If this blog is to be useful (even just to me!), there are a few details I would like to share. Here is a long / housekeeping post to capture all of this.
First, our home purchase / mortgage are not gold standard PF choices. They are not high risk options, but I tend to be ultra conservative and would prefer to have bought in all cash if possible. I won’t go into a lot of details for privacy reasons, but ‘ll share a little known fact: many academic jobs in pricey cities have perks related to housing as part of their recruitment packages. My husband’s job came with some of these perks, and we are using them. (The academic job market is like it’s own planet. Or maybe several planets, depending specifically at where in academia you end up falling.)
So, we did not put 20% of our own money down, but we do not have to pay expensive PMI. There are some other benefits and risks that are specific to our situation, and trust me when I say we spent a long time considering the pros and cons. It came down to the fact that 1) we need to live somewhere 2) not buying yet is also a risk and 3) we could afford to do this. Buying wins over renting in a relatively short time frame. Buying is expensive, but so is renting.
Our primary risk reduction strategy was to ensure we could afford this on one salary. We have this covered, albeit it would require more care with our finances. The other important risk reduction plan is to reduce our mortgage balance to the equivalent of 20% down (or more) – I’m working to define our timeline and tactics for that goal.
Second, we have/had $15 – $20k set aside after for repairs and furnishings. (We also have our $27k emergency fund and money for property tax bill set aside.) Here is what we are doing with it.
We bought some furniture:
- We spent $2k on a chair and side table. Yes, this is a huge LOT of money. We bought used (on ebay, local pick up), and it is a classic style we could sell tomorrow (or 5 years from now) and recover our cost. (It is in the MOMA!)
- We bought a sleeper sofa for the guest room, used off craigslist. I was going to buy a second bed (new), but we may turn the room into a nursery within a few years. A sleeper sofa could be moved to the office when time comes.
- We found an area rug for the bedroom for $100, and need one for the living room.
- I bought some crappy bar stools for about $60 for two. They are functional, and for some reason, bar stools are expense.
- We’re in the process of putting up UV window film on several windows. We don’t need blinds for privacy, so the film will protect our floors and belongings while preserving the view.
- I want some new lighting in the living area – the fixtures are ugly. This is a low priority and may not happen.
- We’re on the craigslist lookout for a bench for the entry way and patio furniture on the cheap. I might make my own bench, but this doesn’t actually save all that much money – it is just awesome.
And we scheduled some repairs:
- Furnace / duct work: This is expensive because we have some asbestos on the outside of the duct work. My research says this actually is not a big deal and we could just leave it – but the furnace can’t be worked on. The furnace is approaching the end of its life, and there are some tax incentives for getting a more efficient furnace. Due to climate, we won’t save much on our bill, but I want to get this done anyway.
- Painting: Mostly just the ceilings, because everything else was painted for the staging in colors we are OK with.
- Earthquake retrofitting: We have earthquake safety measures in place already, but we’d like to modernize a few things. We will be doing this within a year. There is a pretty major tax incentive to help with this one. We may wait until May or June to do this one.
In short, there has been a lot going on in our finances in the past two months! Things should be back to normal this month!
In the weeks we were preparing to buy our house, it felt like money was flying around everywhere. From one account to another, a cashier’s check, wire transfers, checks to inspectors, escrow refunds, insurance premiums, ikea, home depot, target… Finally, we got our August paychecks, and everything is more settled financially.
Here are some tidbits about the net worth of the SP household:
- I added a new category to our net worth: home equity. I’m going to use Purchase Price – Mortgage balance, unless there becomes a reason to believe that the market value has fallen below the purchase price.
- About 70% of our net worth is in our retirement accounts.
- My retirement accounts are quite a bit larger than T’s, but he’s catching up.
- Sort of. He’s contributing about 2x the amount I am, but our balances have increased almost the same amount. Thank you, investment gains!
- We’ve had a 30% increase in our net worth so far this year. Yay!
- I don’t expect major net worth growth for the rest of the year due to: property taxes (not impounded), a few home maintenance projects (boring stuff like furnace, seismic, drainage – not redoing the bathrooms), and reduced cash flow.
My near term financial goals are:
- Continue retirement savings at this pace through end of 2014. Then, we’ll likely reduce T’s a bit to support the 3rd bullet below.
- Complete the house projects listed above.
- Reduce mortgage balance. I want to put at least $5k extra within the first year, but maybe more. I don’t like throwing out numbers without doing the calculations, but $5k is a number I’m comfortable just throwing. :)
- Freedom to move with minimal notice and minimal hassle.
- Short term cash on hand. After having so much in the bank, it is sad to be dwindling down to just our emergency fund and some cash for near term expenses.
- Ability to save cash at a quick rate while also funding retirement at this pace.
- Ability to quickly reduce living expenses (by moving).
In summary, it is more risky in a lot of ways. It restricts our options. This makes me nervous, as both T and I are quite risk adverse with money. Continuing to rent had some other risks (rising home prices, rising rents, we have to move to a new apartment within another year anyway.) I’m thrilled about our purchase, but I’m not blind to what we are giving up to have it.
What else, homeowners (or happy renters)? What did buying a home require you to sacrifice? Or what are you not willing to sacrifice to buy a home.
We are in escrow, and everything is going smoothly.
The general inspection ($570) was helpful and yielded no major surprises. We have some immediate projects slated, and some items on the watch list. The geotechnical inspection ($460) was really helpful. Among other things, he informed us that we are on a geologically sound site and our house is likely to be habitable after a major quake. We have no foundation issues. We are possibly on bedrock (best case), but if not, we are very close. We are getting earthquake insurance anyway. A lot of native California’s don’t (it’s expensive), but I can’t really imagine not.
Immediate projects / fixes:
- Seismic upgrades (more shear walls, remove unused chimney), cost is TBD
- Fix a venting issue with the dryer, quoted at $600
- Pest control, $600
- Stair handrail
- Some basic roof maintenance
- Clean up the landscaping
- Finish decorating. I imagine we’ll start slowly. We don’t really need all that much above what we already have. A guest bed, a new desk, and a chair or two for the living room, and a few patio chairs. Window things. Rugs, eventually. We’d like a new dining table, but it isn’t urgent.
- Upgrade windows and doors. Many are original (it’s an OLD house), but in remarkable shape for their age.
- More complete electrical upgrade (as needed)
- More complete plumbing upgrade (as needed)
- Bathroom upgrades. We have 2 baths, and they both are fairly old.
- New roof. This should be several years off, but we’ll know more after the basic maintenance is taken care of.
- New furnace. Again, a few years off.
The kitchen is already updated and good. The paint colors are neutral enough to be OK for now, and we haven’t thought enough about what we want to do with them, so we’ll leave them alone to start. Also, there are hardwood floors in most of the house. I’m super excited about this. Not only do they look great, but I’m allergic to dust mites, and dust mites can’t survive on hardwood. I’m not allergic to anything else (recently tested!), so this should help a lot. I guess we’ll have rugs, but it still should help.
The loan is approved, the inspection contingencies are removed, the appraisal is complete. I’m honestly not sure what is going on in the next couple of weeks while we are waiting for close of escrow, but I’m getting impatient! And excited!
We put in our first offer on a house last week!
We struggled for a while on the question of whether or not we should buy a home now, or if we should wait a bit longer. I did numerous rent vs buy calculations, varying my assumptions. I read articles speculating whether or not we are in a housing bubble. I analyzed how much it would matter to us personally if we were indeed in a bubble. I considered the risk of buying. I considered the risk of continuing to rent. I looked at our budget, our savings, and our plans. We know we’ll be here at least 7 years, and we think that it will be much longer. We talked, and talked, and talked.
Finally, we decided we did want to buy, if we could find something that worked for us. We’ve been going to open houses all summer, getting a feel for what we like, what the market is doing, and where we want to live. T loved this, while I found it a bit tiring. We watched homes we liked go for WAY more than we wanted to spend. We heard horror stories of people who’d made 10 offers and were still trying. We didn’t see anything we wanted to make an offer on. Most things we liked we knew would sell for too much, or were in areas we weren’t ready to consider yet.
Finally, after months of looking, we found something we loved that we thought we had a chance at. It is a home I can see us in for at least 10 years, maybe even more. There is enough space, but not too much. The neighborhood is perfect for us. We both really liked it, and decided we’d put in an offer.
I’ll give you a quick explanation of how homes shopping works here, as it seems like it varies a bit.
- Houses are listed and have 1 – 2 open houses with a specific date set for offers being due, usually Tuesday or Wednesday after the final open house.
- It is typical for houses get from 4 – 10 offers
- If you really like a home, you may pay for a pre-inspection and remove the inspection contingency in advance of your offer.
- Houses nearly always go above list price by 3% – 40%. The average is closer to 8% or 10%.
- About 30% of all sales are cash (supposedly).
- Most decisions are made within 24 hours of the offer date. Our agents said that if we didn’t hear within the first few hours, we probably didn’t get it.
The offers were due last Tuesday, so we spent Monday evening finalizing everything. We’d done our own research on the comparable properties and decided what it was worth to us and what it might take to get it. Our agent speculated that the home may go for another $50k over what we offered, so we didn’t get our hopes too high. We knew if it went for that much, it wasn’t for us.
By 3 p.m. Tuesday, I started to guess we probably didn’t get it. At about 5:30 p.m., our agent called and confirmed we didn’t get it. The winning offer had already removed their inspection contingency and had offered more money. We were offered the back-up position, and since there was no reason not to, we took it. But most offers do go through, so we were sad and started to move on.
On Thursday morning, we took off for a 5 day backpacking trip in the Sierra Nevada mountains:
We planned to postpone the trip if our offer was accepted, but with that out of the way, we were excited to escape town for a bit. We spent 5 days and 4 nights in the mountains, enjoying the alpine lakes, mountain views, and quiet life.
We came back to civilization (and cell service) early Monday afternoon to discover that first offer fell through on Thursday morning, and we had advanced to the primary position! (At our realtors advice, we had written a “dear sellers” letter and mentioned our love for nature & backpacking – the sellers must have quickly realized we weren’t kidding when we were out of touch for 4 days while we were supposed to be moving forward with inspections!)
So, we might be buying a house soon. There are still quite a few steps to get through before we are sure this is the home. The sellers provided a recent inspection, so there shouldn’t be HUGE surprises, but you never know. Since this is California, we are also getting a geotechnical inspection to make sure the soil is good. If all goes well, close of escrow will be late August. Keep your fingers crossed for us!
In short, it is frustrating. I think home shopping ANYWHERE has potential to be frustrating, but here is what I’ve seen in our casual browsing of the local real estate market.
Links to virtual tours that are really just a slideshow of the photos already found on the site. WHY? I don’t care that there isn’t a virtual tour, but why pretend?
Earthquake / soil / fault information is not available until you get the disclosures. And even then, I’m not sure what you get (we didn’t get that far yet). I am generally not freaked out about dying in an earthquake. You are actually statistically quite likely to survive. I am, however, freaked out about spending hundreds of thousands of dollars on a home, and having it get destroyed in an earthquake.
Every time I find an interesting home I have to check if it is in the fault zone (EVERYTHING is going to be near a fault, but I don’t want something that has a risk of surface rupture). Or in a liquefaction zone (google this, it is freaky). Or in a landslide zone. SO MANY hazards!
I wish redfin and the like would just summarize for me: how many feet from fault zone, soil type (bedrock = good, fill = liquefaction risk), and any known landslide risks. Also, can’t they just TELL me when the floors are slanted? You are going to make me go to the house to find out about that?
Listing price is arbitrary. It could go for slightly more. It could go for WAY more. In rare cases, it may go for less. But don’t put much weight on the list price. This is so annoying and seems like some serious psychological manipulation to get people to pay the most possible for a house.
$1M+ for an average, nothing special home. What?! Why?
I have exciting plans to dig through my finances this weekend and see how we are doing so far this year. I may have some topics next week. In the meantime, here is some interesting randomness!
Women in STEM
Love this video! I’m so glad my parents were so encouraging of everything we girls did. Sometimes I feel sad that I’m not working in STEM anymore, but I may go back someday. And even if I don’t, I will always be an engineer. That stuff doesn’t wear off.
This short podcast on applying electrical current to the brain in order to stimulate learning blows my mind. Especially since someone could buy something that does this, it is completely uncontrolled. Seems a bit scary.
I’m listening to this book on audiobook while running, and it is crazy interesting.
Dr. Gazzaniga [...] created an experiment in which the (mute) right brain could “talk” by using Scrabble letters. He began by asking the patient’s left brain what he would do after graduation. The patient replied that he wanted to become a draftsman. But things got interesting when the (mute) right brain was asked the same question. The right brain spelled out the words: “automobile racer.” Unknown to the dominant left brain, the right brain secretly had a completely different agenda for the future. The right brain literally had a mind of its own. Rita Carter writes, ‘The possible implications of this are mind-boggling. It suggests that we might all be carrying around in our skulls a mute prisoner with a personality, ambition, and self-awareness quite different from the day-to-day entity we believe ourselves to be.
I’ve been thinking about my mute prisoner ever since!
Expensive things I want buy will not buy (yet?):
- Bose noise canceling headphones for commuting
- Lo & Sons OMG bag, even though I have 2 laptop / work bags that I really like (this and a knomo one I can’t find)
- A pancake lens for my new camera (yeah, I did buy a camera. My Cannon G11 is gone / dead / I-don’t-want-to-talk-about-it and this is the replacement)
Maybe if I learned how to make affiliate links and convinced you all to buy them too, I would feel OK purchasing?
Partially inspired by this article, I have finally got around to developing our earthquake disaster kit.
Over the past few months, I’ve acquired:
- 5 gallon water jug, $11
- Emergency Meals, $7
- Freeze Dried Food for something slightly more palatable (we actually eat this when we go backpacking and have a stove), $20
- Emergency Radio, $25
- 100 hr candle, $7
We have first aid and other random supplies for backpacking, but they aren’t organized in an “emergency” fashion. I think we have the most major items from lists I’ve seen online. What do you think? Now we just need to figure out what we should keep in our car and offices, if anything.
I also learned about liquefaction (which I intentionally like to call liquefaction, because it sounds scarier), importance of the type of soil a home is built on, and earthquake retrofitting of homes. Also, more scared than EVER to buy a home in this area!
Mountains / California
Netflix has a new documentary available on streaming: Mile, Mile and a Half. The title immediately made me smile. It is about a group of photographers / artists who hike the 220 mile John Muir Trail. Highly recommended for outdoor lovers.
We’ve done a few sections of this (particularly in the Ansel Adams Wilderness and Yosemite areas) and it renewed my desire for another backpacking trip. We are planning a 5 day one late this summer, and I am SO excited!
A few weekends ago, I was up in the mountains and lucky enough to fall asleep to 6 waterfalls, no one but me, T, and our friend in sight. That is 2 personal waterfalls per a person, if waterfalls were the type of thing you divided among friends.
On that note, I’m off to enjoy the rest of my day!