Jul 26 2011

Pre-approval and HOAs

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Had a reader comment on my last post about getting pre-approved:

What’s your opinion on the preapproval/approval process? I wish you could get officially approved before putting in an offer, it would save so much stress I think. Seems like a very backwards system.

I did get pre-approved. There are two things you can do. You can get pre-qualified, which means you tell a lender your info — aproximate income, the debts you have, the amount of money you want to borrow. They are taking your word on all of this information and aren’t fact-checking anything.

They will tell you if they think you will probably be able to get the loan you are seeking, or probably not. It’s nothing binding, but it’s something you can use when you are in the very early stages of buying a house to help get an idea of what you want to spend and what the bank will lend you.

The pre-approval is much more involved. The lender will have you submit a variety of documents — bank statements, pay stubs, tax records, retirement accounts, etc. They pull your credit. They verify all of the information to see if you really can afford (in their mind) the amount of money you want to borrow.

The bank can then issue a pre-approval letter that you can use to attach to your home offer. Ours had an amount on it, but our realtor used white out to cover the dollar figure up. She said it was just important that the sellers knew we had been approved in general, and that we probably would be able to afford that particular house.

For situations where multiple offers are received at once (like how ours went), the pre-approval letter can give that buyer an edge over another offer without a letter.

So maybe the reader got pre-qualified instead of pre-approved, and that’s why they are running into issues?

Next up, some of you have cautioned me to read the home owners association covenants very closely. I’m working on it.

So far, this neighborhood seems to be pretty reasonable. Some neighborhoods I’ve seen have crazy restrictions and it’s over the top. I think we’ll be ok with these provisions.

I don’t know if there are any newer neighborhoods around here that don’t have a HOA. Even some of the sorta older ones do. Oh well.

We have our inspection scheduled for Saturday. Hope any problems make themselves known…and hopefully there’s nothing majorly wrong with it.

The current owners are relocating for work, and there’s a relocation company involved. Apparently now the relocation company is the new seller. I guess they bought the current owners out? I’m not really sure what their arrangement is, but we’re having to sign a rider from the relocation company and agree to their terms. If the relo company now owns the property, maybe they will have more room to negotiate any types of repairs that could be needed.

The closing date is set for Sept. 2. That’s not too far from now!


Jul 24 2011

We’re under contract on a house

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We saw a house on Thursday, wrote an offer for it on Friday, and came to an agreement on Saturday. WHAT.

It’s a two-story.

We have been looking at two-stories during the latter weeks of our search. We have been through a lot of open houses mostly to check out floor plans and flow to see what we thought, and also had some private tours of a few. I think I came to the conclusion that if it had other features I wanted and a layout that I liked, I could enjoy a two-story house.

The one we are trying to buy has been for sale for a few months, but had a price drop last week and that’s when it really caught our attention. I remember seeing it before in online listings and thinking it looked nice, but it was priced too high for us. And then the price drop (which wasn’t THAT much, I suppose) but it made it enough to think we should at least check it out.

Other people must have had the same thought, because when we were writing our offer, we discovered there was another offer already submitted on the house. The listing agent told our agent that as soon as she called, so I don’t think he was making that up.

They hadn’t yet done anything with it, and once they knew another offer was in the works they probably decided to wait and see what we’d do.

We got to work and put together what we believed to be a fair offer, based on comparables and the market.

The sellers had already reduced their price by about 4.6% of their original price. We were asking them to go even lower, and to include some things that weren’t originally included in the sale, such as their washer & dryer and their gas grill.

Our offer included all other kitchen appliances and all window treatments and things like that. We asked they they pay for a home warranty and pay a portion of the closing costs.

We picked a closing date, but told them that we could be flexible.

Our offer letter let them know we would be seeking a conventional loan and would be putting 20% down, and we attached our pre-approval letter so they could know we could get that loan.

When we toured the house, the seller left a letter in the kitchen detailing things they loved about the house and the neighborhood and explained they were relocating for work. Since she wrote a letter to us, I decided to write a letter back to them to include with our offer — especially since there was another offer already.

I don’t know that my letter helped any, but it doesn’t seem like it hurt.

The listing agent told our agent that the sellers wanted to work with us first because we were going for a conventional loan with a larger down payment than the others, who were trying for a FHA. I just wonder if our starting price was perhaps a little higher. Possibly.

Either way, they did counter our offer and it was decent. I was able to see in the MLS info how much they paid, and that they also have an FHA loan and received some closing cost assistance. Guessing at what FHA rates were in March 2009, and assuming they put 3.5% down, it didn’t seem like they had much equity at all. In fact, if my guesstimates were true, they’d have to bring cash to closing to cover the remaining expenses on their mortgage and to pay the realtor. Yikes.

Since it didn’t seem like they really had much room on price (and really, we thought it was a fair price anyway) we made an addendum to ask them to include the patio furniture and their lawnmower. They agreed, and we had a deal.

The current sale price is now the lowest amount that anyone has ever paid for the house. We will be the fifth owners. The original sale price back in 2000 when the house was built was just a few hundred dollars more than what our current contract price is. It sold for quite a bit more a few years later, then dropped down a tad for the third sale in 2007, and a little more for the fourth sale in 2009.

I hope the house will grow in value and that it’s not on a downward trend. I think it’s just a victim of the market conditions. It’s on the lower end of the price range in the neighborhood and it’s in a nice area so I think we should be ok in that respect.

Now we just have to lock in our interest rate (we have a meeting on Monday with our lender to do this) and schedule the inspections and all the other stuff that needs to happen first.

We have a number of opportunities to get out of the contract if we need to, say if the house doesn’t pass inspection to our satisfaction, or if we review the neighborhood HOAs and decide we don’t like them, or if something bizarre happens and we can’t obtain financing.

Here’s hoping it’ll go through!

 



Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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