realistic… Hopefully I will be able to help some others ease their home buying process, and help them work through any misconceptions they may have.

You will hear lots of stories, and see lots of articles touting the benefits of the “Down Market” as far as real estate goes. But don’t let yourself get taken away, or else you may get snapped back into reality real quick. The market is down for a reason, and the fact is that finance companies are hurting in a big way. Don’t let your pre-approval letter get you too comfortable, the way I did.

PRE-APPROVAL IS NOT A GUARANTEE!

Read the fine print. Pre-approval means that the bank WILL give you a loan, though it does not say what the conditions of that loan will be. I was recently pre-approved for 100% financing on my home, but when  I was ready to send the contract to the loan officer, I was informed that the bank would now only cover 97% of my loan. Needless to say I was crushed. If I had a down payment, I would not have sought a 100% loan to begin with. My credit is great, and I was approved for a very low interest rate, I just don’t have enough money saved for the down payment, and the closing costs.

At first I felt as though the bank was trying to scam me, or pull a fast one on me. After making a few phone calls, and discussing the situation for well over an hour with more than a half a dozen people, it was made clear to me that the problem was due to the fact that I am buying in a declining market. With home values dropping, all banks are starting to require a down payment. Which I can understand from the business perspective, but it would have been nice to know about in advance.

Fortunately for me, I do qualify for a VA backed loan, which will proved 100% financing (for now), but incurs some additional costs, and requires a more detailed appraisal. If you do not qualify for a VA backed loan, you may qualify for for an FHA backed loan, or grant.

If you find yourself really strapped for cash, I would suggest that you try putting off the purchase of your home until you have some more saved. Do not be tempted or seduced by mortgage scams, or any program that is set up just to get you into a home quickly. Don’t let yourself get talked into an adjustable rate mortgage, or some other high-risk financing. Remember, it is better to wait, and get a good home, with a good mortgage, than it is to rush and wind up setting yourself up for financial disaster.

What are “Points” anyway? How do they effect my interest rate and overall loan?

The interest rate determines the monthly interest payments over the lifetime of the loan. A “point” or “discount point” is equivalent to 1% of the loan amount and usually reduces or “discounts” the loan rate by an eighth of a percentage point.

For example: You want to get a loan for $100,000 to buy a home. Each “point” would cost you 1% of $100,000 or $1,000 but would reduce your loan’s interest rate by .125%. The lender might offer you an 8.0% loan with zero points, a 7.875% loan with one point, or a 7.75% loan with 2 points.

Points, like the down payment, are paid at closing. In some cases, lenders will allow borrowers to finance the points over the term of the loan. Lenders sometimes use points to make their interest rates appear lower. Be aware that lower interest rate offered by a lender may translate into higher points requirements, which means more money due at closing.

Well, after a lot of searching, online and in person I believe I have found the home of my dreams. The house I have found is so much better than what I was expecting, that it is hard to believe… I will refrain from posting any photos or specific details at the moment, because the deal is not complete, and I don’t want to jinx anything, or risk violating some part of the contract in some way.

The home is about 1,750 square feet, which is huge for me, it is in a beautiful neighborhood and has a 2 car garage. In addition, the house also has an in-ground, heated swimming pool. What’s even better? It’s an enclosed pool. Wow! The house was built in 1995, which really isn’t old by anyone’s standards. Although I have not yet had the official inspection done, I have to say, after having been to the home twice, and thouroughly looking aroung, it certainly appears to be in stellar shape. I have read the seller’s inspections, and there does not seem to be any major problems. The only things noted are that it is still the original roof, and the inspectors seem to think there is only 2-3 years of life left in the roof, and there is a minor crack in the front steps. Neither of these are deal breakers.

The house itself has an interesting story… It was appraised at the end of last year for about $210,000. The original owners were selling it  because the husband got relocated by his job. Apparently a major realty company gave them a “relocation package”. The company put the house on the market at $203,000, but it did not sell. So they dropped the price to $200,000. Still no joy. The realty company then bought the home from the owners, and put it on the market at $199,900. But still it did not sell. They dropped the price to $189,900, and this is where I came in. I offered them $185,000. But I settled on $186,000 and they pay half my closing costs.

The negotiation process was nerve-racking to say the least. My agent called the seller and told them my initial offer, then she called me back with their counter offer, and I call them back with my counter-counter offer, and so on and so forth until and agreement was reached. The entire time, I am crunching numbers, and doing all this mathematical juggling to try to make the numbers work within my budget, and also to make an offer that the seller would accept. It was a very long, frustrating process that really had me worried for a bit. I found out the closing costs were going to be a little higher than I originally anticipated. I had done all my calculations and planning based on 3% closing costs. Well it turns out the closing costs will be 4%, which doesn’t sound huge, but it’s very nearly two thousand dollars, and I am already pretty strapped for cash as it is. It is scary to be so close to my dream, with my dream house, and to see it all almost slip away over a sum of money as small as $2000.

Luckily for me the seller accepted my final offer, I will not need any additional funding from my bank, and I was able to secure funds for my closing costs. So in the end it seems everything is once again back on track, but all-in-all, it was a pretty scary day for me, with a lot of ups and downs. I am looking forward to getting all of this done with, and finally being able to take possession of what I hope to be, my new home.