Hardway Finance Part 2

Hardway Finance Part 2

In part one of Hardway Finance, I explained the amazing year of 2009 where I was able to make significant headway towards my goal of getting a house.  By the end of the year, I was on a split course, considering either having a house built, or buying one.

I was interested in energy efficiency, and found a local builder who specialized in building energy efficient homes.  I spoke to him and took a tour of one of the houses that he built.  I was also speaking to a man who was making blueprints for the house of my dreams, which was actually quite small, and would fit on some land that my grandfather was going to give me as a gift to get things rolling.  I had also signed up to be on the list for having a house built by the high school building trades class.  All of those options would spin wildly until one day when I would make a very important and expensive decision.  A decision that would destroy all of the hard work that I had done the previous year and put me into a wildly unreasonable amount of debt.

Remember the builder I mentioned in the previous paragraph?  Well, he was hot to sell the house that he showed me because he had put a substantial amount of money into building it.  Because of the financial crisis which was centered in housing, his income had dried up.  Long story short, I had the option of buying the house he showed me, fully furnished, or have my house built by building trades, but not furnished, for roughly the same price per square foot.  I chose the former, since it was quicker and I got a fully furnished house (furniture and high end appliances) thrown in for free.  I also got a $30,000 theater room for only $6,000.

I remember the day that the builder and I negotiated for the house.  I think the asking price for the house on realty websites at the time had been around $375,000 but we settled for $225,000 plus $6,000 for the theater room, and he was taking the TV in the living room for his kid.  I remember thinking that it was a lot of money, but also an amazing deal.  I set up meetings with a couple of mortgage companies that had been referred to me, one of which was interested in the deal.

This is where it starts to get insane.  This is where logic and reason started going out the window.  The mortgage broker set up a meeting at her office with the both of us.  She explained it this way; I only qualified for a $206,000 mortgage.  In order for things to move forward, the seller would have to bend even further.

(Insert dramatic pause here)

Quickly, yet at the same time with great hesitation, the builder agreed to the banker’s terms.  The bank had just negotiated the price down for me.  I took this as a good sign.  I was not being represented by a realtor, which thinking back, was absolutely insane. It ended up working out for me.  The seller’s business partner was a realtor, and he did all of the paperwork at no charge to me.  I also took this as a good sign, thinking that I had saved the common 7% sales commission.  My understanding is that the builder took out a substantial portion of his 401k to pay off the difference between what I was paying and what he owed on the house.  I also had to take out a 401k loan in order to get the last bit of money to make the deal happen.  I took that to mean that I was getting the house for a substantial discount and an amazing value.  What I got was taken to school.