What would you do?

[anonymous_saver]

I just got my first offer on my first home accepted a week or so ago. I was very happy, the house was listed for $199,900 but has taxable property value of about $225,000 and the house is a very nice house, in a good neighborhood. They could have asked for more, easily. I put in an offer of $210,000 + closing costs + contingent on inspection. They accepted my offer over another offer that was also put in that night. I'm very proud and excited. I had the inspection done and there were no major concerns (the house was built in 1900, and shockingly enough (to me) the foundation was in very good condition, the inspector even said it was in better condition over homes built in the last 10 years).

As part of a requirement from my mortgage lender, I plan on putting 10% down. And have locked in a rate of 4.375%. Crazy good interest rate! At this point, I will have about $8,500 in an emergency fund at closing. That's less then I intended, but not horrible. I will be able to save a bit more than $400 each month to go towards increasing emergency fund and home improvements.

I have to get back to the seller by Tuesday about my further negotiations I want to do based on the inspection. I have added it up and I'm going to ask for about $20,000 in concessions (which I realize is higher than most). I am asking for gutters, tree branch removal (some are touching roof and electrical wires), as well as a new window pane for a broken window pane, increase insulation to 16'' (it's only 4'' now), new roof (current one is about 14 years old and needs some improvements, inspection said it didn't need to be replaced for awhile, but with no gutters and some wear and tear already, I'm concerned). I realize the seller will not say yes to all of this, but I'm hoping they come back with a good counter, possibly half of the requests, since I gave such a decent offer for my purchase price.

Okay, all that being said, I've been over analyzing things for a few days now (not suprising as a first time home buyer). I realize this is overall an excellent home, but if I get a counter that still has me wanting to do $10,000 of repairs/upgrades right away, I am concerned that I will have to wait on things like a new roof for 5 years or so, because there is still a few other things I need to buy when I get the home (lawn mower, dehumidifyer for basement, etc.). This isn't even taking into account a luxery wish of adding central air to the forced air, about $3,000. All of this will add up fast.

I'm debating at this point that perhaps if I waited another 2 years (TOPS 3 years) to buy the home I could probably save about $10-$12k more each year. Plus I am anticipating a settlement in the next year because I was hit by a car about a year ago and had to get surgery to repair a fractured ear bone (probably one of the worse experiences of my life for sure!!). So in about 2 years, I would probably be able to put 20% down, and have an emergency fund of about an emergency fund of $15,000. Obviously, these are estimates. But the worry in this scenario also would be interest rates and house prices rising...

Also to help explain things a bit, I really am a person that is very analytical, I mean I even debated taking my current job even though it is awesome and was a 30% pay increase from the last job. lol...

Sorry for writing so much, but here we go... What would you do?

[disneysteve]

A few thoughts...

I would not buy a home with only 10% down.
I would not buy a home without at least a 6-month emergency fund in place.
I probably wouldn't ask for seller concessions for upgrades, like improving insulation. I would stick to asking for repairs like the broken window and money toward the roof.
I would not factor in any possible legal settlement you may receive. Until that money is in your hand, it doesn't exist.

Just my personal opinion.

[swanson719]

Housing prices are not going up anytime soon. I would be more worried about the interest rates. In order to fight deflation, interest rates will have to rise shortly. Definately within two years.

I like Dave Ramseys point of view, though I bought our house before I cleaned up financially. So I would let interest rates rise and wait to buy the house.

[MonkeyMama]

Personally, I'd wait.

I wouldn't buy a home with less than 20% down.

swanson brings up a good point - interest rates have nowhere to go but up, which will put downward pressure on home prices in the near future. IT's not like prices will be sky high tomorrow.

Though, personally, even if we were knee deep in the bubble, or a hot sellers market, my advice would be the same. We didn't buy before we had 20% down, and bought what we could afford. There will always be something you can buy, but you will be happier in the long run if you wait until you are in a better position to buy.

I've never bought a house that needs work, or had a wish list for the house. If I did, I'd also want a LOT more cash for the repairs and wants.

[TheStreetCeo]

I would not buy a home with at least 20% down.
In this market I would not offer more than the asking price.
I would have all debt paid off and a satisfactory EF in place.
I would not ask for major repiars. Your offer on the house is supposed to reflect that.
As DisneySteve said, it's not your money until it's in your hands so don't count on it.

[MonkeyMama]

In this market I would not offer more than the asking price.

I do not think this is a fair statement. Every market is different. Try offering full price in most big cities in California - good luck. Someone will always outbid you. For any reasonably priced house anyway. (Don't offer more to the people who are asking more than the true fair market value, of course).

In the city I live in now, stuff tends to be underpriced, and bid up, or way overpriced. Not a lot in the middle. So never offering more would be terrible advice, here.

[terces]

I just got my first offer on my first home accepted a week or so ago. I was very happy, the house was listed for $199,900 but has taxable property value of about $225,000 and the house is a very nice house, in a good neighborhood. They could have asked for more, easily. I put in an offer of $210,000 + closing costs + contingent on inspection.

I agree with what every one has posted regarding to wait. I was curious regarding your statement here. Was your offer based on a market assessment of the area? I wouldn't base my offer on the taxable property value... it never reflects what a property is truly worth.

[disneysteve]

I've never bought a house that needs work, or had a wish list for the house. If I did, I'd also want a LOT more cash for the repairs and wants.

This really depends on the situation. When we bought our house, we knew it needed work, but we felt that the asking price reflected that. The house was 30 years old and had the original AC and furnace, for example. We knew they'd need to be replaced within a few years. The house also needed a roof. But the sale price was about $20,000 less than comparable homes in the area. So rather than having the costs of a new AC, heater and roof rolled into our mortgage, we were able to replace those things later and pay for them outright which kept our mortgage payment smaller.

[anonymous_saver]

As added information, I do not have any debt, nor have I ever paid a cent of interest in my life! An amazing thing, I paid off my school loans in one big check, and have a credit card that I use soley to gain more credit (I use it about once a month and then pay off online pretty much the next day).

And yes, we did a market analysis and the house came to be about $204-$206k as I recall, so with my 3% closing costs, that is about "right" with my offer.

I would say one of the nicest things about the home is the fact that they have definitely made some energy efficient changes. The furnace is a high efficiency model, and a good quality water heater, good 2-paned windows (except one which they left as single paned), which is kind of weird.

I am eating lunch with my dad tomorrow so I will definitely talk it out with him, if I did get this house, I am fully planning on pre-paying the mortgage so that I could get rid of the $60/month or so of the PMI off by reaching 20% equity in about 2-3 years.

I'm really loving the house, but obviously am conflicted. Getting a home in this price range in my neighborhood rarely happens, especially one that is great condition. I mean I have seen basements a few times that I was unwilling to even walk down the stairs too because they looked so creepy, and i'd give this basement about a 4 out of 5. That's a great score, I'm a hard grader.

I absolutely still appreciate all your thoughts though, and am taking them to heart. Feel free to continue!


Oh I just looked online and the house is now for sale for $209,990 but listed as a sale pending. wtf... is this normal??

[MonkeyMama]

This really depends on the situation. When we bought our house, we knew it needed work, but we felt that the asking price reflected that. The house was 30 years old and had the original AC and furnace, for example. We knew they'd need to be replaced within a few years. The house also needed a roof. But the sale price was about $20,000 less than comparable homes in the area. So rather than having the costs of a new AC, heater and roof rolled into our mortgage, we were able to replace those things later and pay for them outright which kept our mortgage payment smaller.

That's fine, but my point is just that if you need to replace x, y, and z, sooner than later, then you need to make plans for that. OP doesn't have enough cash, considering what they want to do.

To be clear, I Wasn't saying never buy a house that needs work. I Was thinking aloud that I would sure want a lot more cash in that situation.

[swanson719]

The still for sale with a higher prices means the seller is taking back up offers in case your offer falls thru, is withdrawn, etc. It's not the norm, but not unusual either.

Remember there is a difference between pre-paying a mortgage and paying down principle. Pre-paying means you could write a big check at the beginning of the year and pay your mortgage for the entire year, including the interest for that year. Paying down principle means you could write an equally large check at the beginning of the year towards the balance of the mortgage and you would still have all your monthly payments left.

[disneysteve]

That's fine, but my point is just that if you need to replace x, y, and z, sooner than later, then you need to make plans for that. OP doesn't have enough cash, considering what they want to do.

To be clear, I Wasn't saying never buy a house that needs work. I Was thinking aloud that I would sure want a lot more cash in that situation.

Understood and I agree. If you are buying a place that you know needs work, you need to be financially prepared to do the work.

If you are buying a house that you don't think needs work, you still need to be financially prepared because stuff happens that isn't necessarily expected. Things break. Inspections miss stuff, etc.

[anonymous_saver]

The still for sale with a higher prices means the seller is taking back up offers in case your offer falls thru, is withdrawn, etc. It's not the norm, but not unusual either.

Remember there is a difference between pre-paying a mortgage and paying down principle. Pre-paying means you could write a big check at the beginning of the year and pay your mortgage for the entire year, including the interest for that year. Paying down principle means you could write an equally large check at the beginning of the year towards the balance of the mortgage and you would still have all your monthly payments left.

Ugh! About the first point made about them being able to list the house at a higher price.

About the pre-paying mortgage, yes I understand that. Of course I would only be paying down the principle.

Additional comments still welcomed.

[dfeucht]

Ugh! About the first point made about them being able to list the house at a higher price.

About the pre-paying mortgage, yes I understand that. Of course I would only be paying down the principle.

Additional comments still welcomed.

They need to be able to still market a house that is a contingent sale. You can still walk away. If they get a better offer they can ask you to remove your contingency or else sell it to the better offer.

[anonymous_saver]

Just as an update, I did end up asking for all of the concessions I wanted and the seller said they were not going to budge, and that they had 3 other other offers. I did the wise thing, and walked away from the deal. The plan for now is to save up 20% with a $20k emergency fund. Depending on things go (including with my accident settlement) this could take between 1-3 years.

I will however still keep my eye open for a property but my ideal at this moment is to buy a house in 2 years. I'm totally bummed, because I did love the house, but one horrible thing about my realtor... she actually stated "I think your making a mistake". Ummmmm NO, I'm making the right decision for me. That really irritated me, but I will give her this, she was very willing to invest a lot of time talking me through all of it.