Offer Accepted! I feel in over my head. Help!

[Scortius]

We've been looking for a house for a little under a year now.  We've done a good job of saving very aggressively to build up a down payment.  I figured we'd take the rest of the year and watch and get to know the market and be in a great spot next year.

Well, of course we went and saw this one house and it just hit every checkbox out of the park.  It's wonderful, although a little above what we wanted to spend.  Then it disappeared two days later and we naturally were sad, but ready to move on. Since then, a few more houses have come and gone that have not nearly measured up to this first house, and they've sold at similarly higher than anticipated prices.  It made us realize that the first house was actually a pretty good deal and the actual market was a bit higher than we thought it would be.

And then on Monday the house came back, the buyers had gotten cold feet and backed out.  It just so happened that we had found a buyer's agent the previous week to help us feel things out, and so we went to see the house with him that next evening.  There were two other families there with their own agents already, and we are not in a HCOL market so it was clear this house was generating interest.  We walked through with our own agent and liked it even more the second time.

So, we decided to throw out a reasonable but lowish offer. We figured we probably wouldn't find a house that fit us so perfectly if we waited, and even if we did, we wouldn't get it for this price.  And of course the offer was accepted!  Awesome!  And yes, while the house is a small (5-10%) bit above where we thought our high range would be, it just beats the pants of all the other houses for value.

The problem is this has all happened so fast... I can't handle it.  We're not at 20%.  We're a bit above 15%, but if we put down 15% and pay closing costs, we're out of reserves, which is not good.  We can borrow some money from family, but it will need to be paid back.  I could pull money from our Roth IRAs, but that seems like a poor trade-off.  We could go for a 80-10-10, but I worry that will not bring any extra benefit. 

It's silly in a way because it's certainly affordable for us, but I just find myself struggling with the whole thing emotionally.  Call it buyer's remorse, or just fear of commitment, but I'm really struggling emotionally, when I know logically we're still on track.  If it isn't this house, it's just another one down the line for nearly the same price and not the same personal fit.  The house itself is currently 2.6x our gross, not counting our employer 401k matches.  We should be able to afford it and still be able to put a significant amount of money away each year, and that will likely only get better as we continue through our careers.  Rates are back low again and we have great credit.  But I still just can't get excited about it.  I've had a real hard time sleeping and eating the past two days as things have moved at a blistering pace.

Part of me says run away, but I think that part isn't really about the house, but about the fear of commitment to a mortgage and a newfound dependency on my job to pay for it.  But that's not really fair since where we are isn't a permanent solution, we need to find a house at some point as we have a family, and I have a great job that's very secure and pays very well.  A main reason I took this job was so we could buy a house like this and still easily afford it (and I do like my job as well).

I guess one problem is that I've gotten spoiled stashing money away in our very cheap place, and that made me feel secure and comfortable.  Once we move, there will be a few months where we won't have the same level of cash reserves, and I won't be putting as much money away each month.  Once things settle in a year or so, we'll still be able to save 50k per year or more, so it's really silly for me to be so scared. 

This is the house I've always wanted, for me, my wife, and my two kids.  It's wonderful and absolutely affordable, but I can't bring myself to feel happy or excited.  I don't know what to do...

[FIreDrill]

What amount of money do you have in your Roth accounts and specifically what are the total contribution amounts that you have access to penalty free.

I'm assuming you want to put 20% down to avoid Pmi, correct?  If I were in your shoes, and decided to go through with the purchase, I would put 5-10% down and keep the remaining as a cushion.

Sent from my SM-G935F using Tapatalk

[Scortius]

What amount of money do you have in your Roth accounts and specifically what are the total contribution amounts that you have access to penalty free.

I'm assuming you want to put 20% down to avoid Pmi, correct?  If I were in your shoes, and decided to go through with the purchase, I would put 5-10% down and keep the remaining as a cushion.

Sent from my SM-G935F using Tapatalk

Thanks for the response.  Just the past two years in Roth, 22k.  I think you may be right about the 10% option instead of stressing over 15%

[Cwadda]

Hi Scortius,

Do you already have a good mortgage guy? He/she will be able to walk you through how all the financing will work. I'd recommend looking into a conventional mortgage with 5% down. Compare this to the options of 10% down and 20% down. Talk to lenders ASAP.

Another thing to explore is asking for a closing credit. This would involve raising the selling price and getting a credit back from the seller at closing. This would be used to pay for closing costs.
Example: buying a house for $200k, asking the sellers to raise the contract price to $205k with a $5k closing credit. This doesn't really affect how much the sellers are getting but can help you out with the cash situation. Though tread lightly with this option. If the sellers are sensitive be careful asking for cash back. You don't want to make yourself look like you can't afford the place and have them get cold feet. Your mortgage person should be able to help weigh out these options as well.

Best of luck, feel free to respond or PM me with any other questions you might have.

-Cwadda

[Scortius]

I see where you're going, but one of the other drawbacks of putting less down is that it seems we also get a slightly higher rate (on top of the pmi and larger total loan balance). That hurts my sensibilities more because it's permanent over the life of the loan. Do you have any opinion on piggyback loans such as the 80-10-10? That seems like a good option for us as we could push the gap loan out quick and then revert back to regular payments on the remaining 80 conventional.  Either way, yes, my agent has two mortgage brokers I will be setting up meetings with to go over some of these questions in more detail (along with my own contact at our credit union) so maybe that's the first step.

Thanks for the reply.

[Cwadda]

I see where you're going, but one of the other drawbacks of putting less down is that it seems we also get a slightly higher rate (on top of the pmi and larger total loan balance). That hurts my sensibilities more because it's permanent over the life of the loan. Do you have any opinion on piggyback loans such as the 80-10-10? That seems like a good option for us as we could push the gap loan out quick and then revert back to regular payments on the remaining 80 conventional.  Either way, yes, my agent has two mortgage brokers I will be setting up meetings with to go over some of these questions in more detail (along with my own contact at our credit union) so maybe that's the first step.

Thanks for the reply.

Have you been involved with the paying off early vs. investing threads? It'd be good to look at an overall picture of your finances to see how the mortgage would fit in. Interest rates are great right now. The only thing that really sucks is PMI, and that goes away once you reach 22% equity.

I don't have an opinion on the piggyback thing - not too knowledgeable about that specific scenario but it will definitely be something your mortgage broker can help you figure out and present different options. If he/she doesn't, fire them and get a new one ASAP.

You're not in over your head. Home buying is a daunting process but if you're proactive in finding a good team, you will always feel comfortable in the right hands. Talk to those lenders as soon as possible. As in, today. Call them up, apologize for the sudden notice, and ask if they have 15 minutes to talk. [I'm assuming you aren't too far along in the transaction but this will make you feel better quickly]

[FIreDrill]

I see where you're going, but one of the other drawbacks of putting less down is that it seems we also get a slightly higher rate (on top of the pmi and larger total loan balance). That hurts my sensibilities more because it's permanent over the life of the loan. Do you have any opinion on piggyback loans such as the 80-10-10? That seems like a good option for us as we could push the gap loan out quick and then revert back to regular payments on the remaining 80 conventional.  Either way, yes, my agent has two mortgage brokers I will be setting up meetings with to go over some of these questions in more detail (along with my own contact at our credit union) so maybe that's the first step.

Thanks for the reply.

Have you been involved with the paying off early vs. investing threads? It'd be good to look at an overall picture of your finances to see how the mortgage would fit in. Interest rates are great right now. The only thing that really sucks is PMI, and that goes away once you reach 22% equity.

I don't have an opinion on the piggyback thing - not too knowledgeable about that specific scenario but it will definitely be something your mortgage broker can help you figure out and present different options. If he/she doesn't, fire them and get a new one ASAP.

You're not in over your head. Home buying is a daunting process but if you're proactive in finding a good team, you will always feel comfortable in the right hands. Talk to those lenders as soon as possible.

Agree with Cwadda.

Is it possible we could get more financial detail of where you are at?

Also, what type of lending options have you been presented with so far and at what rates?  PMI sucks but it will drop off.  I know there are loans that will have PMI build into the interest rate, so instead of 4% its 4.125% for example. Usually it's still better to just pay the monthly PMI until you have enough equity to drop it.  This is assuming you will own the home for a long period of time.

What are your housing expenses now and what will they be with the mortgage?  Is it a huge jump?

[Lucky Recardito]

Tossing in a vote for an 80-10-10 if you can find a broker/lender who can set one up for you.

We were in a similar boat last fall: expected our home search to take a year; were flabbergasted to find the perfect place on our first day out looking at homes (and we'd been watching the market for a full year before that, so we knew we were looking at a a property we weren't likely to see again). We had a solid amount saved, but weren't yet at 20% ('cuz we figured we'd still have time to save more).

The 80-10-10 cost us a few hundred bucks (admin costs associated with the 2nd loan) and some extra paperwork (two mortgages to sign at closing! so fun!), but it gave us the home we wanted at the time it was available, along with TONS of flexibility about what to do with our cash, and when. (Which was great as we moved into a new place -- we didn't have to clean out our downpayment fund at the closing, and had more options about what to fix/buy/hire out during a busy and expensive time.) We're now on track to have the piggyback loan zero'd out by the 1-year-anniversary of our purchase (it'll have cost a few hundred in interest by that time)... plus that 2nd loan is a HELOC, so we'll leave it open as a ready-to-roll emergency fund option.

I was a little nervous about it at the time, because two mortgages sounded like a move borne of financial idiocy, but it's been really great and we've had no problems.

NB: It took a little doing to find someone who'd do the piggyback -- our main loan is from a big national bank, but the HELOC piggyback is from a local credit union. Both were set up by the same (local) broker.

[Scortius]

Hi All,

again, thanks so much for the replies.  I definitely felt better today and spent most of the day getting mortgage quotes from brokers, banks, and online lenders.

To be more specific on my financials, my family earns $165k per year plus another $15k in 401k matches.  I consider ourselves very fortunate!  Over the past year, we've saved up from 40k to 80k in cash, but the day before we found our house we put 10k into our tIRAs for 2016 (max allowable given our income, which was smaller this year due to a promotion I received towards the end of the year).  I also have a small amount ~20k in Roth IRAs.  So, as for liquidity: 70k cash, 20k Roth.  We live in a very cheap rental house that we will grow out of very soon (kids and all).  We currently pay $1,150/mo, not including utilities.  I would guess our total housing budget (rent/mortgage, tax, insurance, utilities, maintenance) will increase a little over 2x.  I would like to stay below 3k/mo, but that may depend a lot on maintenance needs.

The house is a very unmustachian 430k.  It's priced due to its great location and updated features.  We will be able to walk everywhere we need, aside from my 15m daily commute.  We also will likely never need to update it, remodel it, or do anything beyond upkeep.  But, I do feel weird spending so much on a house and have this feeling of having to justify the purchase to myself, which is silly.  We live in a low-ish COL city.  Houses on the periphery can be had for 200, fancy houses in the fancy neighborhoods go for 500ish, and the houses in our neighborhood go from around 300 for 1200 sq.ft. to not much more than ours at 2,400 sq.ft.  The square feet is inflated for ours as it has a 400 sq. ft. guest house in the back that we will mostly keep unheated except when guests are visiting.  The main house is quite compact, but has a layout that matched just what we were looking for. Anyway, here I go justifying it again...

So, we can go 43k down for 10% with a nice amount of cash buffer after closing costs and escrow.  We can try for 65k, but that would involve borrowing from family or liquidating the Roth, neither really worth it.  Then there's the full 20% at 86k which is just not obtainable once you add in closing costs, escrow, and a reasonable amount left over to live on.  In most cases, it seems that the difference between 90/10 loans and 85/15 loans is only the PMI, so given that we can get the same rate, we'll probably simply put 10% down.

I have been somewhat active on the mortgage threads.  I am 'volatility tolerant' and definitely plan on riding out the mortgage for the long run.  To that end, I did get quotes today and asked for 90/10s, 85/15s, and 80/10/10s.  My wife and I do have 800ish credit and no debt, so I assume we're getting good rates.

Just about every local broker came back with 4.125% for no points, and around a 4.25ish APR.  The online company I found through Zillow's search came back with a 3.625% rate, but then didn't report their APR and quoted a P&I pretty much in line with the others.  For the 10% down, we're looking at $1,870/mo and for the 15% down we're looking at $1,740/mo plus or minus.  Meh, I was hoping for high 3s at this point, but that just doesn't seem available.  PMI was pretty much always $90/mo for the 90/10 and $60/mo for the 85/15.  My contact at our FCU is out until Monday, so I'll call him then, but I think he was going to be pretty much in line with everyone else.  Any thoughts here?

As for the 80-10-10... I must be confused, because I did get quotes and they didn't look good.  But maybe I'm not looking at them the right way.  Not one of the people I talked to offered piggyback loans in-house.  They all sub-contracted the 10% loan out to another company.  Then, they took the rate on the outstanding 80 and raised it an eighth or a quarter.  But... it does result in a lower premium once the piggyback loan is cleared?  Specifically, I have a quote for an 80-10-10 at 4.25% with an APR of 4.375% for a P&I of $1,688/mo, which is better, but then this one also happened to have 1.5k of points added in, which deflates the rates by an eighth I think.  Of course, the catch is that the extra loan adds another $350 to the monthly.   I guess the trick is that if we can pay it back quick, then we benefit, otherwise it's not worth it.

But, that gets back to the whole mortgage payoff game.  If we're going to commit to pumping extra money into the mortage at least to get 20% (or 22%) in to stop PMI, wouldn't it still be better to just throw that money into index funds?  Granted, 90/mo in PMI does suck... so maybe it's worth it to get rid of PMI.  We do earn good money, so it's probably possible for us to pay it down relatively quickly.  Not sure we could do it in a year, but in two or less for sure, but meanwhile instead of paying 90/mo extra, we're paying $350/mo extra (although that is part of the loan, not just worthless PMI).  We'd need to throw 2k/mo at it, which would likely mean not hitting our tax-advantaged 401k contributions.

So, thank you so much for your attention.  I think some of my anxiety is that MMM just speaks to me very strongly and I feel I'm falling off the wagon with this one.  But, we are buying a wonderful but not opulent house in an extremely walkable neighborhood that we love, so there!  I'd be happy to hear any thoughts about whether all of this mathy stuff sounds right.  If there were sub-4 APRs out there for people with top credit, I would certainly love to hear about it.  The one quoted directly on the Zillow site did not line up with my quote from the agent I contacted directly, so given that I'm kind of assuming they're all pretty close, which makes sense.  Any other tips on mortgage shopping would certainly be appreciated as well!

Thanks again.

[Scortius]

Can you air bnb that little guest house?   That would be a good way to get the extra 10% mortage paid off more quickly!

Great idea, but it has no kitchen.  Don't think it works as is but worth looking into maybe adding in a mini-kitchen or something of that sort.

[Cwadda]

Hi Scortius,

I think you are overthinking the downpayment. Putting 20% down is almost the same thing as putting 10% down and making a lump payment for the other 10%, 6 months later. You don't have to pump extra money into the mortgage every month. You can keep it in index funds then make a lump payment if you so choose.

[Lucky Recardito]

Just to give you more info to work with, our 80-10-10 was very clearly 2 different loans:

• Conventional 80% mortgage with big national bank
• HELOC worth 10% of purchase price with small local credit union

On the paperwork for the first loan, it lays out that we brought a 20% downpayment -- it ignores the existence of the 2nd loan as part of that downpayment at all.

The paperwork for the second loan acknowledges that it's a 2nd mortgage on the property. Nothing shady; we had perfect credit and enough income to support the full amount borrowed across both loans.

The interest rates on each are totally separate (our main loan is at 3.25%; HELOC is at 4.5% -- this was last year, and obviously rates have changed since then), and nothing changes with the main loan based on what happens with the HELOC.

Both loans had their own applications, own credit checks, and own docs to sign. I pay them separately -- literally two separate websites, two different payment schedules, two different everythings. Set up by one broker (not a banker -- a  broker, which is important, as he pulled it together from two different banks), but very clearly two different loans.

Can you check back with the  broker(s) who offered you an 80-10-10 and clarify where the money's coming from, and what each loan IS? (Is the 10% actually a HELOC, or something else?) Is it possible they're presenting it to you as one package in an attempt to make it easier, when in fact it would make more sense broken up?

Good luck -- this shit is stressful but  it sounds like you're on the right track!

[JessicaCoaches]

My big question is what would the house rent for if it were on the market today.  That is a large chunk of debt and I would always want a backup plan should you have to move suddenly, lose your income, ect ect.

[Scortius]

My big question is what would the house rent for if it were on the market today.  That is a large chunk of debt and I would always want a backup plan should you have to move suddenly, lose your income, ect ect.

That's a good question and I don't have a quick answer.  I looked around, there aren't many comparables in the area.  The trick is that this would only come up if we lost our jobs and the economy tanked.  If the economy tanks, we're fine, my job is very stable.  If I did lose my job, but the economy was fine, we'd sell the house and maybe lose a bit on the purchase and sale fees, but still come out 'ok'.  Given that the economy doesn't collapse, I think we could recover PITI and hopefully be revenue neutral.  That wouldn't be bad considering the circumstances.

[sequoia]

I guess one problem is that I've gotten spoiled stashing money away in our very cheap place, and that made me feel secure and comfortable.  Once we move, there will be a few months where we won't have the same level of cash reserves, and I won't be putting as much money away each month.  Once things settle in a year or so, we'll still be able to save 50k per year or more, so it's really silly for me to be so scared. 

This is the house I've always wanted, for me, my wife, and my two kids.  It's wonderful and absolutely affordable, but I can't bring myself to feel happy or excited.  I don't know what to do...

When we bought our house, we were did something similar. We were moving from our extra cheap 2 bedroom apt into a house, and pretty much drained our reserves. It was a risk, but 13 years later, we are happy that we did that. From what you outlined above, I think you should be ok, but I am more of a high risk high reward kinda person. imo you may lose sleep in the first year, but it will be worth it haha

[Scortius]

I guess one problem is that I've gotten spoiled stashing money away in our very cheap place, and that made me feel secure and comfortable.  Once we move, there will be a few months where we won't have the same level of cash reserves, and I won't be putting as much money away each month.  Once things settle in a year or so, we'll still be able to save 50k per year or more, so it's really silly for me to be so scared. 

This is the house I've always wanted, for me, my wife, and my two kids.  It's wonderful and absolutely affordable, but I can't bring myself to feel happy or excited.  I don't know what to do...

When we bought our house, we were did something similar. We were moving from our extra cheap 2 bedroom apt into a house, and pretty much drained our reserves. It was a risk, but 13 years later, we are happy that we did that. From what you outlined above, I think you should be ok, but I am more of a high risk high reward kinda person. imo you may lose sleep in the first year, but it will be worth it haha

Thank you, it's actually very reassuring to hear something like this.  After reading MMM and thinking about housing costs it felt really scary to think about making such a 'lavish' purchase.  Talking to people has reminded me that this is still a very affordable place for us due to our high income, and that we'll be in great shape as long as we don't give in to lifestyle inflation and consumerism (which is just not us anyway).

[Scortius]

Ok, signed the mortgage docs today!  Yikes!!!  We went with our credit union as the other offers weren't able to beat the rate, and the closing costs were close.  The FCU can offer us a member discount which gets us pretty much even, and we liked the idea of supporting our local FCU over an online or national lender.  Plus I like knowing all of our payments are rolled into one account there.

Now, on to the inspection tomorrow!  Does anyone have any advice on what I can bring and what I should do or look for while the inspector goes through the house?  The house already had a prior inspection for buyers who dropped out a month ago, so hopefully there won't be any surprises.  I know to ask for a thorough inspection of the roof, the crawl-space, the electrical wiring, and the condition of the main pipes.  The other one I've heard is simply "turn everything on".  Beyond that, is there anything I can do to better represent myself?

[Dicey]

Turn everything on, let it run, make sure it drains. Run all the appliances for as close to a full cycle as you can manage. Stick to the inspector like glue so you can see what he sees. As he calls things, ask him to assess its priority, off the record. They have to fill up their report with items and some of it is pure drivel. Hard for a newb to tell what's important and what's filler. Take pictures, lots and lots of pictures.

+2 on the AirBnB suggestion. A small kitchenette is not hard to assemble. Mini fridge, microwave, toaster, coffeepot, a small work area and maybe a cupboard or two for supplies are all you need. Most, if not all, should be available on CL, Freecycle, NextDoor, or similar

[Scortius]

Ok, through the inspection.  There was one red flag, which was a certain amount of aluminum wire.  It was also found directly pigtailed to copper (not using COPALUM or even AlumiConn connectors).  Anyone have any experience with something like this?  I assume we're fine if they agree to pay an electrician to find all the aluminum and ensure it's all joined using COPALUM?  Should I push for a rewiring?  The front of the house is old and should have all copper, the aluminum just seems to exist in the back addition which is newer (although newer than 1970, so the aluminum is weird...).

[Indio]

Regarding PMI, you can pay down mortgage to get to the 22% equity, but it can also go away if the market goes up and the value of the house increases getting you to the 22% that way. You mentioned it was a hot area and house were going fast so that might be a possibility.

[Scortius]

Regarding PMI, you can pay down mortgage to get to the 22% equity, but it can also go away if the market goes up and the value of the house increases getting you to the 22% that way. You mentioned it was a hot area and house were going fast so that might be a possibility.

Yeah, that's a good point about appreciation.  I'll have to keep my eyes on the market in a few years to see what comparable houses are going for.  I oscillate on paying down to 22%.  For now I think I'm better off investing, but it's also something I'll be examining in more detail as our new financial picture comes into shape.

[Dicey]

Ok, through the inspection.  There was one red flag, which was a certain amount of aluminum wire.  It was also found directly pigtailed to copper (not using COPALUM or even AlumiConn connectors).  Anyone have any experience with something like this?  I assume we're fine if they agree to pay an electrician to find all the aluminum and ensure it's all joined using COPALUM?  Should I push for a rewiring?  The front of the house is old and should have all copper, the aluminum just seems to exist in the back addition which is newer (although newer than 1970, so the aluminum is weird...).

Aluminum was used into the middle 70's, plus if it was a DIY project, the homeowner may have had it sitting around a while before using. Here's some light reading on the subject:

https://www.cpsc.gov/s3fs-public/516.pdf

There's also a method of joining copper to aluminum using a special grease in the wire nuts. It's touched on here:

http://www.joneakes.com/jons-fixit-database/1183-Aluminum-to-Copper-electrical-connectors

I also found this gem: "While you can see aluminum solid strand wire in a panel, you may also see a wire that "looks" like aluminum, but it is really "tinned copper" wiring, and NOT aluminum. Some new home inspectors may call it out as aluminum, but its not."

Hard to know it this problem is overrated or not. If you were flipping this house, you'd have to disclose it. If you're planning on living here forever, that's another consideration.

Personally, I'd let your realtor take the lead in negotiations. You don't want the deal to fall apart, so diplomacy, tact, and finesse will get you to a mutually satisfactory agreement.