Author Topic: I bought a house.  (Read 7829 times)

wing117

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I bought a house.
« on: October 14, 2014, 11:18:02 AM »
I've been meaning to write this for a while now but it keeps getting away from me. I’m a bit nervous because I’ve broken some of my mustachian policies and I fear for any face punches. :)  Also, apologies for the long post!

August 1st I closed on a house I bought from a good friend of mine for 30K less than the bank’s it’s appraised value (and 45k less than the seller’s appraiser’s value).

The deal started rather suddenly while my friend (we’ll call him Bob) and I were having our weekly beer together and he told me that he had accepted a job in another state and had just contacted a real estate agent earlier that week to start the process. I told him to hold up! I had been to his house several times and had helped on a couple projects. I half-jokingly earlier that year that I would buy his house if he ever moved. Now I told him I was dead serious, but we need to go about this carefully to keep our friendship intact, but I had one cravat - no real estate agents and no 6% overhead - I was going to be doing this several months ahead of my house purchase schedule, but I couldn’t let the deal get away from me.

Now, he had purchased this house in foreclosure in early 2009 for $125,000, the house was appraised by his real estate agent for 170-180k in current condition and zillow put it at 177-190K. He told me that he would go back to his wife and they would sit down and calculate how much they’d put into the house and they’d give me their break-even price for two reasons: 1.) I was a good friend and 2.) He was in no mood to deal with selling this house and was just looking to break even. He came back at $135,000, and I pay closing.

Long story short, I bought a 170-190K house worth and have a loan of 129K after it was all said and done, no PMI and a 4.5% interest. Yes yes, if you do the math I did not put 20% down. I admittedly did this earlier than I planned to purchase, so I did the best I could. But, no PMI through my credit union. So there’s that. I’m also making 1.5x payment and am going to refinance in a year to bring the interest down to 3.25% and continue paying the higher amount. The goal is to pay this off in 10 years and I’ll calcuate the actual payment schedule after the refinance..

So, what about this house made me break the 20% rule and jump at it before I was completely ready? (minus being able to do this without the 6% issue).

Here’s the quick, condensed version so ya’ll don’t have to read all the nitty details:

The house is a 3100 sqft, all brick construction ranch-style house with a basement and attached garage, 4 bed 3 bath, energy-efficient designed home on .88 acres of land 2 miles from work in a neighborhood that that was recently awarded neighborhood improvement grants to add sidewalks and a multi use path that will go right in front of my house that will connect to my work (1.8 mile ride!), but more importantly to an existing 13 mile MUP system and a planned 26 mile MUP system that receives full funding in 2016 that will connect the neighborhood to the entire city by multi-use paths, bike lane build outs are starting on all roads surrounding and will be within .5-1 mile of a new light-rail system stations being installed currently. It also has easy access to the interstate. Home values are expected to increase by 30-40% in the next 5 years.
Lets start with the one that everyone is probably freaking out about right now: I just bought a 3100 square foot house… Yes. I did and it’s huge and it scares me a little. The main floor is ~2400sqft, with the rest being in the basement/garage. Admittedly this is a change from my desire to have a tiny home. Perhaps as my retirement home, but not right now. :)

That being said, I have some future events I need to plan for that are forthcoming:

*My family is very family-oriented and different groups get together 2-3 times a year at my Grandparents house. Unfortunately my grandparents are aging quickly and people have already started nudging me as the new meeting place afterwards. I have always wanted to provide a place where my family could gather ongoing into the future and this house and property provides that.

**Children. Although we are currently DINKs, I think once we get closer and closer to our networth/FI target, kids are going to come back into our minds in a big way. There are good schools and plenty of space for them (bedroom-wise). Kind of a washy-reason but I'm throwing it in. I know it's very easy to raise children in much less house.

**Entertaining. We are getting more and more into entertaining our friends and we are working on starting up a board game night (monthly at first) and have already used a guest room to house a friend who drank too much and didn't feel comfortable driving home. I like being able to offer those services!

*Second is the large amount of land. My SO and I are very big on self-sustaining gardening/agriculture and plan on turning the back quarter and space around the house into garden/chicken space and would also like to build a greenhouse with aquaponics for fresh fish.

*Third, all the multi-use paths and alternative transports! Closeness to work! This was a huge huge huge selling point. This process has already been completed in the south of town and it is now coming to the north where the university is. The long-term study of home prices in the area where MUPs and light rail stations were built in the city saw a 30-40%+ increase in home value in 5 years. Estimations put this home valuation at 221-266K by 2020 not including the many improvements I’m making. That and I can bicycle from my house, to work, the grocery store, head south to meet my SO for lunch and then back to work and home and not ever get on a road. Pressed on time? I can cycle to the light rail in 3 minutes and use that instead.  My SO can cycle to the light rail, take it south, and cycle the 2 miles to her job. Seriously. It’s kinda awesome.

*Fourth (and not included in the top) is that the home was a ‘worst home in the best neighborhood’ deal. Structurally the house is solid, but needs to be updated in the worst kind of way. The backyard needs to be cleared from overgrown ivy, all the brick needs to be pressure washed and cleaned up, the front yard needs some love, I’m laying new floors, pulling out wood paneling and putting up drywall, updating insulation when needed, replaced an old rusted out door in a sunroom and I’ll be remodeling all 3 bathrooms in the coming years. Every room in the house has had a remodel plan built and budgeted for it already. Not for the faint of heart by any means. Luckily I’ve done all this work before and will be doing it myself.

The roof, foundation, appliances, HVAC, water heater, electrical, plumbing and general structure of the house is all in good, solid working order and passed inspection with flying colors. HVAC, roof and water heater was all replaced 8 years ago and I still have the original paperwork from two owners ago.

After all that my Net Worth is currently sitting at $88,000 and I hope to hit 100k by the end of the year! I’ve got 10k in cash right now for projects/house surprises, and the rest is in IRA/401k. January I’m adding a 457b contribution and then a 403b contribution once I’m comfortable with current draws. I’m ashamed to say that earlier this year I was going to jump in and max out my 457b/403b (I even wrote a post on it here!), but the house purchase came up and I put that on hold to pull together a down payment/closing costs and an “oh shit” fund in case anything went wrong with the house right after purchase (because ya’know, shit happens.)

And for those wondering my monthly mortgage payment (P&I + Escrow for taxes and insurance) is $890/mo. I am paying an additional $450 to the principal every month as well for a total payment of ~$1,340. And I plan to be in this house for a minimum of 10 years.

Thanks for reading!

Pooperman

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Re: I bought a house.
« Reply #1 on: October 14, 2014, 11:34:06 AM »
It's close to work, has alternative transport, growing areas, and you bought it at a profit. Saving money allows you to take advantage of situations like these. That is the whole point of FI, saving, and investing: to give yourself the ability to do what you want to do in life. No FPs from me over this. I envy your ability to find $140k homes near work. Where I live, the average house is $400k, and near work, a place is well over $1MM.

dodojojo

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Re: I bought a house.
« Reply #2 on: October 14, 2014, 11:42:08 AM »
Congrats on a good deal.  It blows my mind that a house can be purchased for 135K...I've only lived in two US cities--DC and LA so my real estate paradigm is totally out of whack.

nereo

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Re: I bought a house.
« Reply #3 on: October 14, 2014, 11:48:40 AM »
it sounds like you have found an incredible deal on a house you can afford that is in the right location for you and your SO.  No facepunches from me, only a tinge of jealousy ;-)

gt7152b

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Re: I bought a house.
« Reply #4 on: October 14, 2014, 11:58:29 AM »
That's a good friend. I'd treat him to a really nice going away party. Good job jumping on the deal when you had the chance.

Bob W

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Re: I bought a house.
« Reply #5 on: October 14, 2014, 12:20:41 PM »
Good job. 

 But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   

That said,  I probably would have done the same thing in your situation.  A good deal is a good deal after all.

Good Luck!

MrFrugalChicago

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Re: I bought a house.
« Reply #6 on: October 14, 2014, 12:59:50 PM »
I think you did good! Sometimes you need to take a risk and leap.

Some chance it will blow up in some way on you, but that is always a chance.

I also bought a giant house in the past 3 months that I don't really need. Maybe another $40 a month in utilities, but not that big of a deal.

nereo

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Re: I bought a house.
« Reply #7 on: October 14, 2014, 02:19:39 PM »
But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   
Good point Bob! 
About twice a year I calculate how much of my home I own and how much the bank still owns.  Then I figure out how much it is in terms of sq ft. It's a nice mental exercise for me and keeps me from thinking that "I own my own home*"

*in reality, I own about 2/3rds of my kitchen and my front entryway.  the rest is mortgaged from the bank.

skunkfunk

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Re: I bought a house.
« Reply #8 on: October 14, 2014, 02:31:05 PM »
Hey I only have 3 things that bother me about this.

3100 square feet with no kids is WTF huge.

Expected increase of 30-40% is total bullshit. Maybe they'll be right, but it's a complete crapshoot. Nobody knows, at all.

Why refinance so soon? What's your current rate? There's a good chance the fee to refinance won't be worth it with how fast you plan to pay it off.

All in all, great buy I'm jealous.

Bob W

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Re: I bought a house.
« Reply #9 on: October 14, 2014, 02:33:55 PM »
But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   
Good point Bob! 
About twice a year I calculate how much of my home I own and how much the bank still owns.  Then I figure out how much it is in terms of sq ft. It's a nice mental exercise for me and keeps me from thinking that "I own my own home*"

*in reality, I own about 2/3rds of my kitchen and my front entryway.  the rest is mortgaged from the bank.

Yeah it isn't a fine point really --- consider this definition  --- convey (a property) to a creditor as security on a loan:

So I guess technically someone buys a house and at the same moment conveys it to the bank. 

Still ownership has a powerful psychological effect on people.   People will die to save a home they own from disaster but just walk away from a rental. 

wing117

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Re: I bought a house.
« Reply #10 on: October 14, 2014, 04:06:08 PM »
Thanks everyone for the kind words!

Werner, you are correct. Mortgaging a house is much more accurate.

And yes, 3100 sq ft without kids is WTF huge. Does it help that I have two dogs who love the space? Are they like my perpetual 2 year olds in this scenario? ;) Lets be honest though. Even with kids it is WTF huge. It was one of the hesitations I had when going in on this. The SO and I made the agreement that we will absolute not fill the house with crap. We still enjoy minimalist lifestyle and decor choices.

The 30-40% is a crap shoot- and quite possibly bullshit!. But it is a number I researched, so a bit more than a total shot in the dark. This also didn't take into account any improvements to homes. Will it pan out for the expected expansions in the north side of town the same way it has for the south side? Who knows. Perhaps not. We do have a different culture up here. To get close to the MUPs and Light rail system in the south of town you are looking at 225k for a 'decent' home that needs a lot of work for 800-1200sqft. Rent is now going for 1200-1600+ in those areas for small apartments.  Luckily, this bullet point was a small part of the decision making process. I'm 95% certain the house will go up in value. How much is a bit of a guessing game with all the changes being made, and I freely admit that!

After 2 months of living here I haven't had one ounce of buyers remorse, and the purchasing process didn't leave any bad taste in my mouth - it was quite pleasant actually. The previous owner ("Bob"), got a great send off and farewell with much beer and celebration. We also agreed that, as a favor to him, he could leave everything they didn't want or could take with them in the house and we could donate, upcycle, sell or trash depending on what it was (they were massively downsizing and slight hoarders to be honest). We had Salvation Army take two trips filling their truck, put a lot of things on the curb for 'free' donations that were gone in an hour, sold about 4 things for a total profit of about $800 dollars (we checked with Bob first if they had meant to leave those items behind), and then we also filled a 24 foot dumpster with true trash. Bob and his family were also extended a perpetual invitation that they could stay in the guest room whenever they came back into town and we are still great friends. So I think that worked out well. :)

Oh and for the record, my utilities (electric, gas and water) are lower in this house than they were in the 1200 sq ft log cabin I was renting. It is an oddly efficient house.

nereo

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Re: I bought a house.
« Reply #11 on: October 14, 2014, 05:32:46 PM »
wing117,

by your own admission you have a "WTF huge" house on your hands in an area where people pay $1200+ for small apartments.  Have you given any thought to renting out one of your extra rooms for a few years?  Sounds like you could turbo-charge your new purchase and make it start working for you.

...just a thought.
N

wing117

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Re: I bought a house.
« Reply #12 on: October 14, 2014, 06:05:10 PM »
Not a bad thought, nereo. I'd want to wait till our remodel is complete. I'll have to discuss with the SO.

nereo

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Re: I bought a house.
« Reply #13 on: October 14, 2014, 06:09:09 PM »
I'll have to discuss with the SO.

yeah... that's probably best.
G'luck with your home.

arebelspy

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Re: I bought a house.
« Reply #14 on: October 14, 2014, 09:33:42 PM »
Congrats wing!

Sound enormous, but a good deal.  I hope it all works out well. :)

Good job. 

 But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   

That said,  I probably would have done the same thing in your situation.  A good deal is a good deal after all.

Good Luck!

No.  He bought the house.  He is the owner.  He decides what happens to it (he decides if he wants to sell it, for example).

The bank has a monetary claim against it, via a lien.  That is all.  He needs to make payments to keep it, because yes the bank COULD own it, if he doesn't pay, but currently the bank does not own the house any more than the government does (whom he has to pay taxes to as well, or they could own it if he doesn't pay).

So I guess technically someone buys a house and at the same moment conveys it to the bank. 

Again, no.  No ownership is conveyed to the bank.  A monetary interest exists.  That's it.  If I went and did work on the house and didn't get paid and I played a mechanic's lien on it, that doesn't mean I suddenly own the house.  If the IRS places a lien on your house because you have unpaid taxes, that doesn't mean they suddenly own your house.  That's not how ownership works; as much as the anti-debt people want to claim you don't "own" your house if you have a mortgage, you do.  You absolutely do.
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Re: I bought a house.
« Reply #15 on: October 15, 2014, 07:02:17 AM »
Huge house but a great deal. Hope everything works out for you :)

Bob W

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Re: I bought a house.
« Reply #16 on: October 15, 2014, 08:11:20 AM »
Not a bad thought, nereo. I'd want to wait till our remodel is complete. I'll have to discuss with the SO.

I had a similar experience and currently have a 3,000 ft house myself.   It was a complete remodel and very cheap.   I did the work myself.


The basement is a pretty 2 bed, 2 bath walk out that I never visit.  It is completely remodeled.   In retrospect I wish I had wired the utility room for a kitchen.  It would have made for a small but functional kitchen. 

That would have made the space totally rentable and substantially increased the home value.   It would have cost me about $2,000 extra perhaps.   

In our area I could have rented this space for around $300 (we are off the beaten path).   That would pay for about 1/2 of our mortgage.

Take away --- If you're doing a remodel consider it with this in mind.   At worst it would increase the resale value.   People like to have two kitchens and the possibility to rent space out.

nereo

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Re: I bought a house.
« Reply #17 on: October 15, 2014, 08:16:50 AM »



 But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   
(snip)

Again, no.  No ownership is conveyed to the bank.  A monetary interest exists.  That's it.  If I went and did work on the house and didn't get paid and I played a mechanic's lien on it, that doesn't mean I suddenly own the house.  If the IRS places a lien on your house because you have unpaid taxes, that doesn't mean they suddenly own your house.  That's not how ownership works; as much as the anti-debt people want to claim you don't "own" your house if you have a mortgage, you do.  You absolutely do.

Interesting point/counter-point and I get what both sides are saying here.  I understand that I "own" my home even though I have a mortgage worth ~73% of the value of my house.  What I'd find useful is some terminology that distinguishes owning your own home free-and-clear vs the very common 'home ownership with a very large mortgage balance'.  I suppose we could say that "I own my home with a 27% equity stake" but that seems a bit wordy. 

rujancified

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Re: I bought a house.
« Reply #18 on: October 15, 2014, 08:32:58 AM »
If you're in the same city as me (and I think you are) the planned expansion of the light rail could have some seriously positive impacts for you. Congrats - The place sounds great!

My husband owns a condo along the southern LR line that we rent out. We recently had one tenant inform us of a move out date and had a new tenant signing a lease within 36 hours. We'll hold onto that until it gets difficult to rent.

wing117

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Re: I bought a house.
« Reply #19 on: October 15, 2014, 12:22:23 PM »
Yeah. Same city, I'm sure! If you don't mind me asking how much do you rent for now? And did you own the property pre-light rail? I've read studies but haven't talked to anyone who has first hand experience.

And to answer the earlier question by skunkfunk, the idea behind refinancing next year is to drop into the 80% and below LTV point range through my credit union. This will drop my interest rate to 3.25% (if the rates hold) from 4.5%, allowing me to pay less in interest and more to principal each month. If this is faulty thinking someone please chime in!

Bob W

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Re: I bought a house.
« Reply #20 on: October 15, 2014, 12:29:56 PM »



 But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   
(snip)

Again, no.  No ownership is conveyed to the bank.  A monetary interest exists.  That's it.  If I went and did work on the house and didn't get paid and I played a mechanic's lien on it, that doesn't mean I suddenly own the house.  If the IRS places a lien on your house because you have unpaid taxes, that doesn't mean they suddenly own your house.  That's not how ownership works; as much as the anti-debt people want to claim you don't "own" your house if you have a mortgage, you do.  You absolutely do.

Interesting point/counter-point and I get what both sides are saying here.  I understand that I "own" my home even though I have a mortgage worth ~73% of the value of my house.  What I'd find useful is some terminology that distinguishes owning your own home free-and-clear vs the very common 'home ownership with a very large mortgage balance'.  I suppose we could say that "I own my home with a 27% equity stake" but that seems a bit wordy.

I'm pretty sure if you read your mortgage contract this would be explained.  The word "convey" pretty much implies ownership to me.   

Try not making your payments and see who "owns" your house.   

rujancified

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Re: I bought a house.
« Reply #21 on: October 15, 2014, 01:27:45 PM »
Yeah. Same city, I'm sure! If you don't mind me asking how much do you rent for now? And did you own the property pre-light rail? I've read studies but haven't talked to anyone who has first hand experience.


He bought in 2007 about 6 months before the light rail "opened." He lived there for some years before renting out. It's a 700 SQ foot 1 bed/1 bath and we rent it out for ~1150 (I wasn't involved in the transaction so I don't know the exact $$ amount). And we're a better deal than all the apartment complexes they're building right on the line...for now at least :)

arebelspy

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Re: I bought a house.
« Reply #22 on: October 15, 2014, 06:19:19 PM »



 But you need to change the title to "I mortgaged a house."   People here tend to confuse buying and mortgaging.  Two completely different things.   
(snip)

Again, no.  No ownership is conveyed to the bank.  A monetary interest exists.  That's it.  If I went and did work on the house and didn't get paid and I played a mechanic's lien on it, that doesn't mean I suddenly own the house.  If the IRS places a lien on your house because you have unpaid taxes, that doesn't mean they suddenly own your house.  That's not how ownership works; as much as the anti-debt people want to claim you don't "own" your house if you have a mortgage, you do.  You absolutely do.

Interesting point/counter-point and I get what both sides are saying here.  I understand that I "own" my home even though I have a mortgage worth ~73% of the value of my house.  What I'd find useful is some terminology that distinguishes owning your own home free-and-clear vs the very common 'home ownership with a very large mortgage balance'.  I suppose we could say that "I own my home with a 27% equity stake" but that seems a bit wordy.

We have a term for it.  It's called "owning" the house.  There also exist other terms to distinguish, when relevant: they are if it's owned "free and clear" or "has a mortgage".

Try not making your payments and see who "owns" your house.

As I said, you convey a financial interest in it, but not ownership.  You still own the house.

Try not making your payments and see who "owns" your house.

And again, you also owe taxes.  Try not paying your property tax and see what happens.  Does that mean that the government owns the house, because you'll owe them payments?   Of course not, you still own it. What about if there's an HOA you owe annual assessments to?  Do you not own that house then?  Of course you do.

Owning a house doesn't mean there aren't obligations to other interested parties related to it.  It means you own it, are free to do what you want with it, sell it, etc.  Having a mortgage or not doesn't change who owns the house.
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Re: I bought a house.
« Reply #23 on: October 16, 2014, 09:39:46 AM »
And to answer the earlier question by skunkfunk, the idea behind refinancing next year is to drop into the 80% and below LTV point range through my credit union. This will drop my interest rate to 3.25% (if the rates hold) from 4.5%, allowing me to pay less in interest and more to principal each month. If this is faulty thinking someone please chime in!

You need to do an analysis to figure out if the reduction in interest rate is worth it. Take the refinancing fee, which may be rolled into the loan in which case you need to add the interest paid on that amount, and see if it is greater or less than the amount you will save in interest not over the life of the loan but over YOUR expected repayment schedule. Quick spreadsheet should do the trick. In my case I have found that as I will be paying the house off in a projected 7 years I should not consider refinancing, and it isn't even close.

TomTX

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Re: I bought a house.
« Reply #24 on: October 16, 2014, 11:06:11 AM »
When rates dropped,  our credit union was willing to do a loan modification to current rates for $400.

Frankly, your house was an awesome deal. Truly awesome.  Ignore the size gripers, every residence is a compromise. You got a cheap price, awesome location, lower utilities, opportunity for sweat equity at your convenience and almost guaranteed high appreciation for 5 years. You won big time.