Closing Day

Well, it's about 4:45 AM on Closing Day, and in 5 or 6 hours, barring any unforeseen catastrophe, I am going to be a homeowner. I woke up about an hour ago, and after much tossing and turning I realized that I am probably not going to be getting back to sleep. During this insomniac period, I have had a chance to reflect on the series of events that has brought me to this point. Since I somehow have it in my mind that this blog might provide some useful information for potential home buyers, I thought I might take advantage of this time to share that information.

Am I ready to buy?
I guess the first step was actually deciding whether or not I was ready or even if I really wanted to buy a home. There were a lot of factors that affected that decision, like income, debt, real-estate prices in an area where I might like to live, do I want to be responsible for my own yard, building upkeep, etc. Fortunately, there are a bunch of "calculators" on the Internet that helped me get some perspective on this. Just Google "rent or buy" and you'll see what I am talking about. I think one of the biggest factors in this decision was that I started to get frustrated with the fact that paying rent is really just like buying a house for someone else that I get to live in for a short while. I've been in New Orleans almost 10 years, with an average rent of maybe $650 a month. That's $7800 a year, $78000 total dollars that all went to paying for someone else's property. And improving the places where I lived just didn't make much sense if I didn't own them, although I thought of any number of constructive projects.

What's it going to cost (and how much can I afford)?
Knowing that I wanted to buy didn't really get me all the way there. I started surfing real estate websites like some people surf, uh, sports websites. Having tried quite a few, I ended up deciding that the Latter and Blum search engine is a little better than the rest. I was able to narrow down my search pretty well using their search form, and I found a number of houses that, according to the "loan calculator," seemed well within my price range. So I called a mortgage company to find out how much money, based on my income, debt, and credit history, that I could borrow. Along with letting me know a total amount that I could borrow, he lender was also able to help me estimate what my monthly payments might be on a given amount, and that was a real eye-opener. Finding out just how much property taxes and insurance add to the monthly note made me back off for a while, but finally, armed with the knowledge of how much I could realistically spend, I charged boldly forward with my house-hunting.

I quickly discovered that New Orleans property is expensive. In fact, it seemed for a long time as though the only properties I could afford were either in need of complete renovation or located in pretty bad areas (and by bad I don't mean "too far from the grocery store"). A friend of mine who has purchased a couple of homes in the area mentioned that he got started by purchasing a duplex and renting out one side while he lived in the other. As I started to do the math (House Note - Rent paid by my tenant=more affordable) I began to realize that this was really going to be the best way for me to obtain the kind of property I wanted. My search began to focus more and more on "doubles."

I found a house I really like! Now what?
Well, since I had been searching online for my own house I thought I might not need a real-estate agent. I thought I might be able to finagle a lower price by cutting out the middle man, as it were. Fortunately I was quickly disabused of that naive notion. My real estate agent, Jean-Paul Villere, ended up being crucial to the process. He was introduced to me by my girlfriend, and I would recommend him to anyone. He and his wife have purchased and renovated a number of homes, and his experience was so helpful I am pretty sure I would not have gotten to this point without him. I also know I would never even think about cutting out this particular middle man (a real estate agent) again.

So, once I found some houses that interested me, I emailed him to find out if he had any additional information on the properties. In some cases, he had seen or shown the property before and could give me a frank evaluation. In others, he gave an opinion of the asking price based on square footage and location. Using this information, we finally got down to a list of properties in my price range that I wanted to actually see. At that point, I also wanted the expertise of a couple of people very familiar with home buying to help me out, so on a day when my parents were visiting, we scheduled 4 home viewings.

Most of the homes were, in our opinion, overpriced for the amount of work they required to become livable/rentable. One of the homes was in excellent condition, but unfortunately the location was a little scary. The neighborhood, while improving, still had some pretty obvious criminal elements that ended up scaring me away.

We tried this once or twice more, but none of the houses we saw made me want to make the giant commitment of home ownership (which was sad, really, given that I really, really wanted to buy a house). It got to where I knew almost all of the homes that were available and why they weren't really right for me, so Jean-Paul was emailing me new listings that met my criteria as they came on the market. That turned out to be the ticket, as the house I ended up making an offer on came on the market right at the end of a visit from Mom. She and Becky drove by and told me it was worth a look, so we scheduled with Jean-Paul to see it that afternoon. While it needed some work, the price was pretty good for the location and I really liked the layout. It was obvious that this home was going to work if I could get it for the right price. Now it was time to make an offer.

Making the offer
I really had only the vaguest idea of what was to happen next. Again, thank goodness for my real estate agent. Becky and I met with him that evening and he explained the next few steps even as he prepared the paperwork. We used a state-issued contract to make the offer. Basically, the offer is a legal document that says "I will by this house at $xxx. If you agree, I will have ten days to have some experts look at it and tell me all the things that are wrong with it. At that point, I might ask for a lower price or for you to fix some things, to which you can agree, disagree, or offer some compromise. Depending on your response, I can accept it or call the whole thing off. If either one of us calls it off for no reason after that point, that person might get sued." If the owner agrees, and signs the offer, then I have to give them a deposit and the house is "under contract," basically, the accepted offer becomes a legally binding document and we both have to follow what it says. Again, it was great to have Jean-Paul there as he suggested adding things like "The washer and dryer come with the house, the Air Conditioners come with the house, etc." Also, he suggested not giving them too much time to think about it, so the offer expired the next day.

They accepted the offer! What now?
The seller and her agent had a couple of minor changes they wanted to make to the offer before they accepted. The price I had offered was OK, but they wanted to make sure we were both clear on how some things were going to work during the 10 days I had to have my expert inspectors look at the house. So they "counter-offered," basically taking the same document I had sent over, marking some changes on it, and signing it. Once I signed again to approve their changes, we had the beginnings of a deal! Now begins a really busy couple of weeks.

Now it was time to line up the inspectors. Jean-Paul again helped to guide me through this process. We had a plumber come to inspect the drains, an exterminator to look for evidence of termites, and a general home inspector who pretty much looked at everything else. The total cost of the inspectors was about $750, which is paid straight out of pocket (it's not involved with the loan financing or anything). I also lined up a roofer to give me an estimate as I knew there were some minor problems with the roof.

In the meantime, I informed my lender that I had made an offer and it had been accepted. My
lender, by the way, is Sunny Shannon at Eustis Mortgage, and she was great! She asked me for a whole lot of documentation on my financial status, including bank statements, stock information, credit card statements, paycheck stubs, 401K information, car loan statements, estimates on my property value, etc. She plugged in all that info, pulled my credit report, and then watched for the best interest rate she could lock in. She called me one morning and said "Rates are low, let's get this locked in" and boom, we were ready.

Also during this period, I was calling different folks about home owner's insurance. After checking around, I finally decided to go with State Farm. They were able to offer me significant coverage, and they are the company my family has always used. The people there were very helpful, and we got the policy application together in plenty of time.
Finally, the title company, Crescent title, was on top of this transaction from the get-go. Jean-Paul gave them all of the appropriate information and they were off and running. They sent me a sample closing document a couple of days ago to let me know what kind of money I would need at closing, and that brings us to here.

So now I am just waiting to do the final walk-through at 9, then go sign the paperwork at 10 and get the keys to my new house. Wish me luck.