Buying our first home

We closed on our first home on Friday December 18, 2015. The final price of the home was $167,700. We made a 20% down payment, and paid an additional $1257.77 towards the closing cost. The process was easier than I had anticipated, and we found just the kind of house we wanted.

I decided to document the timeline of events. The following is our story about finding and buying our first home. 

The idea of buying a home gained momentum towards the end of 2014. We were living in a 2 bedroom apartment, which was very close to work. The apartment was comfortable to live, but it was very old, and it had problems. We had 6 more months to go before our lease ran out. It was at this point I seriously started considering not renewing my lease at the apartment.

We began looking through Zillow for local listings to get an idea of what the housing market was like. The idea of a perfect home began to take shape during this time. We wanted a 4 bedroom house, where one of the rooms was going to serve as an office. Both of us are gamers, and I occasionally work from home, so we would really enjoy having a dedicated office.

I initially had a budget of $140,000 – $150,000. Finding a 4 bedroom house close to work within that price range was tough. I did not want to spend over $150,000 because I didn’t have enough savings to make the 20% down payment, if the price of the house any was higher. Over spending was not an option, and I was willing to buy a 3 bedroom house provided the location was good.

February 2015

It was time to get serious about finding a house because our lease was going to be up soon.I contacted a real estate agent that was recommended by one of my colleague. I sent her an email and told her about the kind  of house I was looking for. 

She sent me some MLS listings, which had some very nice looking houses, but nothing within my price range. There were 4 bedroom houses, but nothing close to work, and the ones that were close to work were out of my price range. It was time to make a decision on where I wanted to compromise. Should I compromise on the number of bedrooms or the price? Location was definitely not something I was willing to be flexible about. I dislike driving, and I wanted to have the option to bike to work. 

I decided, I have to compromise on the price and increase my budget, but this meant, I couldn’t make the 20% down payment without pulling funds out of the CD, and this was something I wanted to avoid if I could help it.

March 2015

I realized that a decision needed to be made, and against all the advice I received, I decided to stay in the apartment a little while longer, and build up my savings to make a 20% down payment on a more expensive house.

I had a talk with the apartment management, and asked them to extend my lease for another 6 months. They were willing to extend this offer to us because they allocate a few units for a 6 month lease, and they still had units available for a shorter lease. 

People in my life wanted me to go ahead and buy a house, but I did not want to compromise on the location or have a PMI attached to my mortgage payment. I was told that having to drive for 10 more minutes is not unreasonable, but I decided I would attempt to find a house I liked closer to work, one more time. If this attempt was unsuccessful, then I was willing to live farther away.

So I decided to hold off, and I took up the 6 month lease offer. A part of me was nervous that the mortgage rates might go up and I would end up spending way more money because I waited, but my instincts told me it was best to wait.

My net worth at this point was, $139,688.01. Out of this,  $34,275.02 was in various savings accounts. I did not want to empty out my savings to make the 20% down payment. I anticipated that I would be able to increase my savings up to $50,000 by November if I worked harder at saving.

Fortunately my wife started working again, and we decided we should try and survive entirely on her paycheck. This meant that I could save close to $3500 a month. 

The Next Few Months…

After we renewed our lease in March, we lived a very frugal life, even more so than usual. We were living on one paycheck for the most part. Looking at the cash flow, we spent $12,356 between March 1, 2015 and September 30, 2015, an average of $1765.14 per month. 

In August 2015, we began searching for a home again. I contacted the realtor, I gave the a new price range of $150,000 to $170,000. She sent me a list of several houses, and a few of them were 4 bedroom houses that were close to work. We narrowed down the houses, and visited a few of them during August and September, and I short listed a few potential houses that I might make an offer on. 

The realtor told me that because there is still time, we didn’t have to make an offer right away, and there will likely be more listings as we get close to the end of the fall semester. This was good to know – the more options the better!

October 2015

October was the month were things started moving quickly, and this month turned out to be a very hectic for us.

As far as my finances were concerned, we were in a great shape. My net worth was up to $170,640.16. I had a savings of $57,173.70. I could afford a much bigger house, but I did not want to deviate from the plan. I was mentally prepared to spend up to $180,000, however I did not tell this to the realtor or my family. This would be a classic case of lifestyle inflation, and I did not want us to fall victim to this.

On October 2, 2015, I sent an email to the realtor with a list of addresses for three houses I was interested in, and I was fairly certain that we would make an offer on one of these houses.We set out to see the houses on Friday October 10, 2015.

house 1
House 1 – 1828 sqft, 4 bedrooms, $179,900

The first house we visited was an 1828 sqft house with 4 bedrooms, that was built in 2003. It was listed at $179,900. I liked the house, but this was beyond my $170,000 limit. I wanted to see the other houses too because it was kind of out of my price range. I was willing to put down 20% for the house, but only if the other houses didn’t work out.

As we were walking out of this house, I got an an email from the MLS system about another house in the vicinity. This was not on the list of houses we were going to see that evening, but since it was so close, and the list price was $169,900, we decided to stop by.

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House 2 – 1842 sqft, 4 bedrooms, $169,900

When we went into the house, I said to myself, “This is it!”. It was a 4 bedroom, 1842 sqft house, that was built in 2005. I loved the layout, and the seller was going to install carpet. I couldn’t ask for much more. The location was perfect. Less than a mile from where my wife worked, and around 2 miles from my office. I found the perfect house and wife loved it too!

Although we were fairly certain that we would end up making an offer on the house, we decided to visit the other two houses on the list.

The next house was a 1732 sqft, 3 bedroom 2 bath room house, which was listed for $159,900. This house was extremely well maintained, and it had wooden floors. Not really something I care about, but my wife really liked it. However, it is around 3 miles from her work, and it had one less bedroom. We decided we were going to seriously consider between the two houses when we get home.

house 3
House 3 – 1732 sqft, 3 bedrooms, 159,900

The last house was a 4 bedroom 1754 sqft house which was listed for $167,900. I thought the house looked fine, but the fact that it was farther from work compared to the other two meant that there was no real reason to consider this house unless we couldn’t proceed with our first choice.

house 4
House 4 – 1754 sqft, 4 bedrooms, $167,900

After we were done checking the last house, I told the realtor that we were fairly certain we would be making an offer on one of the houses that weekend. We said goodbye to her and during our ride back to the apartment, wife and I talked about the pros and cons between the 2nd and 3rd houses. While the 3rd house was cheaper, it was father from her work, and it had one less bedroom. The 2nd house on the other hand, was less than a mile from her work, and she could walk to work if necessary, and it had 4 bedrooms, which meant we would fulfill our wish of having a dedicated office.

So we decided to go with the 4 bedroom house and I sent a text message to the realtor that we wanted to make an offer on the house over the weekend because I did not want to waste any time. She said she was going to email me the documents. 

On Sunday October 11, 2015, we made an offer on the house. I listed a purchase price of $167,700 (I calculated the price of the house at $91/sqft), along with a few other requirements.

Monday October 12, 2015, I was leaving to Michigan on a business trip. This was not something I was happy about because I wanted to be in town in case my presence was necessary. I also realized that I did not have a loan pre qualification yet.

At 1 AM on Monday October 12, 2015, I applied online for the pre qualification at my local bank, and also sent an email to the loan officer. I applied for a home loan on a property with a value of $170,000 for a 15 year term with a at 3% interest rate, and a 20% down payment. I had to leave to the airport at 3 AM to catch my 5 AM flight. I got a confirmation from the loan officer on Monday morning that she was going to send me the disclosures that I can sign online. Due to the miracle of modern technology, I didn’t have to be there in person.

On Tuesday October 13, 2015, I got the pre qualification letter from the bank, and the mortgage rate was locked at 3% for 75 days.

I immediately forwarded this to the realtor and on the same day I received a counteroffer from the seller with a few minor changes in the  agreement. I read through their counteroffer, and I found it very reasonable, so I accepted their changes and I sent them my confirmation.

On Wednesday October 14, 2015, I got an email from the realtor that we now have a deal, and we can proceed with the inspections etc. This was great news because we were on track to getting the house we wanted, and the location is fantastic – I couldn’t ask for anything more!

We agreed on a closing date of Friday December 18, 2015.

December 2015

On Tuesday December 15, 2015, I got an email from the mortgage company with the final amount I needed to pay. The following day I got a cashier’s check from bank for a total of $34,782.77, this included 20% of the down payment and $1,257.77 towards closing costs.

On the morning of Friday December 18, 2015, we made our way to the title company. We were seated in the lobby, and the lady told us that the seller were finishing up their paper work, and we will begin our process shortly.

As we began signing the paperwork, of which there was a lot, there was a change in the calculation, which meant that we over payed about $50. The title company said they were going to send us a check for the money and I was OK with this because I did not want to delay the process by getting a new cashier’s check. After about 2 hours of reviewing agreements, and signing papers, we walked out with the keys to the house.

Our monthly mortgage payment was $1190.36, including insurance, taxes, principal and interest. I was happy that I did not have to pay any PMI. 

Overall, the realtor did a great job at handling everything, and the sellers was kept their end of the bargain, and we had a very smooth home buying experience. 

Now, it was time for us to move to our new home, and this was where being a minimalist worked in my favor because I had very few possessions. I will write about our moving process in another blog.

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