What I Learned from Almost Buying a House

As most of you know, our recent house purchase didn't go through. But we did get right up to closing (within a couple days) before an inspection revealed something we just couldn't live with. Anyway, I thought I'd share a few of my insights from the process that you all might find interesting/helpful. Here goes:

• We got a very low mortgage rate by pitting two different lenders against each other (one a bank and one a mortgage broker). I knew both guys and was upfront with them throughout our process that we would 1. give them both an option to bid on the mortgage and 2. select the lowest bidder. I went back and forth a couple times -- with them lowering rates (initially) then closing costs and other criteria (like them escrowing for taxes -- something I didn't want) -- before one cried "uncle." Kind of like the same process I used when buying a car.

• Closing costs are HIGHLY negotiable (especially if you have lenders competing). Ours started at $3,500 or so and ended at $1,200 when all was said and done. For more specifics, see these two articles: Many closing costs negotiable and New York again tops 2008 closing costs study.

• When we had our inspections (two actually -- one general inspection and one plumbing specific), I followed around the inspectors and took a ton of notes. They not only told me what shape everything was in, but how many things worked. I had a laundry list of "to-dos" when I was done, but there wasn't anything really big in the initial inspections (the issue we couldn't live with was discovered later through a water inspection the seller was required to perform.)

• My credit score had actually gone up since May when it was 799. I got scores from three different reporting services and they were 813, 798, and 821. No wonder we got the highest discount on our homeowner's insurance.

• Real estate agents want you to close on the home NO MATTER WHAT -- even if doing so isn't in your best interest. When the "issue" arrived, our agent suggested we go ahead and close on the house and write in that they would fix it in 30 days. Yep, you read that correctly. Unbelievable. When I pointed out that there was a good chance they couldn't fix it to our satisfaction and if we closed now we'd lose our negotiating leverage and could be stuck with a house we didn't like, she seemed to blow that off -- the thought of a huge commission seemed to keep her pushing for a sale. But we were steadfast and held our ground. Lesson: you're on your own when buying a house. Never forget that even your own realtor can be as much "against" you (or your best interests at least) as anyone else.

• Our house was on the market for one month at a fair to aggressive price. We had two people interested: one willing to pay half price and one that wanted to rent the place for three years. I guess it could be worse. The people who want to buy our home have had zero people look at theirs in the few months it's been on the market.

Comments

[rwh]

That takes real discipline to walk away from a closing just days before the scheduled date. I'll bet there was some real pressure applied by the various parties.

Did you have to pay some fees to the bank since they had done the initial work, such as credit reports, legal fees and loan origination?

We didn't pit two banks against each other. Instead we just worked with our credit union. The closing costs were about $1500, and would have been about $1200 but we opted to go without the escrow account and they charged another $300 for that.

Our credit scores were similar, all between 800 and 815. But we received a letter from our insurance company saying our credit scores kept us from getting the best rate. I called to inquire and was told NOBODY gets the best rate (and everybody gets the letter) because nobody can qualify for every discount offered. All I know is the insurance is about $600 a year for a 285k house and contents with a $1 million liability and $1000 deductable.

[FMF]

RWH --

The only thing we had to pay for was the home appraisal (for the loan) which was $300.

[wanzman]

When I closed on my house, I opted to waive escrow accounts for taxes and insurance...and was charged a fee for this.

I always wonder why they make you pay for this. Shouldn't they charge you if they have to provide the service for you, and not the other way around. I guess they see it as a bigger risk if there is a possibility you won't pay the taxes or insurance, putting their property in d

[rwh]

Wanzman:

That's how I interpret it. They must feel it's more risky because some borrowers won't pay their insurance premiums or their taxes on time if left to do it themselves.

[Pop]

"Real estate agents want you to close on the home NO MATTER WHAT"

Is that news to you? The only people whose interests they're looking after are their own.

[LC]

rwh and Wanzman: I think the reason is they make a TON off of the escrow and want to make up at least a little of that money. They get a discount for paying the taxes early, which they don't pass on to you AND they earn interest on the money all year until they have to pay the bill. That's why they want you to do it and why smart homebuyers opt out even with the fee.

[FMF]

Pop --

It's not news to me, but it could be to some here.

[Ron]

When the "issue" arrived, our agent suggested we go ahead and close on the house and write in that they would fix it in 30 days.

Sure, We did that with regard to rain gutters that need to be replaced. It's been 3 years now and many calls to the Realtor that told us that escrow would not be released until repairs were completed. No repairs have been done yet! NEVER trust Realtors and get EVERYTHING in writing.

[Miss M]

Good for you for walking away, I should have done the same! Now I'm upside down on a house that needs tons of repairs, fun. My agent sucked, there are good ones out there but they are few and far between. What are your plans now, just stay where you are or are you still looking?

[FMF]

Miss M --

Yep, still looking.

[Tim]

This is a great piece of advice and a wonderful example, especially for first-time home buyers. It is evident you and your wife are intelligent, experienced shoppers. The desire to own a home (especially your first), could have caused a shopper to except the closing costs as well as the problem that broke the deal for you. Well done, and a great example of a smart (great credit score) home buyers -- well played for today's market.

How did the state of the housing market factor into your decision, both selling and buying? The offers on your home were most likely not your dream offers, they were odd to say the least.

Great post,

Tim

[FMF]

Tim --

Our thought was (and still is) that it's a great time to buy if you're trading up as you'll "save" more on the new house than you'll "lose" on the old one.

[rwh]

LC: Yes, you're correct about the interest. That's our primary motivation. We keep the money in our checking account and earn 5% until we pay the taxes and insurance. I always thought escrow was a bad deal for everyone except the company that holds the funds.

FMF: I agree it's a good time to trade up if you do your homework, know the market, have plenty of equity and feel your job is secure.

[David]

I agree that real estate agents don't always have your best interest at heart. I got roped into using the agent that my wife's mom went with. There was no other reason.

I got a bad feeling from the beginning, when she didn't call us back for a week. It got worse when she told our neighbor - the person we were trying to buy property from - that we lived next door. He immediately raised the price.

Other castastrophes included the property not having water or electric hookups, and the agent arguing with my wife and driving her to tears.

We were frustrated but we didn't have a way out.

Then luckily, the agent had screwed up so bad that the bank refused to finance the property as it cost too much. It was a blessing. It gave us a penalty-free way to walk away from both the property and the agent.

Instead, we worked with out builder, who helped us find a nice piece of land within a week. I trusted them much more, as they did not make any comission.

Bottom line - walk away from your agent immediately if they do not give you a warm and fuzzy feeling. Some are honest and helpful, but others only think of themselves.

[louise Pickett]

I'm looking at my Good Faith Estimate, what is: settlement or closing fee (350.00)
flood certificate to Bank (9.50)
tax service fee to Bank (80.00)

Thanks

[Allison]

I truly took offence to your comment about real estate agents. I am one and I would NEVER do what you said an agent did to you. I have encouraged clients to walk away from a deal that I didn't think would be good for them even though they wanted the house so bad and I could have really used the closing money as a single mom. I NEVER put the commission before the ethical responsibilities of my job. If I did what your agent did, that would not be honoring my God. I am to trust HIM for my provision when I do my work in a way that would make Him smile. All real estate agents are not alike. I want my clients for LIFE, not just one sale.

[FMF]

Allison --

I wish all real estate agents were like you. Unfortunately, they aren't (as evidenced by my experience.) And even if someone does have a great agent, they need to be sure to look after their own interests separately from what the agent says to do.

[ABCs of Investing]

Real estate agents will rob you blind if you let them.

FMF - I`m not sure if I read it correctly, but you still own your current house? Have you thought about selling it first before buying?

[FMF]

ABCs --

Yes, I own my house. As far as selling first, that's a long story. Raed my "real estate" posts and you'll get a full picture of what I'm doing.

[Big Cheese]

FMF, you have a lot of cash in the bank I trust. Keep waiting, you will be able to buy a very nice house by 2010 or 2011. Wait till after the alt-a mortgages reset and after the unemployment rate peaks.

Keep looking regularly, you will find a bargain, I am sure.
-BC