Tuesday, August 31, 2010

We're Not in Kansas Anymore!

Mollie writes:

Where to start????  !!!!!

Our son, Roger, and his precious wife Joy, are just beginning to think about buying a house.  They are saving money, watching interest rates and learning about mortgages.  This is exactly where John and I were 33 years ago, but this is where the similarity ends.

I have another Mollie-friend, Muffy,  whose adult kids are getting into the game, and you wouldn't believe what they are facing.  In the midst of this new housing market, you need character traits of biblical proportions.  You need the wisdom of Solomon, the wealth of David and the patience of Job.

I am not kidding.

Thirty three years ago, my husband qualified for a Department of Veteran's Affairs loan.  As a result, we were able to buy a home just after we were married.  The principle amount of the loan was limited, so we just couldn't choose to buy the biggest place on the planet, simply something that, with the down payment we'd set aside, would meet our housing needs.  We settled on a new house in Gresham, Oregon, a split entry with an unfinished basement and no yard.  We figured we would landscape it ourselves (we did) and finish the basement ourselves (we did).  But once we moved into the house, we realized that we needed to replace the new single pane glass windows with new double pane glass windows.  The house was in the East County of Portland and faced The Wind.  Our first new investment postponed any other work we wanted to do.  We hated seeing the curtains float with the wind inside the house AND our $400.00 power bill our first month in the basic piece of housing we'd bought. THAT was fifty bucks more than our house payment!

And so begins homeownership.

These days, home purchase ain't so simple.  First, with the economy the way it is, buying a home forces you to decide how you want to lose money.   Buying a house is a joke with the current interest rates and the roller coaster home prices.  It's impossible to choose to lose money by saving it or by investing in real estate.  In our day, you made money by saving it, savings interest being above 3% and home prices being stable.  You could pretty much assume that you'd at least get your down payment back if forced to sell.  That option is now only a mirage.  Bankruptcies, foreclosures and short sells rule the market, and for the dewey-eyed innocent, only make the prospect of buying a home an endless, triggered mine field.

(What IS a short sale?  It's a real estate transaction where a homeowner owes more on a property than what the current market can bear as a selling price, but the mortgager must sell or lose the property.  In a short sale, the lender must approve and accept less than what they are owed.  This means that they could possibly accept $150.000 as a full payoff even if the mortgage was for $190,000.)

Muffy's dear ones, Adam and Eve, had been reading the Multiple Listings Service (MLS) on line and came across a house that filled their needs.  It was priced well below comparable homes in the area, had a new roof, kitchen and heat pump.  It was kiddie friendly with 3 bedrooms 2 1/2 baths, a family room, and a sports court complete with hoop.  And with both of them working, financeable.  They had saved up a chunk of money and were ready for a home of their own.

They contacted their real estate agent and had their hopes crushed.  Although the MLS listing didn't mention a short sale, that's what it was, which is what accounted for low price.  And there was already an  offer on the house.  The bank hadn't decided to accept the offer, but it was still out there, hovering.  If Adam and Eve managed to come up with a better offer, it probably would be taken.  But there is no way to tell what that offer was.  The bank was holding their cards close to their chests and their faces were blank.

Adam and Eve chose to keep looking.  There is no right or wrong decision here, the bottom line here is that their offer could be accepted, declined, or, most likely tabled for as long as the bank thought they could hold out for an even better deal.  It's unlikely that the bank will ever see the principle amount of the mortgage they had so confidently issued to buyers at an earlier date, but they were choosing to cut their losses as much as possible.

At the peril of the bidders who are now dangling.

Checking out the MLS is a good idea.  It keeps the future buyer informed on what the seller THINKS the house is worth.  But with money tight, banks keeping their eyes on turning a profit someday, and the stress of buying a piece of property tough even in the best of situations, buying a home in a buyer's market is an exercise in patience.  The individual couple will earn medals of honor for sticking through this process.  The land mines of short sales, etc. really bring the reality of home ownership for the next 30 years to the forefront of your purchase.

John and I have no regrets for buying our own home.  After 33 years, we own our own home free and clear.  It's a hybrid of our original house, a ranch with a finished basement, an acre or so of land, and a lovely view of Puget Sound.  But that didn't happen overnight, and it didn't happen without a lot of angst, struggle, grief and compromise.  While we were making house payments, we were deducting our interest from our income taxes, and when we sold one house, we rolled over our investment into another home to avoid property gains taxes (now just a silly concept).  You have to live somewhere, and in the right situation, you will, if nothing else, get a tax write-off on the interest as opposed to rent where there is NO tax write-off.  And, once home prices bottom out, you might actually make some money if you buy at a low price and then sell when prices are better.

But you'll need the patience of Job.

More on home ownership later, I've just scratched the surface here.  But don't lose sight of home ownership, just gird your loins, put on your army boots and flak jacket, carry a first aid kit and a bottle of  booze.

You'll need it.

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