buying a house

The Dubious Solution (Another House Update)

The Gingerbread Diaries

So far, each time I update here about the Saga of the House something happens the next day that changes the road ahead–or at least presents a significant speed bump.

After our last update I realized that we were well and truly only two weeks from closing and I was both astonished as well as suspicious that we had all the needed ducks in a row. Sending out a round of status updates to our team I was, unfortunately, proved correct: our contractor had failed the bank’s validation.

Damn.

Turns out our contractor, the one man who consistently returns my calls and whom I know in my gut I can trust to do this job as he promised, seems to only hold a county license when the bank is requiring a state one. And it’s not like he can go down to the courthouse and file some paperwork and get said license, the process can take months so it looked like we were once again sunk.

Only there was hope in the form of our contractor’s cousin, holder of the required state license and someone he’s worked for before. The bank and I both had the same thought: would Contractor S be willing to sign on as General Contractor and sub the work out to Contractor L? That was the question at hand.

It took a few days to arrange a meeting between S & L the following Saturday to go over the broad strokes of the deal, then Monday Banker R informed me we were back in business, Contractor S was willing and seemed like he had everything the bank would require of him, and we pushed the closing back two weeks to allow for paperwork processing.

And then we waited.

We waited a full week while Contractor S neglected to return phone calls or emails, did not submit the requested documentation, and generally made everyone uneasy. So uneasy, in fact, that our HUD Consultant called me at 9:30am this Saturday morning concerned about the state of affairs and fearful that we were about to be screwed over. Granted, the worst-case-scenario part of my brain (which was fairly well developed before we entered the real estate game) had already thought of all those angles and many more, but to hear someone other than the niggling voice in the back of my mind express them was not exactly how I wanted to start my weekend!

Did you ever have to endure group projects in school? I always hated them with a passion–first because I like to work alone, second because there always seemed to be an inequality of the effort put forth. Essentially the 80/20 rule in miniature, it bothered me to no end to be responsible for someone else’s grade only slightly less than it bothered me to have someone else responsible for mine!

Up until now, everyone involved in this venture has been fairly well invested in the process, either for purpose of personal gain (myself, the sellers, the Realtor, and Contractor L) or due to professional integrity (the lender, the lender’s assistant, the 2 outside inspectors, the HUD consultant, and the loan doc specialist). Dear heavens, that’s eleven people involved so far and all of them pulling their fair share of the work! But bringing in Contractor S was like having the odd-student-out assigned to a group of friends–they might possess a certain specific qualification needed to fulfill the assignment, but they’re not really all that invested in the process since their involvement is impersonal (in the student analogy, perhaps he plans to drop the course in a week, I don’t know…) .

After losing, all told, a week and a half to this delay, the people waiting on info from the new contractor have at least made contact with him. And, yes, I did try to express to him–both on the phone and in writing–the urgency of the situation, but I obviously didn’t get very far since it took a call from the lender’s assistant to actually see any progress. (Insert diatribe about being a woman dealing with the classic Southern good ol’ boys network and how being forceful gets you labeled as an uppity bitch while a man–hello, lender’s assistant–gets results. But, hey, if it continues to work, I’ll hold my tongue until the renovations are done. Mostly.)

So that’s where we’re at: the clock is ticking, we’ve had yet another setback but we’re still in the game. I remain cautiously optimistic (emphasis on the cautious) but I’m not breaking out the Champagne just yet.

Now, let’s see what tomorrow brings, shall we?

Know When to Hold ‘Em, Know When to Fold ‘Em

The Gingerbread Diaries

Time for another house update!

A couple of weeks ago I was getting ready to write a downer of a post. The good news was that the appraisal came in high enough for the roof repairs, the problem came with the mention of possible structural issues. And structural issues, regardless of cost, immediately take us out of the 203(k) Streamlined race and into the full shebang of 203(k) along with the need for a HUD Consultant and, because of the change in how the funds are disbursed (i.e., no up-front draws, only periodic draws based on work completed), the very real possibility of needing to change our contractor.

Despite the obvious gap between the pilaster and the porch, that corner is completely stable--we were hoping that would make it far more minor an issue.

Despite the obvious gap between the pilaster and the porch, that corner is completely stable–we were hoping that would make it far more minor an issue.

Cue freakout #I’ve-lost-count.

Underwriting demanded that we have a Structural Engineer evaluate the brick pilasters on the end of the addition (under the porch and laundry) to decide if there were, in fact, structural issues to be addressed and Todd thought it worthwhile to at least have it checked out–after all, knowing the structural integrity of the house we’re trying to buy seems like a good idea, right?

Let’s just total up the inspections we’ve now had on this house we don’t even own yet:

$275  Initial Buyer’s Inspection
$525  FHA Appraisal
$285  Structural Engineer Report
=====
$1085  Total Inspection Outlay

Unfortunately, we didn’t get the news we held out hope for: the pilasters did need work and there were a few other things to work out. And the seller was still adamant that they’d gone as low as they were willing to by accepting our initial offer (which was almost 10K under their list price) and that it was already priced to sell.

Damn.

So we did the only thing we could do: we walked away.

It was a very hard email to write, but we did it. And I almost felt better just being out of the limbo we’d been in for so very long on this project.

And then, in a move worthy of any used car lot in the country, the seller countered with an offer 10K lower than we’d originally settled on.

I was flabbergasted! Some say we called their bluff, but that implies there was a bluff to call. Others contend that the structural report finally convinced them of what they were trying to offload and what they’d have to ultimately do if they wanted to sell the home to anyone. The email I received made it sound like they wanted us to have it since we obviously loved it so much (which, yes, we do, but the timing is still a touch suspect).

Grinch-like compassion or desperation aside, this changed things more than I thought it would. It doesn’t change the fact that there are structural issues, but Todd seemed to think that the 10k wiggle room would be enough to make it doable. So the next morning I called our lender and asked if we could un-withdraw our application. Luck was on our side as the cancellation request hadn’t made it to the top of the queue and we were allowed to proceed, at least through the next hurdle.

And that hurdle come in the form of what amounts to a fourth inspection, this time with a HUD Consultant (who gets paid up-front) and the contractor in tow. Thankfully, our contractor was able to work with the changed disbursement schedule and stay on the project. This was such good news as we all remember the drama of trying to find a roofer at the beginning of this project! Our HUD Consultant pointed out a few more things than the FHA appraiser did (not that it was a big surprise) and then we were back to waiting for the contractor’s bid.

Of course, nothing can go smoothly and the loan was once again in peril once they were able to dig up the city property tax records (which are not available online anywhere–county and state are, for what it’s worth–making them damn hard for a prospective buyer to research) and the increase in the monthly mortgage cost was placing our DTI (debt-to-income) ratio close to the preferred threshold, before factoring in the additional renovation costs.

Thankfully (we had a lot of moments to be thankful during this process), that was before taking into consideration the lowered purchase price, so once the contractor’s new bid came in, we could run the numbers to see if there was any point in moving forward with the HUD write-up (another bit that gets paid on delivery instead of at closing, and whose fee is based on a sliding scale depending on the renovation amount). We caught a break and the bid came in below the appraiser’s estimated cost to cure (that phrase always makes me think of a house catching a cold), even with all of the HUD Consultant’s addition, and we got the “approvable” approval from the powers that be.

We’re not in for sure, yet–we’ve still got a few weeks until closing and the official underwriting approval to receive, but we’re a lot closer and, yes, a little more hopeful than we’ve been for the past month, truth be told.

If You Give a House a Roof…

The Gingerbread Diaries

It’s going to want a paint job.

Houses are Greedy Little Things, Aren't They?

Houses are Greedy Little Things, Aren’t They?

Or, it will if the current paint job is peeling and you’re going for an FHA renovation loan.

Welcome to buy-a-house limbo; but I may be getting ahead of myself.

At the last update we’d decided to pursue the renovation loan, but were planning to stay with the conventional loan for the better terms, etc. I keep saying plan like that means anything. Here’s what the process has looked like so far:

Plan A: Make an offer almost $10K below listing price, get a (potentially) great fixer-upper for an amazing price, fix it up over time at our own pace.
Plan B: Ask seller to replace the roof as it’s pretty much FUBAR as far as roofs go. (No go.)
Plan C: Reduce our offer another $10K and ask for closing costs to more accurately roll the cost of a new roof into what we originally were willing to pay for the house. (They weren’t thrilled with that idea, either.)
Plan D: Offer to raise our offer to “split” the cost of the new roof, as long as they put it on before closing. (This never got offered–they were adamant about as-is.)
Plan E: Stick with our original offer and seek a Conventional Renovation Loan with lowest-bidding roofer. (But said roofer couldn’t agree to do the job without some money up-front, and conventional doesn’t allow that.)
Plan F: Stick with our original offer and seek a Conventional Renovation Loan with a slightly higher-bidding roofer. (Only, he never got back to me after I sent him the contractor packet from the bank.)
Plan G: Switch to an FHA 203(k) Streamlined Renovation Loan to go back to the lower-bidding roofer so he can get 35% of his fee up-front.

And while, yes, there is theoretically a Plan H, I don’t even know if it’s feasible or what it would entail. That’s a lot of plans in less than a month, no?

The other up-side to going FHA (despite the PMI–Private Mortgage Insurance–and additional front-loaded interest) is that it reduced the minimum down-payment. While going conventional is always ideal, the total renovation cost on top of the planned down-payment was eating away at our buffer for that “squeak zone” we knew we’d have. It’s a short-term value, true, but we’re still looking at a mortgage that’s slightly over half our current rent for twice the house (and the ability to accrue equity). There was an unintended consequence of switching to an FHA loan, though: the FHA-level inspection!

By the way, for a Renovation Loan, the “Total Cost of Renovation” is more than just the contractor’s bid. Here’s how my loan consultant broke it down for me (fees as estimated by Wells Fargo, January 2014–just in case someone finds this list on a search, later):

  1. Contractor’s Bid
  2. 10% Contingency Fund (which gets applied to the principal if there’s anything unused at the end of the renovations)
  3. Feasibility Study ($430 Conventional, $600 FHA–though we were able to skip this because we’re doing a Streamlined Reno; i.e. under $30K)
  4. Inspection Fee (~$200, though you may need to allow for multiple inspections, costing more, depending on the scope of the renovation)
  5. Final Title Inspection (~$150)
  6. Draw Center Fee (between $350 and $750, and covers the department handling the disbursements for the renovation loan)

Acknowledging that this could have been 100% my misunderstanding, I was under the distinct impression that with a Conventional Renovation Loan, we could choose to just replace the roof and still handle the rest of the needed improvements on our own, over time–like I said, I’m no longer sure that was the case, but it was the theory we’d been operating on. Because the FHA requires homes they back to meet certain health and safety standards, things like peeling paint and others will be noted as part of the appraisal. And (the other shoe dropping on this front) anything on the appraiser’s report MUST be included in the scope of the work the contractor is providing. The seller can’t fix them, and neither can we: the contractor has to do it.

Consider that my ohshit! moment at the end of the hour-long application call. Cue my freak-out of what the appraiser might deem necessary and how much that might push up the renovation costs. If the total cost of renovations goes above $30K, we can  no longer do the streamlined reno-loan (not to mention it would be pushing up into price discomfort area, and we’d have to consider–again–walking away). Plus, streamlined or no, the total cost of the home + renovations cannot be more than 95% of the projected home appraisal (value after needed repairs). That’s a lot of ifs, buts, and maybes–hence the limbo period we’re in until the appraisal comes in and our contractor is validated/gets us an updated estimate.

After my initial freak-out, though, I started to look at the additional renovations as a good thing (provided we can swing the deal at all): the items most likely to be on the appraiser’s report are the things we’d most likely consider triage-worthy on our own, repairs and improvements we’d be trying to make immediately after putting up the down-payment and closing costs when money would likely be tight. While financing some of these things might not be ideal, they would give us more breathing room as far as major systems go. (I still don’t completely see how peeling paint is a safety issue if the paint isn’t lead-based, but whatever…)

And speaking of paint: did you know that peeling paint will prevent you from getting home owner’s insurance with many companies? And if not that, the fact that your home has an open crawl space higher than 2-feet will exclude you from others–even if the company already insures the home in its current state!

If I thought getting roofing estimates was ridiculous, the hunt for an insurance policy/agent was maddening!

Perhaps I was too honest (though most policies require an eyes-on inspection of the property, and omitting details will get said policy swiftly canceled), but most places I called wouldn’t quote the home while it was under renovation. Then there were the aforementioned crawlspace and roof issues, plus the lack of smoke detectors (seriously, the previous folks took them with them as we can clearly see where they used to be). Meanwhile, our loan consultant was adamant that we just choose an agent and she’d be able to get the insurer to understand the type of policy (Builder’s Risk) we’d need and get it smoothed over.

Our heads have been spinning!

Our heads have been spinning!

But how could I pick an agent when I couldn’t even get a quote to decide who was going to be able to offer us a decent rate?! The most common situation involved not being able to get insurance until the roof was replaced, but we can’t replace the roof until we buy the home, but we can’t buy the home until we get insurance on it–maddening I tell you!

Finally, I got one agent to quote me a Fire-1 policy through Foremost (a subsidiary of Farmers who seems to take the properties Farmers won’t), only it would only be good while the home was unoccupied–Foremost can’t write policies for occupied homes in the state of Georgia. (And the policy was going to cost almost $2K for that dubious privilege.) Finally, one local agent that couldn’t help us directly referred me to a former coworker who now works for Farm Bureau and can write policies through the state-sponsored insurer–aka the last resort of the property-damned.

She could at least quote us a Rehab policy that was only a quarter of Foremost’s Fire-1 option (before adding contents, at least), and explained that–at least in Georgia–you can’t have 2 policies on the same home (unlike the earlier direction to get HOI plus a Builder’s Risk rider or whatever). Either way we’d be converting the policy from rehab to full coverage, but this might be the lesser of the two faint options we had. Especially considering we have to pre-pay the first year’s coverage (even though we’ll be changing the policy one the work is done and moving in) and bring 2-3 months of the next year’s premium as cushion for the escrow account; essentially pre-paying 15 months. (And, no, that wasn’t how it used to be, this is apparently something that’s changed in the last few years.)

But, hey, at least I had my options–few though they were–and I felt a little better about naming our agent as part of the application process. As of the end of last week our application had been sent to underwriting for initial review, and we’ve received our conditional approval. The past week of waiting, even with the assurance that the loan “looks good” on paper by our consultant, has kept me from spending too much time planning for our new home. I’m wary of getting my hopes up with the appraisal findings still an unknown, and the contractor rebid on top of that.

Buying a house is a lot of hoops to jump through, we knew that. It just feels like the hoops are flaming and I’ve got lead weights tied to my feet! Still, a friend reminded me of a quote from The Last Lecture:

The brick walls are there for a reason. The brick walls are not there to keep us out; the brick walls are there to give us a chance to show how badly we want something. The brick walls are there to stop the people who don’t want it badly enough. They are there to stop the other people!

This is us showing how badly we want this house!