YOU GUYS. We. Are. In. Escrow.
It all happened so quickly, I’m barely even sure HOW it happened! But…okay I’m sure enough to tell you. A couple weeks ago Corey and I went to an open house (as per usual) and really liked the place. It was in a great neighborhood, good lot, the house was small and needed some work but…we liked it. It was the first house that we actually considered putting an offer in on. We called our agents and asked them to send us the paperwork only to find out…there was already an accepted offer. We moved on.
But a couple weeks later we got a call from one of our agents saying that the buyer had backed out and the seller was willing to hold the house OFF the market until we decided what we wanted to do. (In this market I’m sure I don’t have to tell you that them holding the house off the market is a huge deal. No bidding war!) The house was a bit more than we wanted to pay, but a steal considering the neighborhood it’s in. We went for it. Two counter offers later, and we were in escrow.
The last week has consisted mostly of writing large checks, worrying about what money is where, and signing, signing, signing. All I can say is thank GOD we have awesome and competent real estate agents, and also a great mortgage broker. AND my amazing parents. If we had a dud I can only imagine how complicated this already-a-beast-of-a-process would be.
Corey and I have been looking at houses since March. MARCH. That’s nine months (for those of you who can read but not count). There have been times where we’ve given up. Thought our realtors hated us. Thought that the finances of it were just too impossible. And while this is by no means a done deal (inspections and official loan docs still to come), it is pretty incredible to us that we’ve even managed to get this close.
As you may have noticed, we took a little break from our search. I won’t bore you with the details (which are mundane and not juicy at all), but I will say that we’re back with a vengeance!
I fell in love with a tiny cabin in the Echo Park hills that was, as luck would have it, ridden with termites and on a lot where you can’t touch ANY of the oak trees. To sum this up in a direct quote from our agent, “I would never let you guys buy this place.” At first I was annoyed, what with all the time I’d invested imagining myself in the woods with a beautiful view of Glendale and the foothills, but then Corey rightly reminded me that this was why we had an agent— to stop us from being dumb (or making dumb real estate decisions, at least).
As you all know, my parents are giving me and Corey the money for our downpayment. On the surface, what seems complicated about that? Parents giving money to their kid, it happens all the time— especially in real estate, where a 20% down payment can represent a lot of money. And then the IRS got involved.
It doesn’t matter who the gift is coming from, if the person giving the money will not be on the title of the house and if it’s a gift larger than $13,000 from one individual to another, the giver is going to have to pay a gift tax. Doesn’t that seem silly? One person wants to help another out and they’re penalized for it? My personal issues with the tax code aside, the logistics are as follows: one person is allowed to give another person $13,000 each year without having to pay taxes on that amount. But keep in mind that is just individually. My mom can give me $13,000 in 2012 and my dad can give me $13,000 in 2012, and they can both give me the same amount again in 2013, without having to pay taxes. They can also each give Corey $13,000 annually.
If you’re thinking— well forget about it I’ll just call it a loan and give them back the money whenever I sell the house— I thought that too. In that case, the giver wouldn’t be taxed on the money but in order for the bank to okay your mortgage, you’ll need to show them how you’re paying that money back to whomever gave it to you. Having a loan on top of a loan will also make the banks extremely nervous and unlikely to lend to you, because on paper your mortgage is really 100% loan, no money of yours whatsoever.
So what’s someone without 80k in the bank to do? I’m certainly not going to suggest anything illegal or tricky here, but if you find yourself in this situation I recommend you speak with an accountant— be honest with them, and they’ll be able to get you to the right solution.
For the IRS’ list of FAQs on gift taxes, click here.
At the onset of this my mom warned me that it would be an emotional roller coaster, and I think we’re (read: I’m) experiencing our (my) first dip. I’ll tell you why I’m really the one struggling a little bit later.
Yesterday we went out with Kurt again and saw a house that I had loved online. Let me tell you, it’s absolutely beautiful. So beautiful, in fact, that I’m going to link you to it here, because you should be able to see this. Walking around the house I was just thrilled. It’s a Craftsman, it’s been so well restored, the backyard is large, it has a two car garage, a pantry and a laundry room, a front porch that’s just begging for a bench and a fireplace nook. A FIREPLACE NOOK. We spent a good amount of time in the house, mostly punctuated by me saying, “Oh that’s nice. I really like this house. Look at that! Oh I love this house.” As the three of us drive away I’m going over and over in my head whether the house is nice enough to make up for the fact that it’s not exactly where we want to be as far as location is concerned. Kurt says we’re just driving by one last house that went on the market just the day before.
Slowly we go from the neighborhood we don’t really want to be in to exactly the neighborhood we want to be in. I mean, exactly. We pull up to this next house. It’s adorable. We’re able to go in and see that it has original wood floors, a Batchelder fireplace, large rooms, a two car garage and a nice-sized backyard. It needs some work but it’s totally livable and we could update it slowly but surely. I don’t think I realized how perfect it was until we drove away and we’re making fun of the show House Hunters— Kurt pretends to be the narrator, goes through the houses we’d seen that day and asks us to pick one, like they do on the show. Despite having seen that beautiful finished home, we both go for the last house in the great neighborhood. And that’s when my mind started turning…okay, racing. It’s squarely within our budget. We could do this and we could do that— tree removal, kitchen updates, new tile floor in the bathroom, staining the hardwood. I drove by it again later that afternoon. I got out of the car and peered in windows, studied the backyard, the garage, the color of the porches, the layout of the kitchen and where the laundry would go. This could really work.
Are you wondering where the dip is? It’s coming.
So once I realize that this place is kind of perfect (aside: nothing is perfect in house hunting so your definition of the word gets skewed. This house isn’t a shack and it’s in a good neighborhood…therefore it is perfect) I spent the rest of the afternoon agonizing over calling my parents. My parents, in case I didn’t mention this before, are giving us our downpayment. That generosity and overall willingness to support us and make our dreams come true is overwhelming for me, which causes me to have a nervous break at the thought of having to give them a ring and actually call the favor in. But this whole thing is complicated by the fact that my dad is retiring soon, so their financial situation, while totally solid, will be going through a cosmetic shift in the next couple of months.
I’ll be honest with you, I never anticipated finding a house like this, this quickly. I figured, by the time we find a place everything with my parents will be sorted out and things will be easy and great. Because things are so often easy and great.
To make a long story short, my parents confirmed what I already knew which was that this is just a little too early. My mom helped clarify a bit further as well, saying that the money that they would likely give us actually isn’t available until after my dad is retired (unless they want to pay a significant penalty, which obviously isn’t okay).
Enter the dip. Here is this perfect house that is in our budget but the timing is wrong. And I didn’t really realize how off we were on the timing, to tell you the truth. I was kind of under the impression that earlier wasn’t better but it was doable in extreme cases of great houses. Corey thinks a stall of a couple short months is actually a good thing; he says it gives us more time to continue aggressively saving, to watch the market and understand it. And I know that he’s probably right, and that there’s nothing to do about it anyway. But I still can’t help thinking— what if the market blows up and in two months we can’t afford to live in this neighborhood anymore? Have I wasted Kurt’s time? If I tell him about this is he going to be upset? Will he drop us as clients? Do I just put all my research and everything else on pause for two months? What about all the excitement and energy I’ve got surrounding this hunt?
So yeah. I’m in the dip. Hopefully there’s an upswing soon.
How much is too much, exactly? HGTV has taught me that you have to give your realtor clear feedback so that they have a better idea of what you’re really looking for. Here are some examples of notes I’ve sent to Kurt recently:
Gardenside— In terms of location, this is pretty much perfect. Walking distance to Los Feliz and Glendale— we love this neighborhood. The house is definitely a fixer, which we don’t mind at all (in fact we like it) but for us the price isn’t right to put the work into it that it’ll need. If it were around $400k I think it would be more of an option for us.
Campus— I loved this house. For me, it had that indescribable “vibe.” Loved the ceiling in the living room, and even though the kitchen was older we both thought it had great potential. My biggest stumbling block was that, while obviously nice, that neighborhood didn’t seem to have the walkability we’re really hoping for. Corey thought the price could stand to be a bit lower for the updating that the house needs.
Palmero— This neighborhood didn’t have much walkability either, but it was just so pleasant I think that made up for it (we took a little stroll and it was lovely). The view was incredible, but overall we didn’t love the house— it had been updated but we thought the job was just so-so. The kitchen was a bit small and the house didn’t really have a usable yard, which is important to us.
Monte Bonito— This made me think I was crazy for saying that we would go as far as Pasadena, so I’d like to amend that! This was reeeeally far out there. The house was just okay. The choppiness of the levels, both interior and exterior, made the house hard to enjoy.
Idell— That fireplace— so great!!!! Built-in benches (oddly enough) are really the way to my heart. I LOVE Craftsman style and I especially love how this home has been redone. The pantry and laundry room are great pros, as is the backyard. Cons would be the jack and jill bathroom (although if the home only has one bathroom I guess that’s half an en suite!) and I’m really not sure about the neighborhood. Looks like this would be the nicest home on the block, which conventional real estate wisdom says is no good (right?). If it were in a little better neighborhood, it would be hard for me to pass this one up (I say this without having seen it in person, of course).
All of this begs the question— am I making my real estate agent hate me, one over-analyzing email at a time? I’ve never had a realtor in my life, I have no idea how much communication I should expect from him or vice versa, and I figure too much is better than too little…right? I’ll let you all know if I get a cease and desist letter.
Being a first-time home buyer is really confusing. I’m sure you all pretty much assumed that, and you are dead on. Sorting through all the financing options at times makes me feel like Harry Potter trying to find my way to the goblet of fire— there are dead ends, trap doors, and then at the end there’s a battle to the death. Okay, it may not be as bad as all that, but the options get overwhelming.
As you know, we were pre-approved by Corey’s credit union for a regular ol’ mortgage. Well, not really pre-approved, we were pre-qualified. Which essentially means, they tell you the mortgage that you will PROBABLY get, but don’t guarantee that to you. They say they don’t pre-approve people anymore, but I’m pretty sure that’s a load of BS and they just don’t want to lock us in, in case interest rates go up and they can squeeze more money out of us. This is the thing about financing— everyone says they want to make your dreams come true, but ultimately they just want to get paid. Cynical, but true.
As you also know, we probably won’t go with the credit union, as we’re looking for a renovation mortgage. Kurt suggested a mortgage broker to us, and a lender at Wells Fargo. At first I really liked the idea of a mortgage broker— they do all the confusing research for you by pulling your credit report once and shopping it around to lenders. They gather the best deals, deliver those back to you and you get to pick the mortgage. And if it were really that simple I’d do it in a heartbeat, despite the extra cost (because adding a broker is adding just one more person to your home-buying entourage that needs to get paid). But a lot of banks won’t do business with brokers, including Chase and Citigroup. And brokers may have incentives to present certain mortgages to you over others. Even after all that, you still should call the lenders that the broker presents to you and see if you can get a better deal by working with them directly. So how much work does that really save you? I’ve decided to pass on the broker, since our mortgage is so specific and they seem, frankly, just a little shady.
I said above that Kurt recommended a lender at Wells Fargo to us. This guy, John, is of course not the gentleman at Wells Fargo that I had been speaking to that is a renovation mortgage specialist (his name is Devon). Renovation mortgages are pretty tricky so it’s important to have someone in your corner that knows their ins and outs REALLY well. So a part of me would like to just ignore Kurt’s referral and go with Devon. However, if John and Kurt have a relationship, maybe John could get us a more competitive mortgage deal (lower interest rate, zero points, etc.). Do you see how easy it is to get lost in the weeds here?
For us, I think the best option is to call John and see how extensive his experience is with renovation mortgages. If he’s done a few, I think going with him will be smart, in order to take advantage of Kurt’s relationship there. If he’s only vaguely aware that the bank has a renovation mortgage option, we’ll go with Devon. Can somebody get me an Advil?
We met with Kurt, our real estate agent, earlier today. To sum up how the meeting went, I kind of love him.
Let me rein that in a bit. We met at his house, which he did an amazing job renovating if you consider the person that owned it before him was a hoarder. Actually, it’d be an impressive renovation even if the prior occupant wasn’t a TLC show in the making. It’s really beautiful and simple, which is exactly what we want our house to be. He gave us a quick tour of the house to show us that he knows the real ins and outs of renovations. Consider us convinced. Also joining us at the meeting were his 16-year old dog Fritz and his 17-year old dog Riley. Adorable.
Kurt didn’t tell us we were insane for wanting to get a renovation mortgage and even suggested a couple lenders (presenting an entirely new conundrum: do we get a mortgage broker?). He said it would be extra work but didn’t make a big deal out of it, and came up with a few strategies off the top of his head to help us find the right house at the right price. We didn’t go see any places with him, but now that he knows what we’re looking for we’re going out next Saturday to a few open houses.
I’m aware that it’s early on, but so far I’m really happy that we went with Kurt. From what we’ve seen he’s an expert in what we’re looking to do, and beyond that he seems like a good-natured human being who loves what he does and who we won’t mind spending a few Saturdays, Sundays, and lunch hours with.
When we left his house he gave us a parting gift— a book that he and his brother wrote titled “Honeymoon With My Brother.” It was a New York Times bestseller and put Kurt on the talk show circuit, including Today and Oprah. Check the book out here to learn a little bit more our eclectic and awesome realtor.
My boyfriend Corey and I are trying to buy a house. In Los Angeles. No, I am not kidding. This will be the first home either of us has ever owned. He’s 25, and I’m about to turn 25, which just happens to be one of my lucky numbers and if that isn’t a reason to make a life-altering decision, I don’t know what is.
Through all the research that I’ve done (and continue to do), I found myself wishing that I could compare notes with someone else. Isn’t there someone out there, some well-spoken, funny, intelligent person who has gone through what I’m going through?? Someone who has navigated the choppy waters of a short sale in a competitive housing market who might be able to give me an idea what of lies ahead? Well I never really found that resource, so I decided to start my own.
Let me catch you up to speed on where we’re at.
- We’re looking for a house in the Atwater Village neighborhood of Los Angeles. We aren’t exclusively looking in Atwater, but it’s our first choice for a couple of reasons. First off, it’s a gentrifying area. Once sketchy and a little down-trodden, Atwater is now enjoying an influx of cafes and yoga studios (if you need evidence of this, just know that Anthony Bourdain stopped there during an episode of “The Layover”). What this all means is that we can still afford to live in this ‘hood, but we don’t need bars on the windows. It’s also centrally located between Corey’s work (in downtown LA) and my work (in deep Burbank). Huzzah!
- We have a real estate agent. A couple weekends ago we did a tour of the open houses in Atwater and met Kurt at one of them. Kurt was helpful and down-to-earth, but most importantly, he was selling a beautiful house. In Atwater there are a lot of flipped homes— houses that investors bought for super cheap, fixed up with a lot of lovely appliances, wood floors, and landscaping, and then sold for profit. These houses start at about 500k. The house that we met Kurt at was actually one where he had been a consultant in the flipping. What we want to do is buy one of those cheap houses and fix it ourselves, and since Kurt has experience with this he seemed like a perfect match. Which leads me to my next point….
- Financing. We’ve been pre-approved by Corey’s bank for a conventional loan, but that’s not the road we want to take. We want to get a purchase and renovate mortgage, which essentially means that the cost of renovations are included in the mortgage loan. This is especially ideal for first-time home buyers like us— after the purchase of the home we’re not going to have a ton of cash to do major repairs, and I like to think that a $300,000 home with $100,000 worth of repairs/updates is going to be a lot nicer than a straight $400,000 house. But renovation mortgages aren’t common, and they take longer to close than a standard loan (typically 45-60 days). This makes me anxious because at our price point, we may be competing with investors who can pay all cash upfront for the home we’ll need two months to get financial approval on. There are conventional renovation loans, and there is a government renovation loan, the 203(k). With the 203(k) you pay a higher PMI (generally 1.15% vs. a conventional .56% or so). However, for people like Corey and I who have good credit scores and credit history but are young, the government is far more likely to take a chance on you. We actually haven’t chosen between government vs. conventional loan yet because….
Our first official weekend out with Kurt will be this weekend. We’re going to meet at his place in Atwater, go over everything, and check out a few houses. To be honest, we haven’t gotten in terribly deep with Kurt yet. We’ve met and exchanged emails, but I haven’t explained our whole renovation plan to him yet. The loan we choose, the next steps we take, etc. are going to be largely based on the advice he gives us, as a realtor familiar with the market, and a renovator himself. We’re hoping that he’ll encourage us in this renovation path, even though it is a crazy amount of work. We’re also hoping he can hook us up with a great general contractor who can do the work quickly, and do it well.
After spending weeks pouring over sites like redfin.com and zillow.com, looking at every mortgage and affordability calculator known to man, and plugging in calculation, after calculation, after calculation, I’m really excited to hit the pavement and see what our actual options are.