The last few months have been quite eventful. We’ve gone from renters to Airbnb vagrants to house crashers to finally homeowners.
How We Ended Up as Vagrants
We had been renting an apartment and our lease was ending at the end of January. There was complete radio silence about renewing the lease and we figured we would roll into a month-to-month lease as typically happens in California. About two weeks before the end of the lease, our landlord’s agent reaches out with the blissful expectation we were just going to renew a full-term lease. We explained that we were expecting in June and might try to buy a house in the next few months and wanted to go month-to-month. The agent found out the landlord wanted us to sign through August at which time his relative would move in. We said that’s another reason to go month-to-month because if we sign a lease until August and leave early, there’s no chance someone will step in and assume a 7 week (or however long) lease, especially over the summer in a college town. The landlord decides he wouldn’t do month-to-month and tells us tough luck. (Sidebar: as far as I can tell, he never found a tenant to take over until August. Whoops.)
At this point we have ten days to vacate our apartment. We decided to accelerate our home buying process. We could put our things in storage and stay in temporary housing until we closed on a home. Without my wife’s help, I couldn’t do the move myself, so we ended up paying for movers to go in and out of storage. Now it felt like our 2016 trip all over again. We would find an Airbnb and stay for a week or two and then move on. We were used to this rhythm, even though we were staying in the same general area and working during the day, rather than going out exploring or doing touristy things. The question was how long would we be in limbo?
The Homebuying Process
The Search Was the Easy Part
We had reached out to our agent earlier in January to start seeing some homes. The market was softer than when we were last looking in 2017 and price reductions were common. The first issue we discovered was our agent had broken up with our broker recently so we had to choose if we wanted to go with the big name guy we rarely interacted with (broker), or the day-to-day guy who was hustling for us (agent). We went with our agent even though we thought the marketing for his new firm was not our style (too much of a luxury tilt). It’s the person not the firm, we told ourselves.
With a baby on the way and perhaps a second in the future, we shifted from our prior Lean FIRE-esque mindset of buying a small 2 bedroom condo to something we thought would better suit our lifestyle irrespective of cost and withdrawal rates. So we started looking at larger homes to the north as opposed to smaller homes to the east. We went house hunting every weekend, sometimes with our agent and other times on our own, making sure to go back to places we liked.
After a few weekends, we saw a place that we both liked in a quaint neighborhood with highly-rated schools. For some reason, the sellers created this emergency for themselves where they just HAD to sell the house because they had their hearts set on a nearby house with a pool — same school district and everything. And the place they had their eye had been on the market for a while. So they were pleading for us to submit an offer ASAP so they could put an offer on their next home.
Financing Was Stressful
Before we could even submit an offer though, we had to figure out financing. When we were looking at the smaller condo, we were fine paying in cash. But now we’re dealing with tying up a larger sum in a lowish interest rate environment. The lost opportunity cost would be too much. I’d rather pay down a mortgage using excess income than take it out of savings as a down payment. We had put off getting pre-qualified because we thought we’d have more time in our rental.
A traditional bank wouldn’t touch us because I didn’t have sufficient income history as an independent contractor. We decided to go with a mortgage broker who could call underwriters directly and pose different scenarios to them. In less than a day, we scrambled to pull our financial documents together and a few days after that, we got our 2019 tax return on file.
We settled on a strategy where we would only rely on my wife’s income plus our dividend income and put 40% down. But we ran into an issue because the down payment was the source of some of our dividend income, and you can’t double dip. We could still make the numbers work, but it would be a very tangled ball of yarn to unravel. To avoid that issue, we explored getting the down payment as a gift, which we would immediately repay after closing. While this discussion was ongoing, our mortgage broker issued us a blanket pre-qualification knowing that we had sufficient options to work out the details with the lender.
A Good Price, But at What Cost?
We submitted an offer as soon as we got our pre-qualification letter. Listing agents here are lazy and instead of a single asking price, they provide this range — sometimes a big range. For this house, they had a $50k range and we submitted our offer at the bottom of the range. Given their eagerness to pursue their next home, they came down really quickly with their counteroffer and agreed to our next counteroffer.
At this point, we had been “homeless” for about two weeks. The twist is their acceptance of our offer was contingent on them closing on their next home. But they could not close on their next home without using the proceeds of their sale to us, which required us to close. So they unwittingly created a chicken-and-egg situation. Ultimately, their seller decided to sell to someone less encumbered, and our agent is left scrambling to figure out how to save the deal.
The best that he could do is to get them to agree to a 60-day rent back (or sooner if they close on another home). That meant we could be potentially in purgatory for over three months. With a pregnant wife.
Closing and a Shortened Rent-Back
We are now in the closing process with the lender. We submitted our application and put the ball in the lender’s court to come back at us with some of the issues we had identified. Surprisingly, they came back and said they are willing to consider my income given the number of years I have been practicing law. Looking back, I think the lender wanted to avoid the issue of relying on our dividend income and having to account for the sources of all those funds for the last two years through various purchases, sales, exchanges, and dividend reinvestments. So after a lot of scrambling and leg work, we are set on the mortgage. We locked in our rate at 4.25% at the end of February with a quarter point.
We had 17 days to remove our inspection and financing contingencies. We had a few repair requests and they agreed to fix the major ones and give us a partial credit to cover the remaining requests. After we removed our contingencies, our deal had no more hurdles so the seller had better luck with their offers. They submitted an offer for full price on a house that cost about 15% more than the one they were selling us. It looked OK online, but it was smaller, had an expensive HOA fee for a house, and a bit of a wonky layout. But it was 4 years newer and had access to a pool. Seems like a wasted transaction on their part, but if they’re happy, we’re happy…
And finally, it turned out they only needed to stay one month after we closed instead of two. Six Airbnb stays later and a few stays with my parents, we moved in. But that was just the beginning of the adventure…