Buying Our House, Part III: An Offer Doesn't Mean You're Done

Part I and Part II here.

So when we last left off, we had made a formal offer. The house was on the market for $235,000. We offered $205,000. The sellers countered with $215,000. We counter-offered with $210,000 and within two hours, they had accepted. We set a 60 day closing  period (30 - 60 days is pretty normal and we wanted a long closing because Dr. BB's mom was ill during all of this and we thought longer was better - you do what works for you).  All of the communication was being done through the realtors, so Dr. BB and I were anxiously sitting with our phones waiting for texts from our realtor during this process.  Yay!

I naively thought that we were done. Little did I know that there were still plenty of steps left in the home buying process during which the deal could fall through.

Earnest Money
First up, we had to pay "earnest money." That is basically money held by the title company during the deal itself.  It basically tells the sellers that the buyers are serious about the contract - that we, as buyers, weren't going to keep looking around for a better deal during the time that the contract was being finalized. If the deal does go through, earnest money is used to cover down payment and closing costs.  If the deal falls through, if it's not the buyer's fault, the buyer still gets their money back in full. We had 72 hours (or something like that) to get $10,000 to the title company for earnest money after we signed the $210,000 offer.

Then, there was a concern that despite the pre-approval, the bank could deny us financing. Our credit union required very little from us, but here is the list.

1) We had to complete a form called the "Escrow Option Form" that basically said we'd escrow taxes and insurance.  Escrow is basically a separate account that a little bit from your mortgage payment goes to each month to cover homeowners insurance and property taxes. I am not sure if you are legally allowed to buy land with a loan in the United States without escrow.  We esigned this form. With the exception of the very first formal offer on the house we made sitting around a table, everything we did was esigned.  Very convenient.

2) Copy of our most recent paystubs

3) Copy of our previous years W2s

4) A copy of our homeowners insurance and paid receipt for a full year

5) A copy of home inspection report

The first three were easy, but the last two items required more work on our part.

Homeowners Insurance
We needed to provide proof of insurance roughly three weeks before closing. We looked at a bunch of places and filled out various online forms (that took FOREVER) to get quotes.  I'm looking back at my records and it looks like we looked at State Farm (because it had been our current renters and automobile insurance carrier at the time), Prudential (through Navy Federal Credit Union because it was recommended to us), and a local independent agency in the town we were buying. The local agency was literally half the price and it gets comparable Yelp reviews, so we went ahead and did this.  This "research" process for homeowners insurance was probably the most time intensive part of the entire home buying process, I kid you not. If we had looked at more homes, maybe I couldn't say this, but we faffed about with insurance companies for a long time.  Be prepared.

We also switched our auto insurance at the time same time, but that's a separate post.

There was a slight problem when I had to do the final purchasing of the insurance without Dr. BB because he had to go back to Iowa (sick mom), but the insurance guy was able to esign for Dr. BB, so yay!  I had to write a check for the full amount of insurance (that gets tucked away in escrow). It was $505 for the year.

Inspection Report
Inspectors were crazy busy during the time we needed one!  I used one recommended by our realtor (turns out I probably should not have done this and used one I found independently, but I didn't know that at the time, so feel free to lecture me in the comments) and he was really the only one who could do it in a timely manner.  It cost $375 for his standard rate for a home our size, plus we paid $125 for a radon test because, well, I guess people do radon tests?  Anyway, we met the inspector and our realtor at the house one morning (during the week - I don't know how people with 9 to 5 jobs do all this) and it took us about three or three and a half hours to do the inspection. It was interesting and I learned a lot (including that there is indeed knob and tube* wiring in our house and that vermiculite insulation might make finishing our attic a challenge). The inspector took a bunch of photos during the inspection and put it all into an electronic report that we were then able to send to the bank.

The inspector actually did note some things that weren't up to code in the electric and plumbing work and essentially we stipulated that those things had to be fixed before we would close.  The sellers agreed to this.

Meanwhile, What's the Bank Doing?
While of this is going on, we're getting stuff to esign for the bank. Most of it is literally the same documents over and over again with slight changes. These forms are a loan estimate (there was an error once that we caught, so we did look at it fairly carefully), acknowledgement of loan estimate (lol), interest rate agreement, and escrow agreement. Over and over. By looking over my emails, I estimate we signed these things 10 - 12 times.

So I guess they're getting all this stuff organized, checking our credit, and all that. They're also getting the house appraised.

Lenders use third-parties to obtain unbiased estimate of the true (or fair market) value of what a home is worth.  Appraisers use all kinds of things to determine this estimate, including using comparable properties, information on the housing market, and the condition of the property. All lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home's market value and ensure that the amount of money requested by the borrower is appropriate.

The appraisal for our house came in at $205,000, which was $5000 less than our price (and, incidentally, our starting offer).  While I panicked a bit, our realtor was excited for us. Good news!  The sellers will have to come down to the appraised price.  And, after some haggling (at one point, I literally asked our realtor if the sellers were going to walk over $5000), they did come down to the appraised price.  Yes, I think the house is worth more than that. Yes, I think that the appraisers used some ridiculous comps of shitty modern construction in less desirable neighborhoods.  Yes, I feel kind of bad for the sellers. No, I am not sad at all that we paid less than we thought we were going to.

So once we got all this to the bank, the appraisal was done, we esigned one more document locking our interest rate in place, and our loan went to underwriting, a process I don't really understand, and then we waited. 

I know I said this was going to be a three-part series, but I lied! I think there are two more installments left. Come back next week for more rambling.  I swear that this will someday be useful to someone buying a house for the first time.  


*There are A LOT of horror stories online about how getting houses with knob and tube wiring insured is hard. I mentioned it to our insurance agent and he shrugged.  "It's been there for a hundred years without a fire. Can't imagine it's going to be a problem."