Mar042016

Story of a self-reliant Gen-Xer’s first time home purchase

We’ve all read stories about the challenges first-time homebuyers face in today’s market. First-time homebuyer participation is hovering near 30-year lows, and showing little sign of improvement. Rather than describe the effects in another post, I thought it would be informative to share a real story from a real buyer who just completed their purchase. Enjoy.

americas_housing_market

First time homebuyers are lacking in today’s housing market.  What does it take to buy a first home in coastal SoCal?  Why did a housing bear decide to purchase?

Getting Ready To Buy.

As a life-long renter, I shared the commonplace goal of home ownership.  There is a huge chasm between wanting and having.  Readying myself to be attractive to a lender was a multi-year process.  A little background first…

I was a divorced single parent with hefty grad school loans.  That last sentence sums up in a nutshell why my earnings did not go far enough, and my savings were insufficient to attempt home ownership.  As the saying goes, I already had a monthly mortgage (payable to Sallie Mae) without the house.

(See: Excessive student loan debt is another long-term drag on housing)biggest_saver

Most homeowner peers I know received assistance from the Bank Of Mom & Dad.  How the eff else are you supposed to own west of the 405?  As my career carried on over a decade at my current company, my salary roughly tripled.  The key for me was living well below my means.

I occupied the same modest 2-bedroom apartment for roughly 14 years.  During this time period, my only splurge was purchasing a $30K new car.  At some point in time, I started socking away $1000 per month in a savings account; then upped it to $1500; then $2000; and eventually $3000 until I had amassed over $200K (no thanks to ZIRP).

(See: How to save money for a down payment to buy a house)

I was unaware of anyone else that was saving $3000 per month in after-tax earnings.  I was also certain that, among SVP-level employees of Fortune150 companies, my mediocre apartment was likely the shittiest residence.  My kid would often complain about the apartment (a junior version of spousal nagging).  My response was always the same.  house_poor

We do what we want to do, go where we want to go, buy what we want to buy, whenever we so desire.  The kid can enjoy a “diva” lifestyle funded in most part by remaining in the modest apartment, or trade that in for a house within which we will likely be having soup most meals with scant money left over for anything else.  Let’s just say that our vacations would dry up considerably.  Wealth is measured by how you live your life, not the house you occupy.

Motivation To Buy.

I had been monitoring a few neighborhoods for years, certain that I was entitled to a $500K-ish 2bd/2ba SFR once the market came back to reality.  I was always ready to pull the trigger on that opportunity.  Well, as Larry has chronicled, reality still evades the local housing markets, so my frustrations brewed on as the irresponsible vested interests were rewarded by collusion and regulatory policies.  My motivation reached a tipping point.  hold_up_prices

My financial profile was now uber attractive to a lender, and lo and behold, I was engaged to be remarried.  From a timing perspective, I had two years left on my employment contract, so let’s get moving!  My usual stomping grounds (where I had been renting) were too expensive, and my fiancé really wanted a view, which had us looking in areas I was unfamiliar with.

The Hunt.

Weekend open houses are generally held between the window of 12-4pm.  I would string together (based on geo proximity) up to 12 open houses per day.  Needless to say, this was exhausting.

[Wow! That’s a thorough search!]

The micro-markets I was searching were scorching hot and some choice properties were gone before the sellers even held a weekend open house.  I started attending Tuesday and Thursday brokers’ open houses on my lunch breaks.  Did I mention how exhausting this process was?  y_realtor_waitress

[OMG! Did any of you know that you could do that?]

Bidding wars were the norm and I was growing tired of the phrase “final best offer”.  Not only was I fighting traffic to reach open houses seemingly every spare moment of my life, but now I had to stop by my agent’s office before and/or after work to sign bidding paperwork.  The process of searching for a home was now consuming my entire life, taking me out of all my routines and threatening any semblance of joy in starting a new life with my fiancé.  Could this pain have been avoided by relying on an agent to conduct the search for us?  Maybe.  But we were covering many neighborhoods on our own, and I have a sense that agents focus on much narrower areas than we were tracking.

The Near Miss #1.

Our assessment of the initial phase of our house hunting caused us to alter our strategy in a vital way.  These bidding wars were killing us.  If the selling price was within shouting distance of the conforming limits, you were effectively competing against an army of “qualifiable” bidders.

My personal sweet spot was $720K.  I felt very comfortable at that sale price (with 20% down and a fixed mortgage) on my sole income.  I could qualify for a fixed mortgage that would put me into a $1.1million property.  house_poor

No thanks.

We found a great house (with a view) in one of those hilly neighborhoods I was previously unfamiliar with.  And get this… the seller’s agent used to work with my agent decades ago and is very fond of my agent.  Looks like my choice of under-utilized agent is actually going to pay dividends here.  There were still two or three other bidders involved, but I was the most fiscally qualified, and completing the transaction was the seller’s top priority (more so than final sale price).  I think my final offer was around $730K and likely the highest.

So how did we not end up with this house?  Apparently, another bidder fawned all of over the seller, kept coming by, showering the seller with mystic prose about their future life in this particular house.  This was a highly desired school district and people would get worked up over landing a house in this hood.

(See: Sappy letters to sellers return in tight supply market)I_just_want_it

I had seen the light at the end of the tunnel and now my frustration and exhaustion  were going to continue on.  We decided to steer clear of the chaos around the conforming limit ($625,500) and focus only on homes $750K+ where there are fewer qualified buyers with liquid down payments.  This was a time when jumbo borrowers needed 20% down payments, so that hurdle weeded many would-be buyers out of the picture.  Of course, I zeroed in on the $750-850K range homes, and my fiancé was scoping the $900K-1million homes, but that’s another story.

The Near Miss #2.

It’s the day of my birthday party and I am running late for my own party.  There is one more house at the end of my open house list that I really want to see.  But they are slow to get going and it’s not open yet.  The broker assures me they will open it up soon.  Can I afford to wait any longer?

I do, and my patience pays off.  This house is perfect for us.  I arrange to bring my fiancé over for a look, and we are in agreement.  We bid $5K under asking price.  We were told there was a bidder from India who had offered all cash at $40K over asking price.  My fiancé and I have both done business with India-based entities.  No disrespect intended to anyone reading this, but as for the likelihood that an Indian resident would be able to move that much money here to buy this home, we both thought “good luck with that”.  We upped our offer to match asking price and sat chilly, waiting for the Indian’s offer to implode.  Ultimately, we walked away and this home (a flip that was purchased a month prior to listing) never sold.

My First Home… Finally!

Since we upped our purchase price range, and since the hilly view regions were overheating, I actually found a comparably priced house close to my usual stomping grounds, west of the 405.  It is not a starter home.  It is what usually would be a move-up residence (or second move-up), and is the nicest place I’ve ever called home.  It lacked a spectacular view, but hey, there is a second floor balcony with some scenic opportunities (of nothing in particular).

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The inspection revealed an issue, and I split the $14K remedial cost with the seller.  I could have fought harder over that issue, but I was so ready for this whole process to end.  Do not underestimate house hunting fatigue as a motivating factor toward escrow closings.

(See: The most important key to avoid overpaying for a house)

I paid asking price, which I felt was reasonable.  A recent appraisal during a refi came in at $75K over purchase price, much lower than the online estimates spewed by Zillow and Redfin.  I’m not too concerned about present value because this is a house that I’m occupying, not selling.  I’m locked in at 3.625% and very happy with the house and my housing nut (my mortgage being 15% of my gross monthly wages, not factoring any bonus or spousal earnings).

I am fully aware that my house may crater 30% in value when the bill comes due for all of the can kicking measures and financial engineering, but if I wait to catch a falling knife at the perceived perfect time, that wait could be lengthy and life will just pass me by.  Plus, I am an AMT-ravaged salaried employee with nowhere to hide from the tax man.  This HMID thingy (which I did not include in my affordability analysis) is a welcome relief.

happy_ending_realtor

Congratulations on your home! Thanks for sharing your story.

[listing mls=”NP16044234″]