Mortgage Madness

Point-six-two-five. That’s the difference one week made when locking in our mortgage rate. Back when we first inquired, we were quoted an FHA 30-year-fixed mortgage rate of 4.5%. Last Friday the mortgage market saw the largest single-day jump in rates that anyone in the industry can remember. Consequesntly, 4.5% quickly morphed into 5.125% over the weekend. Still…5.125% is really nothing to complain about. Perusing the historical mortgage rate  information for the last 30 years or so reveals that mortgage rates peaked in October 1981 at an eye-popping 18.45%!

Despite the higher rate, our meeting with the Loan Officer over at Centennial Home Mortgage  went better than expected. Centennial is a partnership between Wells Fargo Home Mortgage and Dominion Homes. Dominion offers homebuyers an incentive for using their own mortgage partner—they will pay up to 3% of the purchase price to cover closing costs or to buy down the rate.  We are using that money to buy down the rate. Dominion offers another incentive for employees at Nationwide Insurance, where I work. An additional $3000 is offered to Nationwiders that can be used to pay closing costs or pay for options to the home, thus lowering the purchase price. We chose to use this money for our closing costs.

A third incentive program offered by Dominion is called “Helping Hand.” It allows the buyer to earn up to 4% of the purchase price for the downpayment by completing one or more projects on the house during construction. One example is called “The Great Outdoors,” and requires the homeowner to clear the lot of large rocks and debris, to plant the landscaping and spread the mulch, and to apply sealer to the sidewalks and driveway. For this they pay $800. Helping Hands Work Equity ProgramsPainting the interior and attaching doorknobs and shelving is called “Fresh Coat.”  Completing this one earns you a cool $2100. We are both pretty excited about this program because we feel like working on the house in this way will give us greater pride of ownership. I will keep you posted about how the projects go once we actually get to that point. As of today, they haven’t even broken ground.

What these incentive programs mean to us is that we will be moving into this house with ZERO DOLLARS out of pocket! They will even be refunding us our deposit and mortgage app fee. So we could actually be walking away from the table with almost $1000 in our pockets. Or we could choose to use that money to further buy down the interest rate on the mortgage. Tough call. We will probably use the cash for new furniture and window treatments.

Yay, us!

 

—Michael

Sorry, Jim

My mouth was getting dry, and I could feel the hesitation creeping up my throat. Just when I thought my call would go to voice mail, he answered.  “Good afternoon, this is Jim”.

“Hey Jim, this is Michael calling, how are you doing?”

“Doing great, how can I help you?”

“I just called to let you know that Shannon and I have decided to buy the new construction. So we won’t be needing your services for this purchase.”

There was a brief pause as he reacted to the news. Mortgage brokers work on commission. Losing our relatively small transaction probably won’t make very much difference in the long run, but every fisherman regrets the ones that get away. Jim, a VP at Swain Mortgage Company in Westerville, had been great to us, spending several hours educating us on the mortgage market, and setting our expectations for the purchase ahead. In the end we simply couldn’t walk away from the cash incentives the builder was offering for using their mortgage partner. Still, I felt as if I were betraying a family member.

“Okay. Well, I did know you were leaning that way,” he answered, “thanks for calling and letting me know.”

“It’s no problem. I just wanted to tell you that we really enjoyed meeting with you, and would definitely recommend your company to our friends and family. And we will certainly consider using you for our next purchase.”

Another awkward pause, this time by me. “Uhm,” I stammered, “do we owe you for the credit reports or anything else?”

“No, the cost is small enough that I will just go ahead and pay it. But that was very nice of you to ask.”

There really wasn’t anything left to say. “Okay, thanks again, Jim.”

“Thank you for calling to let me know, and good luck with the new house.”

 

—Michael

Episode IV: A New Hope

“Oh, I meant to tell you what Jeff was telling me today about what a great time it is to buy a house,” Shannon said a few weeks ago. “He told me there is a tax rebate of $8000 for first-time buyers, and that interest rates are at an all-time low. He gave me the name of a friend of his who’s a mortgage broker, Jim. I think we should call him and see if we can get pre-qualified.”

For years we had toyed with the idea of trying to buy a house, but I had been skeptical that we could obtain financing due to my bankruptcy filing in 2005 and other aspects of our credit situation. But an $8000 tax rebate is a big carrot, big enough for me to push aside my doubt and agree to a meeting with Jim. The following week we were sitting across from Jim at his desk. He had run our credit reports, and scrutinized our pay stubs and bank statements.

“According to the numbers I’ve just punched in here, I can comfortably report that your income easily supports a $150,000 mortgage.”

Wait a minute! What? Rewind that a second.

“You mean to tell me,” I countered, “in spite of my bankruptcy and our debt ratio being what it is, you still think we would qualify for $150,000?”

“Well yes,” Jim confirmed. “Your bankruptcy was four years ago. Your credit ratings are well within FHA guidelines, and so is your debt ratio. Your monthly income easily supports the payments on $150,000 given today’s interest rates.”

“Are you surprised, honey?” Shannon asked me.

Indeed I was. Shocked and pleasantly surprised. Thus began the great house hunt of Spring 2009. Jim worked up good faith estimates for closing costs at several price points. We quickly realized that we could not afford a $150,000 mortgage. Lucky for us, Columbus is on the top-ten list of the best-value housing markets in the country. New construction and existing homes in decent shape  are plentiful in the range between $100,000-125,000, our target price range.

Next stops: Realtor.com and Google.

 

—Michael

Holy Crap! Did We Just Sign a Contract to Buy That House?

Main entrance to community
Main entrance to community
This is what our new house will look like
This is what our new house will look like

Welcome to the online chronicle of Michael and Shannon’s first home purchase. I thought this would be a good way to keep our families and friends apprised of the status of the construction, and share our experiences along the way. Buying a home is the biggest financial purchase most of us ever make. Those of you who’ve been through it can probably understand that I am filled with equal parts excitement and terror. Excited that we will finally have a place to call our own. Terrified with the prospect of having to defend my credit rating, and spending the next few months sparring with the mortgage company.

As soon as I have a chance, I want to backtrack a bit, and write about how this whole thing started. Shannon and I toured close to twenty existing properties before making a decision to build a new house with Dominion Homes in Northeast Columbus.  Stay tuned for this story, and may others, along with pictures and links to other homebuying Websites.

—Michael