prosaic money stuff, continued

Another week, another financial appointment… This time, following my financial counselor’s advice, I headed to our bank (Bank of America) to meet with a mortgage specialist and learn about what loan options might be available to us through BofA. Specifically, I was wondering if we would qualify for a loan at all, and, if so, how much we could get. Would it be enough to buy both a place in the Methow and a place in the city? Also, while I knew that my bank was not one of the banks that worked with USDA rural development loans in Washington, I wanted to know if they had land loans of their own available, and how those compared to the USDA guaranteed loans that I’ve been looking at. Finally, I wanted to get their take on our pay off debt vs. save dilemma: where should we focus our energies (and available cash)?

The mortgage specialist asked me a couple of questions about income, debt, and credit score, punched some key on her calculator, jotted down a handful of numbers on a piece of paper, and came back with the following:

1) We would not be able to borrow enough to buy two homes (even very low-price ones) or buy a city home and build a country home. In fact, if we used our current savings as the down payment and borrowed the rest, we would be able to buy a condo for approximately $160,000. Anyone who is familiar with the real estate situation in Seattle knows that there are very, very few condos in Seattle for this price. The ones that do fall within this limit are, for the most part, foreclosures. P. and I are extremely ambivalent about buying a foreclosed property. Something about it just doesn’t feel right. On the one hand, of course, what’s done is done; the former owner has already lost their home and we are not making their situation any worse by purchasing it. We are not the ones taking it away; the bank has already done it. On the other hand, as P. says (quoting what I believe is an old proverb), you cannot build your happiness on the foundation of someone else’s misfortune. It would likely bother us to live in a place that we know someone suffered so much anxiety over. They tried to keep up with their payments, could not do it, lost sleep over it, became depressed and desperate, maybe argued with family about how this all came about and what to do now. Can we really be happy in a home with such a history? Then there are the ethics of “helping” the bank that forced someone out of their home by taking the home off of the bank’s hands, benefiting the bank twice: first they made money off the previous owner, and now they would be making money off us.

2) Apparently, to build a home, you need to obtain two loans: a land loan and a construction loan. Both are extremely hard to come by these days on the private market, virtually disappearing as the housing crisis spiraled out of control about 6-7 years ago. Apparently, according to BofA’s mortgage specialist, it is more common for borrowers to walk away from these types of loans, so banks are now reluctant to take on the risk. She predicts that it will be at least two years before these loans come back, and when they do, the guidelines will be very strict. So, she advised, if we do want to build in the country and qualify for the USDA loan, we should definitely take advantage of it. The tricky part is, if we go for the USDA loan, our ability to get another loan to buy a place in the city will be impacted, so we need to decide which one to go for first.

So, what to do? Well, first of all, I need to call all the banks in Washington that issue USDA guaranteed loans and find out if they even do land and construction loans. (Sound Community Bank, the first and only bank I’ve contacted to date, does not.) If none of them do, then the building option is out of the question for us. Then we’re looking at buying an already-built home in the Methow, and there are hardly any homes under $160,000 there either. There are some small cabins or cabin-like homes, typically on very small (1 acre or less) lots. Probably the best route in this case would be to buy one of those very small and not-so-appealing homes, choosing the biggest possible lot in the best possible location, with an eye to remodeling or building a brand-new home on the same lot gradually, without borrowing any money. Put aside a couple thousand dollars – great, go rent some machinery to dig a pit and to mix some concrete for a foundation slab. Another thousand dollars saved up six months later? Cool, we can buy some wood planks and put studs in place. And so on… Maybe it’s not such a bad idea, actually, although I can see how this could drag on for years and years and never get finished.

And so, the thinking and weighing of the options and research continues… Oh, by the way, on the save vs. pay off debt issue, BofA’s person was in agreement with the financial counselor I’d previously met with: keep doing a little bit of both. She said not to worry too much about paying off debt as quickly as possible, as it would not help our credit score, which is already in the “excellent” range and gets us the best possible deals on private mortgage insurance and other stuff that’s impacted by the credit score. This does put my mind at ease to some extent; however, I still hate wasting money on interest and in general having to pay for expenses from years ago that I hardly even remember. So, I think we will proceed with our current path: have 5% of my paycheck automatically direct-deposited into our savings account (something I set up last month); split my freelance income 50/50 between saving and paying off debt; and continuing to make at least somewhat more than the minimum payment on our credit cards. (We don’t have a set amount that we’ve committed to paying above the minimum, so usually  I round up to a number that seems significant in relation to the minimum payment itself. E.g. if the minimum is $25, I’ll pay $50; if the minimum is $160, I’ll pay $200. Actually, committing to a specific “minimum above the minimum,” such as 25% more, might not be a bad strategy.)

And, because it would be an extremely boring post if it was all about money stuff, I have to end on a different note: I have some new ideas for how to tie a couple of my freelance projects together and take them in a somewhat new direction that I’d love to explore… stay tuned!


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