A second look.

On Monday I gave ya a tour of three homes we walked through last weekend. Some were better than others, but none of the Seattle homes we looked at tickled our fancy. I have a confession to make though, there was one home that did… I just didn’t want to tell you about it. How scandalous of me right? 

As you know, I work from home and Girl Ninja is a teacher. This affords us a little more flexibility in location that the average joe. But just because we could live anywhere, doesn’t mean we want to live everywhere. We have our eyes on very specific communities within Seattle, Edmonds, and Everett. After touring the Seattle homes, we walked through one in Edmonds that got us a little excited…

and for a little idea of where it is in relationship to the Puget Sound…

Here are the stats on the house.

  • 3 bedrooms
  • 1 bathroom
  • 1,428sqft, 0.4 acre (17,000 square feet) lot
  • $375,000 list price, For Sale By Owner

We spent about 20 minutes in the house on Saturday. A very awkward 20 minutes. Since it was a FSBO property the sellers met us at the house and showed us around. Normally Girl Ninja and I would speak freely about what we did and didn’t like about a house as we walked through. With the sellers standing 2 feet from us, we didn’t feel like we could. It just made the whole experience feel weird.

We looked at six more houses on Monday, but can’t seem to shake this Edmonds charmer. We don’t know if we want to buy it, but we do know we want to walk through it again, without the sellers being around. The other night I couldn’t sleep so I wrote down a bunch of pros and cons about the house. Here are a just a few of them…

I could write a million more things about the house, but until we’ve walked through it a second time it’s kind of pointless. We’ll be looking at it with a much more critical eye. Quite possibly the suckiest thing about liking this house is the timing. In a perfect world we would have come across this place a few months from now, when we were a little more cultured in the house hunting process.

Gah, I’m not cut out for this stuff. It’s too stressful. Maybe we should rent for a couple more decades 😉

Our first outing with our agent.

On Saturday morning Girl Ninja and I spent a couple of hours gallivanting around northern Seattle with our Realtor. We weren’t shopping for houses, as much as we were being educated on Seattle real estate. It was time for us to learn what $400,000 buys in Seattle. We walked through 5 homes that day.

I’d like to take you on a tour of a few of the homes we looked at, but before I do that I feel like I need to clarify something.

Seattle real estate is expensive. It’s not San Fran or NYC, but it aint cheap here. There’s a lot of big business (Amazon, Microsoft, Boeing, etc). High paying jobs typically mean higher housing prices. I get that you might live in the middle of nowhere Kansas and be able to buy a McMansion for $150,000. You can’t do that here. Seattle is not Topeka so please don’t compare the two.

We didn’t move to Seattle to move away from it. Some people on here seem to think we should just pack up our bags and move to a state with a lower cost of living. These people must not be aware we already did that when we left San Diego last year. We moved to Seattle to put down roots and live close to family.

I’ll make ya a deal. If you go to move to the Philippines for a lower cost of living, I’ll move to Texas for a lower cost of living. I get moving for a job, for a new adventure, for school, etc. But I’m not moving just so I can save a couple hundred bucks a month on a house payment.

Okay now that that is out of the way, let’s get on with the houses shall we?

First let me start by showing you this map that shows the areas we want to live….

Our goal is to live as close to Green Lake as possible (hence the reason for all the yellow in one spot). It’s a-freaking -dorable there. The lake has a three-mile joggers loop around it with a ton of local restaurants, parks, and coffee shops nearby. It’s basically the happening spot for twenty and thirty somethings. It’s also close enough to the University of Washington (about 3 miles) that one could easily rent out their home to a couple of college students if desired.

Alright, enough about geography, let’s see the houses…

House 1: 2 bed, 2 bath, 1,040sqft, $385,000 

The house was charming from the outside. Heck, it was even cute inside. That said, there was some serious concerns. First, the two bedrooms were both located in the basement. Natural light is a “must have” for Girl Ninja and a basement master bedroom is far from ideal. The street also didn’t have sidewalks, which made the whole neighborhood just appear sloppy since cars were parked all over the place. The kitchen, although nice, had a really weird zig-zagged layout. There were some fun features like a bonus room loft space and a sweet one car garage with rooftop patio. You can see more about the house here.

House 2: 4 bed, 1 bath, 1,190sqft, $379,922.

This was the house I showed you pictures of yesterday. It was only 1,190 square feet, but they packed 4 bedrooms in to that space. Needless to say the rooms were very tiny. Although it was located in a desirable neighborhood, the house was anything but. It was built-in the 1950’s and lacks the charm Girl Ninja and I are looking for (we want something built before 1940).

The kitchen was hiddeous and tiny. So tiny the refrigerator is not even located in the kitchen, it’s in the adjacent laundry room. It was our realtors favorite house of the bunch (because of the location and potential) and our least favorite because it was just plain ugly. Haha. Wanna hear something crazy. It went pending yesterday. It’s been on the market for 17 days and got four offers. Our realtor guesses it will sell for $375,000. You can see more here.

House 3: 3 bed, 1 bath, 1,100sqft, $399,950

This was our favorite house that we walked through. It was recently renovated. Had a ton of curb appeal. And the kitchen was pretty great for Seattle standards. Of course there were also some major drawbacks. The living room was only big enough for a two seat couch and there was no space for a TV. The living room was actually smaller than the dining room…who does that? Also, if you look in the top left picture, you’ll notice a monstrous modern home was built next door. It was an eyesore as it contrasted too much with this tiny 1914 home. Lastly, two of the bedrooms were right off the living room, the third was off the kitchen. While it shows great in pictures, the flow of the house was not ideal for entertaining. You can see more here.

As you can see, we will be paying at least $350,000 for about 1,110sqft  of living space if we stick to our target area. It was great to finally get out there and walk through some places. We got to learn a lot about older homes and the pros/cons that come with them. Hopefully over the next few months we’ll find the right place for us 🙂

p.s. Please let me know if you loved (or hated) this post. We’ll be looking at dozens of houses, and if you want to see more posts like this please tell me. Likewise, if you think this stuff is boring be sure to let me know so I don’t waste your time in the future. 

I’ve been approved to ruin my life.

Last night I called an old mentor of mine who currently works as a branch manager at a local bank. Girl Ninja and I wanted to get pre-approved for a mortgage for two reasons; a) to make sure we actually qualified for a loan, and b) to have a pre-approval notice on hand for when we find a place we love. Since I knew the branch manager personally we spent about 20 minutes on the phone going over The Ninja household’s financial and personal information. Thirty minutes later, I had a copy of the credit report he pulled in my inbox.

His email started…

You are approved, as you expected for much more than you wish to burden yourselves with…

To which I responded…

Thanks for doing this so quick. Curious what we are “qualified” to borrow? Should give me a good laugh and a heart attack all at the same time.

To which he responded…

You could actually put 15% down on a $500k purchase and be good with both your incomes…don’t go there.

Banks are dumb, but at least this branch manager knows it. They basically gave Girl Ninja and I approval to ruin our lives and stress ourselves out. I couldn’t even imagine having a $500,000 mortgage. There would be absolutely no financial cushion in the event one of us lost our jobs or had to take a pay cut. It’s craziness I tell you, craziness.

But I guess it can’t really be that crazy right? I mean, banks wouldn’t offer these loans if they thought the borrower would default at the approved amount. I guess this just goes to show WAAAAAY too many people are trying to keep up with the Joneses.

Girl Ninja and I are determined to keep our purchase price below $400,000 and hopefully closer to the $300,000 to $350,000 range. This should leave us with a mortgage payment that we don’t have to think about with our dual incomes, and even when the day come that Girl Ninja becomes Stay At Home Mom Ninja, I can still make the payments without much sacrifice. It’s not about the price of the home people, it’s about your monthly payment. Decide what you want to spend ALL IN on housing each month, and then let the numbers tell you how much you can afford.

Wanna know what’s more annoying than the banks approving to loan us more money than they should? You ready for this? It’s probably the most annoying thing I’ve ever come across in my entire life. EVER!!!!

Girl Ninja’s credit score is 40 points higher than mine!

FORTY FREAKING POINTS! How about that for a little piece of humble pie. Haha, I mean I can’t really be mad, my score isn’t terrible at 750, but she’s rocking a 790. Girl Ninja must be flirting with the people at FICO because she has not borrowed as much money as I have, paid back as much as I have, or had as long of a credit history. I thought for sure she’d be the “weaker” link in this scenario, but that doesn’t seem to be the case.

Now that we are approved I guess it’s time to get out there and start walking through homes. We start bright and early Saturday morning. Who knows, maybe by Monday’s post we will have put an offer on the place 😉

p.s. Did you know Seattle real estate is crazy right now. Inventory is as low as it’s ever been (1.67 months). Prices are up significantly over the last 18 months. And multiple offers are a common thing. Of course this all happens when we decide to jump in. Bummer. 

Twenty

Girl Ninja and I have been saving hard. Had we not bought a car, and had I not started MANteresting, we would be reaching our $100,000 savings goal  right… about………… now. But since we dropped a little extra coin this year, we are about six months behind schedule. As you also know, I’m thinking interest rates will slowly begin creeping upwards by mid to late 2013.

I’ve been watching Seattle real estate pretty closely and from what I gather, the local market seemed to bottom around summer 2011. While prices aren’t at pre-recession levels, they’ve definitely been ticking upwards for over a year. It’s not uncommon for a fairly priced house to sell at or above asking price, with multiple offers, in less than a week. Median home prices in Seattle are up 12% in the last year. It’s crazy.

Girl Ninja and I hope to begin walking through homes in January. We will put in an offer as soon as we find a place that captures our hearts. In my perfect world, we’d find a great house before April as the number of people looking to buy typically drops in the winter. Less competition means a better deal for us. 

Since we could potentially fall in love with a place pretty soon, it’s time I really start breaking down the numbers. Specifically in regards to the down payment. Girl Ninja and I have enough in the bank to put 20% down on our future place, but part of me doesn’t want to.

The 20% down figure is popular for two reasons. First, if a buyer can save up 20% of the purchase price of their home, that generally implies they are responsible. Likely responsible enough to buy a house. Second, 20% down gets you out of having to pay private mortgage insurance (PMI). PMI can be quite costly. For example, throwing 10% down on a $350,000 house would leave us with a $151/month PMI bill. PMI is not an investment, it’s an expense.

That said, there are number of reasons putting a smaller amount down (10%) appeals to me. Here they are in no particular order…

1. Putting almost all of our liquid assets (cash) in to a single illiquid asset scares the bajeezus out of me. I mean, I would never just invest $70,000 in a single stock. Why the heck would I do that for a single house? Especially when things like hail storms, or a great recession, are totally out of my control, but can significantly reduce the value of my property. Scary! I’ve said it before and I’ll say it again, I would NEVER pay cash for a house, and for those same reasons, I may not be willing to put 20% down.

2. Interest rates are stupid low. Like seriously the lowest they’ve ever been. And will likely ever be. Zillow tells me we would be looking at 3.145% APR on a $400,000 house if we bought today. That’s crazy. Why wouldn’t we leverage low-interest debt? If my student loans were at 2-3% like my sisters, I likely wouldn’t have paid them off so quick. My student loans, however were 7%. There was no way I could be confident that my investing skills could earn me a 7%+ return. It made sense to pay off my debt. But that wouldn’t be the case with a 3% tax-deductible APR. Heck, just a few years ago high yield savings accounts were paying 3%-4% returns, and inflation is gonna come around sooner or later. If we had a mortgage rate closer to 5% then I’d be all for paying down the loan faster, or throwing more money at the house up front.

3. Inflation will be my friend. Let’s pretend our mortgage payment is $1,500/month. Let’s say I currently bring home $4,500/month. A $1,500 payment would hurt for the first few years on that salary (33% of take home pay), but over time, the pain would significantly decrease as my salary adjusts for inflation. At 3% inflation, my $4,500 monthly salary would jump to $5,200 after five years. At the ten-year mark, I’d be bringing home $6,047. And 20 years from now, I’d be bringing home $8,127. My mortgage payment, however, would still be $1,500/month. As each year passes, the mortgage payment becomes a smaller portion of my take home pay. And let’s not forget, this example doesn’t take in to account ANY raises or promotions.

4.  20% down on a $350,000 house is a lot of freaking money. It scares me to think about writing a $70,000 check for a place I’ve never even stayed the night in. Instead, I’d prefer writing a $35,000 check (10%) and let the rest of the money sit in my bank account. If after a few months of really getting to know our house we felt like no major maintenance expenses were anticipated, we could pay down the loan with our savings and eliminate PMI.

5. There are alternatives to PMI. Single Financed Mortgage Insurance and Single Premium Mortgage Insurance are two such options. You can research them to get more info if you like.

So although we will have enough for a 20% down payment in the bank, we may not elect to go that route. We wont know, though, until we have found our first place. At that point we can run the numbers and see what makes the most sense for us.

How much did you (or will you) put down on your FIRST place? Why that amount? I know it’s easy to tell a stranger they should put 20% down, but is it always the right decision? Would you pay cash for a house?

What’s putting a roof over your head costing ya?

As Girl Ninja and I inch closer towards starting the house hunting process, we’ve been contemplating how much house we think we can afford. We thought maybe a mortgage pre-qualification calculator could help us out. Here was what we got when we ran the numbers based on our current financial situation…

Is this real life?

A half a million dollar home would be considered a conservative purchase for us? A nearly $700,000 home would be aggressive, but not unreasonable?

IT ALL MAKES SENSE NOW! 

I totally get why there was a housing bubble. People actually thought the amount of money they were approved for was the amount of money they should spend. What a crock! Heck, even if we eliminate Girl Ninja’s income from the equation (for when she becomes a stay at home mom) we still get a conservative purchase price of $421,000, and an aggressive list price of $500,000.

No. Freaking. Way.

When Girl Ninja and I figure out how much house we can afford, we actually don’t even think about house price. Instead, we have decided on a maximum monthly payment we’d be willing to stomach.We can then take that number and plug in some other variables (cash available for down payment, interest rate, and estimated property taxes/insurance) to see how much house we can buy.

We are personally comfortable with a monthly payment (including taxes) of about $1,500/month. That means, with today’s rates, we are looking at a maximum house price of about $350,000. That’s $200,000 less than the CONSERVATIVE calculation for our income. Can you believe that?

Seriously, who wants to put ALL of their take home pay in to a house… for thirty straight years? That sounds miserable and stressful. 

$1,500 is the exact rent we paid for our 600sqft, one bedroom apartment in San Diego two years ago. My/our income has gone up since that time and we know we can get by just fine with that size payment. Here’s how that number breaks down as a percentage of our pay…

1. 16% of OUR current GROSS pay; or  23% of MY current GROSS pay

2. 25% of OUR current NET income; or 33% of my NET income

So for now our budget is set at a $350,000 max purchase price. The only situations where we would possibly up the budget is if we a) bought a house near Green Lake in Seattle or b) bought something that had a rental unit attached. Living in Green Lake would be sweet, but as we learned during our open house-ing not even $400,000 goes very far there.

So reader, how much does the roof over your head cost each month? What does that work out to as a percentage of your  household pay? Be sure to put a general geographic area so we have some perspective. 

Would you hire a friend?

After we ring in the New Year, Girl Ninja and I plan to get serious about hunting for a house. I’ve been doing some research and exactly what that process entails and it doesn’t seem too complicated. We’ll get pre-qualified, possibly pre-approved, and then start looking for a real estate agent. No big deal right?

WRONG!

Pre-qualification is a breeze. Just type in some stuff in Google and you’ll get an idea of how much money you should be able to borrow for a mortgage. Even pre-approval is a piece of cake. Walk down to your local bank, pay em like $50, give ’em some financial documents, they run your credit, and *BAM* you get pre-approved for a mortgage (assuming you have your shizz together financially speaking). Easy, peasey.

It’s the Real Estate Agent part of the equation that freaks me out.

Girl Ninja and I know about two or three people on a personal level (mostly through church) that are Agents. Now they aren’t our best friends in the world, but we’ve known them for 10ish years, and to the best of our knowledge they are pretty good at what they do. But the question remains….

Should we hire one of them?

Here are the different scenarios that could play out and my thoughts on each:

Redfin has a really attractive business model for potential buyers (and sellers). If we use Redfin to purchase our home, we get a portion of the closing costs paid back to us (usually around 1% of purchase price). That means if we bought a $350,000 pad we would get a check for $3,500+ just for using a Redfin agent. It would definitely require more effort on our part, and it’s not as personal as working one-on-one with an agent, but $3,500 is nothing to scoff at. Not to mention, if we negotiated seller-paid closing costs in to the deal that would take Redfin’s reimbursement even farther. Hmmm… very appealing indeed.

Hiring a stranger. We could also go the route most people probably do. Interview a handful of agents that are familiar with our top desired locations and pick the one who has the most impressive resume. This would ensure we have someone working for us that has a proven track record of success and is intimately familiar with our desired location. What’s more, since we don’t know the guy/girl on a personal level, there would be know awkward tension if we were unhappy with the services provided. A stranger has to work hard for us if he wants to stay our agent. That in and of itself is priceless.

Lastly, we could go the friend route. Hire someone we know on a personal level. Maybe they’d cut us a break on their commission (since we may not have hired them otherwise), maybe not. We know the character of these people and would totally trust them to guide us in the right direction. I don’t think they’d ever try to have us a buy a house, they wouldn’t actually buy themselves. Peace of mind is crucial when it comes to making the single most expensive purchase of our life, a friend might be able to provide just that.

All three scenarios have some serious pros and some serious cons. I honestly don’t know what to do. I’m cheap as hell so part of me wants to go Redfin. But as a first time buyer I like the idea of having a relationship with one agent throughout the whole process. It doesn’t matter how much money I save on commissions if the house I buy is a crappy house, right?

What say you people? Who would you recommend working with (Redfin, stranger, or friends)? What are the pros and cons of each as you see them? Help a Ninja out!!!!

The only reason I’m buying a house.

A week ago I shared that Girl Ninja and I plan to take the plunge and buy our first home in 2013. If you’ve been reading PDITF for more than a day or two, you’ll know I’m not a huge fan of the concept of home ownership. With this post I plan to summarize the primary reasons I think owning a home sucks, but why I’ll likely buy one anyway. If you are a renter, save this post, and email it to the next stupid person that tries to tell you renting is dumb.

“Renters throw their money away:”

I hate when people who own their home try to tell me my rent payments are like throwing money away. Is filling up my gas tank “like throwing money away”? How about buying a gallon of milk? No, it’s not. I pay rent, and in return get a roof over my head. It’s not rocket science.

If you have a $1,200 mortgage payment you aren’t making a $1,200/month investment. About $360/month goes to lowering your principal and $840 goes to interest (note: mortgage interest is deductible on taxes). Add another couple hundred a month for property taxes, $50 or so a month for Homeowners Insurance, and $120/month for PMI since MOST first time buyers don’t put 20% down.

All in, your house is costing you upwards of $1,700/month, of which only $360 is actually an investment, everything else is an expense. Oh, and don’t forget we didn’t even take maintenance in to account (word on the street has it appliances, roofs, and plumbing aint cheap).

You can tell me I throw my money away each month, only after you’ve recognized that you throw yours away too.

“It’s an investment:”

Sure. But at least be willing to admit it’s kind of a crappy one. Ben Stein says it best,

“[M]y wife and I bought our house in Malibu for $600,000 in 1990. It might have gone up by 150 percent since then, but in that span, the stock market has more than tripled on the Dow, counting dividends. Other indexes such as foreign stock indexes have gone up vastly more than that… [O]ver very long periods homes barely keep pace with inflation. Stocks, over very long periods, beat inflation by a large margin…”

Real estate just isn’t that great of an investment, it’s as simple as that. And I think it’s hilarious when people claim buying a house helps them diversify their portfolio Ummm, excuse me…. when did tying up a huge chunk of your net worth in to a single asset qualify as diversification? You ever put $200,000 in to a single stock? No, then why do you think putting $200,000 in to one house is any different?

“At least with a home you own something:”

Is that really true? Do you own your home, or does your home own you? Could you move tomorrow if you got a sweet job? Could you find a new place if your roof started leaking?

What’s more, sixty-six percent of home owners have a mortgage. That means 66% of home owners don’t own their homes, their lenders do. Thirty-one percent of homeowners are underwater; they couldn’t even sell their place for what they owe. The average length of owning a residence is seven years, not long enough for them to pay their mortgage off, and definitely not long enough to guarantee an increase in property values (::cough:: 2005-Present ::cough::).

As a renter, I have zero temptation to put more money in to my residence. As nice (and expensive) as hardwood floors might be, I couldn’t put them in even if I wanted them. If I owned the place, the only thing stopping me from upgrading anything/everything would be my wallet. Renting takes the temptation of renovating completely away. Forced savings for the win!

If you are a renter, hear this:

You aren’t dumb. Don’t let home owners make you think otherwise!!!!

Okay so now that I’ve gotten that off my chest let me share with you the two reasons I’ll still likely end up buying a house.

1) You can pay your mortgage off. When we buy a house we don’t plan to sell it (we might, but that’s not our intention when we purchase it). Whether it takes us 10 years, or 30, eventually we wont have a mortgage. When retirement comes, I’ll be able to breathe easier knowing I don’t have a huge house/rent payment each month.

2a) You can rent out all, or part, of your home. If we put enough down, our monthly payment would be small enough that the rent we could collect for the property would cover all the properties expenses. I pay $70,000 up front, but could have strangers pay off the remaining balance for me. And ten years from now, when rent prices have gone up, but my mortgage hasn’t, we would be making money . Passive income is sexy.

2b) I’m also fascinated by properties with Mother In Law units. Our landlord paid cash for his house and built a mother in law unit up top (where we live). The rent he collects from us covers ALL of his housing expenses on our place and his (taxes, insurance, and utilities)!!!!. Our 600sqft rental allows him to live in his 3,000sqft house for free.

In sum, a home is a home first, an investment second. And renting isn’t dumb, so quit saying it is.