[The following is the fifth part in a series about my adventures to buying a vacation/retirement home. It may make more sense to read it after Buying a Vacation/Retirement Home and Buying a Vacation/Retirement Home (Part 2), Buying a Vacation/Retirement Home (Part 3), and Buying a Vacation/Retirement Home (Part 4). There's also a prequel at Time to Buy that Vacation/Retirement Place?.]]
When I finished part 4 of the series, I wasn't convinced there would be a part 5. We had reached an impasse in negotiations with the place both my wife and I agreed was the best fit. We started to turn our attention towards another place, the Barbie Dream House (BDH) as my wife called it, but putting 20% down would eat up all of our emergency fund - which wasn't an option for me.
After many hours of talking with the mortgage guy our agent recommended, it didn't look like we could come up with anything. We do quite well on a cashflow basis, we were a few month shy from a place where I thought we could make the down payment. It looked like our plans were pretty much dead in the water. Our real estate agent, of all people, came up with a solution. We could get 80% financing from the bank and 10% from the seller's. I think I've heard of seller's financing, but it's been a long time, so it didn't occur to me. Odd that it didn't occur to our mortgage guy either (I'm really starting to doubt his competency). Anyway, we could actually put 15% down and only do seller financing for 5%, but we figured we'd stick with the 10 and 10 and pull out the 15% in negotiations.
Everything was falling into place until three things came up:
- There was a pending government shutdown scheduled for early March. It was not known if my wife would continue to be paid with no budget in place. They found a way to put something temporary in place, but it's still a concern. In the long-term, this shouldn't be an issue, but any uncertainty is enough to give us pause.
- A good friend brought this article to my attention. The Case-Shiller report came out and things looked bad, real bad. These people from Standard and Poor's kind of know their stuff. Robert Shiller said, "There's a substantial risk of home prices falling another 15%, 20% or 25%." Later in the article, Dean Baker of the Center for Economic and Policy Research said he thinks the price drop will be closer to 10% or 15%. We are in no rush, so there's no need to catch a falling knife.
- My wife found an article about Chase bank foreclosing on the military, while they have been off fighting overseas. To combat this bad PR, Chase looks like they are creating an opportunity for active military families (like ours) to get a 4% 30-year fixed mortgage rate. That would be an outstanding help. The catch is that Chase doesn't quite know how the program will work. It is announcing more details in April. We are hoping to qualify and cautiously optimistic about it. Waiting would give us more clarity on that.
In addition to all this, my mother came through with an awesome voice of reason. Why buy the BDH and then rent it out for 10 years until retirement? It's not going to be the BDH at that point. I have to agree. It's almost a little like buying a new car and then letting someone else enjoy the pleasure of dependable driving for 5 years, and then taking the car for yourself. Unless you are leasing it out for a pretty penny, it doesn't make sense.
I think this creates a fundamental problem in our plan. My wife wants a place that looks great now. I'm thinking that it better to get something that's at least got a little wear and tear. For example the place that I liked was built in 2003, but it's been rented out since then as the couple divorced soon after. It's nice now, but it's not brand new. In 10 years, when we are looking to move in, we may need to update some appliances and do some fixes. At least at that point, we'd be able to fix it to suit ourselves. This is in contrast with the BDH, where you get in a situation where everything is going to be still too good to junk it, but not the brand new BDH that it is today.
In the end, it may be a good thing that we have these problems. If prices are expected to continue to drop, we may just save ourselves from a financial mistake. Let me know what you think in the comments.
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