Amber and her husband purchased a home in 2012 using a USDA Rural Development Loan.
What I Learned From Buying My Home
people found Amber's experience helpful.
My husband and I had no real plans to buy a home. My mother's farm had a spare house, and we were quite content there. My family had always assumed that I would inherit the farm someday. Until that time, I was happy to send my mother $600 a month as rent for the farmhouse. However, when my Dad passed away, everything changed overnight. My mother started selling parcels of the farm to fund her lifestyle. By 2011, it was clear that she intended to sell the farmhouse we were living in.
Since my husband and I had never planned for this eventuality, we had very little to put towards a new home. We were young, only just beginning to save for retirement, and the little bit we did have was tied up in a 401K. We considered renting a home in a nearby city while we saved money, but in our area, median rent is much higher than the average house payment. Many landlords were asking for $1,000 to $1,200 a month for a one-bedroom studio. Meanwhile, the housing market was circling the drain – you could buy a three- or four-bedroom home and spend only $400 to $600 dollars a month.
With those numbers, renting just didn't make sense. I was heartbroken at the idea of losing my childhood home, but we had little other choice. We started shopping for a home.
Working Without a Realtor
My home-buying experience was definitely an adventure. My husband and I decided to go it alone. For months, we spent our evenings poring over classifieds and comparing online listings on our laptops. On the weekends, we drove around looking for real estate signs. After some shopping, we picked a bank and got a loan pre-approval letter for $80,000. We finally found a house we liked, and after negotiating with the owner, settled on a price of $60,000.
We learned that pre-approval letters are not guarantees of financing. We provided the bank with the information about the home we wanted. They informed us that we “could” qualify for “up-to” $80,000. Actually, for that particular home, we could qualify for only $50,000. We didn't have the money to make up the difference and the deal fell through.
Our New Real Estate Agent Changed Everything
We were at a loss as to what to do next. We had been house hunting since August 2011, and by February 2012 we were no further than when we had started. The mother of my husband’s best friend was a real estate agent. Even though my husband hadn't seen her since he was in high school, he gave her a call for some advice.
She rolled into action, becoming our buyer's agent instead of just answering a few questions. The next morning, we received an email packed with home listings that we had never seen in any classified section or on any website. She included a list of insurance agents, home inspectors, and contractors whom she had worked with before. She set up showings, and continually sent us a stream of new listings. For a month, we traveled everywhere, looking at homes. As we looked, our new real estate agent watched us. She took note of the things we loved about certain houses, and what we hated about others.
On March 9, she found our dream home. Once we set food on the property, my husband and I never questioned whether or not we would buy this house. Instead, the arguments were about which room would be his game room, and where I would set up my office. As we explored the house and property, our agent stood at the kitchen counter, drafting an offer for $65,000.
The Mortgage Application Process
In our travels, our real estate agent put us in touch with our mortgage broker. We knew that with no down payment, it is tough to get financing. Our broker didn't see this as an obstacle. He offered us a USDA Rural Development loan, which is a product with very low fixed-rate interest, no down payment, and the ability to roll in closing costs.
However, to qualify for this loan we had to go through a financial examination unlike any other. My husband and I submitted employment verification forms proving how much money we made and how long we had been working at our jobs, and our bosses had to sign a form guaranteeing we would continue to be employed for another six months at least. Our bank accounts and assets were put under a microscope. Any last little monetary windfall needed to be documented. In one such instance, my husband received a $50 check from his grandmother as a birthday present. He had to write up a statement explaining why his grandmother would give him money.
How We Nearly Lost Our Mortgage Deal
One day in April, as I was driving to work, a tree fell on my car. I remember a loud snap, and seeing the tree angle towards me as I tried to steer away and stop at the same time. Then there was a loud “Bang!” and I woke up a few moments later to a totaled car.
My husband and I had to rent a car, and the daily rental fees started eating away at what little money we could put towards the house. I told our mortgage broker that we needed to buy a new car, but he said we couldn't do that. “The insurance company,” he explained, “will take weeks to pay off the balance on the totaled car while you add yet another loan to your credit history.” That would make our debt-to-income ratio look bad, putting our mortgage deal in jeopardy. I argued that car rental fees would leave us with nothing to pay for the appraisal, inspectors, or other fees that would crop up. Our broker said he would see what he could do.
An hour later, he called me back with a plan. Why not have my husband buy the house, while I buy the car? My husband's credit and employment history were good enough that he could qualify for the mortgage with me as a co-signer, freeing up my credit for the new car loan. Relieved, we went car-shopping immediately after work.
Waiting, Waiting and More Waiting
April was a blur. To satisfy the USDA's underwriters, we had to have every expert you can imagine look at the house. Appraisers, inspectors, engineers, and exterminators all visited, wrote reports, and took our money. When we weren't packing our belongings, we were faxing some new piece of information to our mortgage broker. Finally, he told us that the underwriters had submitted the loan for approval, and we would close on the house on May 15.
Near the end of April, our broker called me with bad news. The USDA, he explained, was getting behind on loan processing. Our loan wouldn't be processed in time for closing, so we needed to push the date back. As we waited for USDA approval, the closing date had to be extended three times. The last time, the owners of our dream home said they would not agree to another extension. If we didn't close on the final extension date, June 20, they would refuse to deal with us and put the house back up on the market.
My husband and I were devastated. All of the hopes we had built around this house lay in the hands of the USDA.
On June 12, our mortgage broker called. “Do you need to borrow my truck to move your stuff?” he asked. I remember stuttering because I had no idea what he was talking about. While he laughed at my confusion, it dawned on me – the loan had finally been approved, three and a half months after we submitted the first offer.
The Things We Would Do Differently
If I could go back in time, I would not have taken on as much debt prior to buying a home. Some debts are good – you need to build a credit history to have a good credit score. However, when it became apparent that we needed to buy a home, my husband and I were saddled with car payments, credit cards that we had planned to pay off in the next two years, and student loans. If we had avoided credit card debt, the tree that totaled our car wouldn't have been such a big problem. We could have financed another car while keeping our debt-to-income ratio low.
The other mistake was assuming we didn't need to work with a real estate agent. We started shopping for a home in August 2011, and we didn't get involved with our agent until February 2012. As far as I'm concerned, that was seven months that my husband and I wasted as we learned how to make offers and negotiate pitfalls. Once our agent got involved, she streamlined the shopping process, walked us through each complicated step, and put us in touch with all the right professionals, including our mortgage broker, the inspectors, insurance agents, and more.
My Advice for You
If you're buying a home, do what it takes to save up that down payment. If you rent, cut down on expenses and increase your savings, even if that means finding a cheap rental. If you own your home, work to increase its value so you can use any profit towards the purchase of a new home. If my husband and I could have put forward even 10 percent towards this house, we could have avoided the USDA loan and all the hassles that came with it.
Whether you're a buyer or seller, be patient. Our real estate agent and our mortgage broker were the only two people involved in the purchase of our home who understood the amount of time a home sale can take. The sellers were incredibly impatient, which nearly cost us this house. While my husband and I waited for the loan to be approved, we spent countless hours online, reading home-buying horror stories to prepare for the worst. You will save yourself many sleepless nights if you understand that months could pass between the date of the first offer and closing day.