Update on our home situation
My wife and I just finished signing the contingency contract waiver on the new house we’re trying to buy. Oh wait, I’m getting ahead of myself. I haven’t updated you on the latest news.
On Sunday afternoon we received the call we had hoped we wouldn’t receive. The sellers of the house we a trying to buy in the mountains received another offer and accepted it. They now had a back-up contract and invoked the 72 hour kick-out clause in our contract. The seller’s seem like great folks and conveyed that they felt bad and really wanted us to have the house, but needed to sell it. I could understand that and appreciated their thoughts.
See, we signed a contract to purchase the mountain home that was contingent on the sale of current home. In order to get the sellers to accept a contingency, they wanted a kick out clause. A kick-out clause allows the seller to accept another offer if they receive one BUT we get 72 hours to respond and go into a non-contingency contract if we so desire. We had until Wednesday at 1:00pm to reply or the house would go to the other buyers.
Needless to say we were stressed. We had tons of questions floating through our heads: What if our house doesn’t sell soon? Can we afford 2 mortgage payments, and if so for how long? Even if we could, we don’t have enough savings to make the 5% down payment let alone the 20% we had planned to make with the equity from the sale of our home.
We began to look at options. We had taken out a home equity line to pay for our house repairs. I was hoping the remaining balance coupled with the savings we had would cover the down payment. Nope, $3000.00 short and that didn’t include closing costs or moving expenses.
I then considered a bridge loan, but after doing some research decided not only would a bridge loan be hard to get right now, I just wasn’t comfortable. I really didn’t want to borrow money for a down payment nor to pay for closing costs.
I called the mortgage company that pre-approved me and asked if they had any options. They simply said no. With the current foreclosure crisis they wouldn’t loan out more than 95% of the homes value.
We were becoming hopeless at this point. See, most people say to look at a home as a financial transaction, but this home we want is so much more than that. We looked at more than 20 homes in the area and didn’t really like any of them. The moment we drove up on this home, we knew it was what we had been looking for. It’s the right size, the right amount of land, far enough out of the city, but not too far, it even had a dedicated office area in the basement where I could work from home with no distractions, and the the price was right. This house is the beginning of our new life, me working remote, us living in the place we’ve always wanted to live and away from the rat race of the city.
In the past weeks while waiting on our home to sell, this mountain home had begun to feel like home. Our kids made plans for which rooms would be theirs, my wife and I discussed where we would place our furniture. I had figured out the ideal place to put my desk and computer in the office so I could see the beautiful mountain view while I worked and watch the kids playing in the front yard at the same time. My wife and I had even begun to look forward to warm cups of coffee in the morning while sitting on the front deck looking at the morning mist surrounding the mountains as the sun slowly rose from behind them.
There had to be a way to make this work…then it hit me. My 401k. I could borrow on my 401k, which in all but a few scenarios I wouldn’t recommend, but in this case it solved the problem. I had enough in my 401k that I could borrow for a down payment, pay the closing costs and even pay to move us. I would have enough left over to even make a good year’s worth of house payments on our other home if I absolutely needed to (don’t worry, I’d rent it before I’d do that). I also felt better in using my 401k money as at least it’s my money. Sure it will hurt my investments and slow the growth, but honestly it hasn’t been growing a whole lot lately anyway. I’m also convinced we’ve got a incredible deal on this house and will walk into it with more than 70,000 in equity from day 1.
Given my real estate agent’s expectation that my house will sell very soon, the 401k loan would only be short term, as I could pay it off with the equity remaining in my current home. Problem solved.
Opps, have to get approved again
I called the mortgage company back and they agreed that it a good option and one many people used. I asked him why he didn’t suggest that, and he said they weren’t allowed to make suggestions like that. Down payments and how they were obtained were up to the borrower. He then explained that since I would be keeping my current mortgage, that I would have to be re-approved, since he approved me the first time assuming I would sell my house first. Okay, a bit of a surprise, but a reasonable one…
They called me back the next morning with good news, we were all approved! My wife and I having learned a long time back to not rush into decisions decided to wait until tomorrow morning before faxing in the contingency contract waiver. We wanted to make sure we weren’t making a stupid decision or one that may put our dream at risk.
Shopping around a bit
Using our 401k is of course a bit risky, but when talking to a friend this morning, she informed me of something that made me feel better about it. Bank of America has a mortgage program that allows a borrower to put down 5% with not requirement for PMI. They also pay all closing costs and have a rate less than my current lender. Within minutes I was on the phone making the application. I’m awaiting a call back from them. I don’t expect any problems, but it’s always so stressful when you’re waiting for a reply on an approval. Going this route would allow me to borrow far less from my 401k (5% down and save $2000 on closing costs) and not have to suffer the penalty of PMI which would be close to $200.00 a month.
I called Bank of America and spoke with them about the offer, turns out due to the recent mortgage meltdown, they now require 15% down and the interest rate is now higher on this plan due to the risk. I ran the numbers, and looks like my original finance plan is the better overall offer. Oh well, it was worth looking into.
We’ll be saving our money like crazy until we close on the new house, doing everything we can to minimize the amount we need to borrow from our 401k, but if the math proves out it just won’t be enough. But hey, I am willing to try. If God feed thousands with one loaf and 2 fishes, maybe he can turn my small savings into enough.
A leap of faith
For many reasons, some of which I can’t share, this move is incredibly important to my family. I think the risk is worth it. My wife and I have prayed about this whole decision from the beginning. We’ve believed from the start that God was leading us to the mountains and would provide the means for us to get there. Now, that doesn’t mean this an excuse to do something stupid. I feel confident in this situation where I normally wouldn’t feel confident. For me, that’s usual a sign that God is leading the way. After you Father…