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The First-Time Homebuyer's Diary
 Buying our first house in 1999: the pre-approval, the offer, the inspection, the closing table, and the first thing that broke. Chris and Dana Motter |
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Hi! We're Chris and Dana. We got married in 1996, rented a one-bedroom apartment for three years,
and in June of this year we closed on a 1954 brick ranch in Harlan Heights, about twenty-five minutes
from where we both work. Three bedrooms, one and a half baths, a one-car garage, a maple tree in the
front yard, and a water heater that lasted exactly five weeks after we moved in.
We started this page while we were still house-hunting, mostly to keep our families up to date, and then kept going because we could not find one place on the Internet that explained the whole process in plain English, start to finish, from people who'd just done it. Nothing here is expert advice. We're a bookkeeper (Dana) and a high school shop teacher (Chris). But we took notes on everything, and here they are, in order. The usual disclaimer, and we mean it: rules, fees and rates vary by state and by lender, and ours may not match yours. Ask your own lender and your own lawyer. We did. [ Our Timeline | Pre-Approval | House Hunting | The Offer | The Inspection | Appraisal & Underwriting | The Closing Table | The Water Heater | Advice ] |
| Our Timeline, March to June 1999 | |
| Feb. 27 | Lease renewal notice comes in the mail. Rent going up $40. We look at each other. |
| March 8 | Meet with a loan officer at our credit union. Fill out the application. Hand over two years of W-2s, two months of bank statements, pay stubs. |
| March 15 | Pre-approval letter arrives. We are allowed to borrow more than we intend to spend. Good to know, and we ignore it. |
| March 20 - April 24 | House hunting. Fourteen houses over six Saturdays. One with a hot tub in the living room. |
| April 24 | See the ranch on Maple Drive at 10 a.m. Go back at 3 p.m. Write an offer that night at the kitchen table. |
| April 26 | Counter-offer. We counter back. Accepted by phone at 8:40 p.m. Dana cries. Chris goes out for ice cream. |
| May 1 | Home inspection, three hours. We follow the inspector around like ducklings. |
| May 5 | Lock our interest rate: 7 1/8%, 30-year fixed. (Rates have gone up since. Whew.) |
| May 12 | Appraisal comes back at the purchase price. Loan goes to underwriting. |
| May 28 | Loan approved. Final walk-through scheduled. |
| June 4 | CLOSING. Sign our names about sixty times. Get the keys. Sit on the living room floor and eat pizza. |
| June 12 | Move in. Chris's brother's truck, six friends, forty dollars of doughnuts. |
| July 18 | The water heater. See below. |
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Step 1: Pre-Approval The first thing everybody told us, and they were right: get pre-approved before you look at a single house. Not "pre-qualified," which is a loan officer eyeballing the numbers you tell them and saying "sure, probably." Pre-approved means the lender has actually pulled your credit, looked at your pay stubs and tax returns and bank statements, and put in writing that they will lend you up to a certain amount. Sellers take an offer with a pre-approval letter seriously. An offer without one is just a wish. What the credit union wanted from us: the last two years of W-2s and tax returns, a month of pay stubs, two months of statements from every account (they want to see where your down payment came from; if Grandma gave you $5,000, there's a "gift letter" form for that), a list of our debts (car loan, Dana's student loan, one credit card), and our signatures on about nine things. Two numbers we learned to care about. Lenders look at your debt-to-income ratios: roughly, your house payment (principal, interest, taxes and insurance) shouldn't be more than about 28% of your gross monthly income, and all your debts together, house included, shouldn't be more than about 36%. Different loans allow different numbers, but that's the ballpark, and it's a good ballpark for your own sanity too. The credit union would have gone higher. We didn't. The pre-approval was good for 90 days, and it had a number on it that was bigger than we wanted. We picked our own number, lower, and stuck to it. That decision is the one we're most glad we made. |
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Step 2: House Hunting We worked with a buyer's agent, who was recommended by Dana's boss and who was wonderful, and who was paid out of the seller's commission, so it cost us nothing directly. She showed us fourteen houses. Things we learned: Bring a notebook and a tape measure. By house five they all blur together. We wrote down every house's address, price, taxes, what the furnace looked like, and one thing we loved and one we hated. Look at the boring stuff. Roof (how old? are the shingles curling?), furnace (there's a date on the sticker), water heater (ditto; ours said 1987, and we noticed and didn't think it through, so read on), windows, the electrical panel (fuses or breakers?), water stains on basement walls, the grading of the yard (does water run toward the house?). Drive by at night and on a weekday. The quiet street on Saturday morning was a shortcut for the high school on Tuesday afternoon. Don't fall in love with paint. Paint is $20 a gallon. A roof is $4,000. The one with the hot tub in the living room was, on paper, the best deal we saw. We could not get past the hot tub. The ranch on Maple Drive was the twelfth house. Built 1954, one owner since 1961, a widow who was moving to be near her daughter. Hardwood floors under the carpet (we lifted a corner in the closet; the agent showed us that trick), a dry basement, a new-ish roof (1994), a furnace from 1990, and a kitchen that had not been touched since the Nixon administration, which is why we could afford it. Asking price $124,900. We knew in about four minutes. |
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Step 3: The Offer Our agent pulled up what similar houses in the neighborhood had sold for in the last six months (the "comps"), and we offered $117,000 with a check for $1,000 in earnest money, which is a deposit that shows you're serious and gets applied to your purchase at closing (or returned to you if the deal falls through for a reason the contract allows, or kept by the seller if you just walk away). The offer was a preprinted form, six pages, and the important parts were the contingencies: the deal was conditional on (1) us getting our financing, (2) a satisfactory home inspection, and (3) the house appraising for at least the purchase price. If any of those failed, we could back out and get the earnest money back. Do not skip these to make your offer "stronger." We were told this by our agent, by Dana's boss, and by Chris's father, separately. The seller countered at $121,000. We countered at $119,000 and asked her to leave the washer and dryer and the window air conditioners. She said yes at 8:40 on a Monday night. Our agent called; we were eating spaghetti. Dana cried, which she'd like it noted she does not usually do. Chris went out for ice cream because that's what Chris does. Closing was set for June 4, about five and a half weeks out, which our agent said was typical. |
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Step 4: The Inspection We hired a home inspector ($250; our agent gave us three names and we called all three) and he spent three hours going through the house from the attic to the sump pit. Go with him. He was happy to have us along and he explained everything: how to tell the age of the roof, why the outlets in the kitchen should be the kind with the little reset buttons and weren't, how to test the sump pump, what that white powder on the basement wall was (efflorescence: minerals from water that's been through the block, meaning some damp gets in, but the wall was dry and the floor was dry and he called it "normal for its age," which is a phrase we now use about everything). He found: one double-tapped breaker in the panel (a minor electrical thing, easily fixed), a leaky outdoor faucet, no GFCI outlets in the kitchen or bath, two windows painted shut, a downspout that dumped next to the foundation, a furnace that was fine but due for a cleaning, and a gas water heater from 1987 that was "operating but at the end of its expected life." He wrote that down. We read it. We noted that it was working. You see where this is going. The report was eleven pages. Nothing on it was a deal-breaker. We asked the seller to fix the electrical panel issue and the downspout, and she did. We decided the rest was our problem, and it was, and that's fine; that's what owning a house is. |
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Step 5: Rate Lock, Appraisal, Underwriting The rate. We locked our rate on May 5 at 7 1/8% for a 30-year fixed, with no points. (A "point" is 1% of the loan amount paid up front to get a lower rate; we did the arithmetic and it didn't pay off unless we stayed 8 years, and we didn't want to bet on that.) Thirty-year rates were around 7% when we started looking in March and have climbed since; from what we read in the paper they're pushing 8% now, so we got lucky with the timing, and we know it. A "lock" means the lender promises you that rate for a set period (ours was 45 days) no matter what the market does. If you don't lock, you're gambling. The appraisal. The lender sent out an appraiser ($300, paid by us) to make sure the house was really worth what we were paying, since it's their collateral. He was there for forty minutes. It came back at $119,000 on the nose, which our agent said is not a coincidence and is very common. PMI. We put 10% down. If you put down less than 20%, the lender requires private mortgage insurance, which protects the lender (not you) if you default. Ours is about $45 a month, added to the payment. When we've paid the loan down to 80% of the value, we can ask to have it removed, and we have that date circled on a calendar. Underwriting is where somebody at the lender you never meet goes over the whole file and asks for more paper. They asked for: a letter explaining a $1,200 deposit in Chris's account (his tax refund; we sent a copy), an updated pay stub, and proof we'd bought homeowner's insurance, which we had to do before closing. Two weeks of "is it approved yet?" Then it was. Three days after we applied, the lender had given us a Good Faith Estimate, a one-page list of every fee we should expect at closing. Federal law says they have to. Keep it. You'll compare it to the real thing at the closing table, and it was within about $200 of right. |
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Step 6: The Closing Table June 4, 1999, 2:00 p.m., a conference room at the title company. Us, our agent, the seller and her daughter, the seller's agent, and a closing officer with a stack of paper two inches thick. It took an hour and twenty minutes. We had to bring a cashier's check for the rest of our down payment and the closing costs; the exact amount came from the closing officer the day before. Personal checks are not accepted for this, and we're glad we asked. The big document is the HUD-1 settlement statement, a two-page form that lists every dollar in the deal, ours and the seller's, and where it went. Our side, roughly, for a $119,000 house with 10% down (a $107,100 loan):
So: closing costs and prepaids of roughly $4,700 on top of the down payment, a little under 4% of the purchase price. Everybody had told us "budget 2 to 5 percent for closing costs" and everybody was right. Some of that (the prepaid interest, the escrow deposit, the insurance) isn't really a "fee"; it's money you'd spend anyway, just collected up front. But you still have to have it in the bank that day. Escrow, by the way: the lender collects a twelfth of your property taxes and insurance with each monthly payment and pays those bills for you when they come due. Our total monthly payment, with taxes, insurance and PMI, is about $210 more than our old rent was going to be, for three times the space and a yard. And a water heater. Then you sign. The note (the promise to pay). The mortgage (the lien on the house that backs the note). The truth-in-lending disclosure, which shows you, in a box, the horrifying total you'll pay over thirty years if you never pay extra, and which we have decided not to think about. Affidavits. Escrow agreements. The deed goes the other way, from the seller to us. Then the closing officer shook our hands, and the seller's daughter gave us the keys, and the seller, who had lived there thirty-eight years, said "take care of my maple tree," and we said we would. We went straight to the house, sat on the living room floor with a pizza, and Dana said "we own a house" about eleven times. |
Step 7: The First Repair (The Water Heater)
 Sunday, July 18. Chris goes down to the basement for a box and steps in a puddle. The 1987 water heater, the one the inspector said was at the end of its life, the one we read about and nodded at, had rusted through at the bottom of the tank and was quietly emptying itself onto the floor. There is no fixing a tank that's rusted through. You replace it. So here's what we learned in the next 48 hours. We shut off the cold water valve on top of the heater and the gas valve, ran a hose from the drain at the bottom to the floor drain, and let it empty. (Chris knew this part. He teaches shop.) We called two plumbers Monday morning. One could come Wednesday for $560 installed. One could come Tuesday for $485 installed, a 40-gallon gas heater, same as the old one, hauling the old one away. We took Tuesday. Two days of cold showers, which in July is survivable. Total: $485, plus $22 for the new flexible connectors the plumber recommended, plus a wet-dry vac we should have owned anyway. The lesson isn't "we should have asked the seller to replace it." We could have tried, and she might have said no, and $500 was not going to change whether we bought the house. The lesson is: when the inspector says something is at the end of its life, believe him, and put the money for it in an envelope on day one. We now have a "house envelope" (really a savings account) that we put $100 a month into, and a list on the refrigerator, in order: furnace (1990, fine for now), roof (1994, fine), the kitchen (never mind), the windows painted shut (Chris, October). Also: we know where the main water shutoff is now. Find yours the day you move in. Not the day you need it. |
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What We'd Tell a Friend 1. Get pre-approved first, then decide your own number, lower than theirs. 2. Save more than the down payment. Closing costs, moving, the first repair, a lawn mower, curtains. We'd say the down payment plus $6,000, minimum, and we were on the low end of that. 3. Get a buyer's agent. Ask people you trust for a name. 4. Keep every contingency. Never waive the inspection. 5. Go to the inspection. Take notes. Believe the notes. 6. Lock your rate. Don't gamble. 7. Read the Good Faith Estimate, and compare it to the HUD-1 before you sign. Ask about every line you don't understand. Nobody at the table will mind. 8. Bring a cashier's check, your driver's licenses, and a pen that works. 9. Buy the boring house with the good bones and the ugly kitchen. Kitchens can be fixed. Foundations, not so much. 10. It's going to feel like too much money. It felt like too much money to us, and to our parents, and to their parents. Then you sit on the floor with a pizza, and it doesn't. |
Coming this fall: photos (the scanner at Dana's office is spoken for until October), the
"un-painting the windows" saga, and a running tally of what we've spent on the house since June, which
Dana keeps in a ledger and Chris has been asked not to look at.
Other money pages we read while we were doing this: Paying Off $23,000 in Debt (we had to do some of this first) | Allowance & Chores: Teaching Kids About Money (for later) | Balanced Books by Brenda | Home Office Help | WallStreet neighborhood |
Visitors since March 1999:    
 Buying your first house? Just bought one? Write us: [email protected] Last updated September 18, 1999. © 1999 Chris and Dana Motter. The maple tree is fine. |