When we started the process of looking for a house we had no clue how much work it would take just to get a house once we found what we wanted. We knew that contract signing could be a hassle with bidding and counterbidding but the real hassles came in the form of securing our loan and getting the house approved by the appraiser.
Philip and I have always been cash people. Literally every purchase we have ever made in our 25 years has been with cash (or debit card). When I say everything, I mean it: cars, clothes, furniture, all our photography equipment (that amount alone is the tens of thousands), gas, groceries, trip overseas… you get the idea. Both sets of our parents taught us that if you can’t pay for it, you don’t need it. AKA save until you can afford it. Neither of us had ever had a credit card in our name either. So at the age of 25 we both have college degrees, Philip went through grad school, we have a very profitable business, two cars and we had absolutely zero debit and a large amount in savings. We couldn’t be happier. We had steady income and there was no financial burden over us. BUT with the living off cash method had one major downfall, we also had no credit history. So while we paid all our bills on time (rent, utilities, phone, internet, health insurance, car insurance, butt loads of business insurance, ect) the world does not show us having a traditional credit history. And that my friends is how you show that you are capable of getting a loan… woh woh
Financially we were in amazing shape, better than most American’s these days but because we were responsible with our purchases the banks were saying we didn’t deserve a loan. Heartbreak people, heartbreak. BUT fear not there is hope for those who are like us and have zero credit history! It’s called an nontraditional credit check. Basically it does check your bank records, call those companies that you make regular large payments to, and ask you to prove that you have the funds available for purchasing and continually paying for your home. You end up giving the bank (or lending agent) access to your entire life. No really they ask you give them access to everything under the sun. The paperwork for this type of credit check is pretty intense and at times it gets really ridiculous. Since we are self employed we had to show some pretty intense paperwork for proof of income. Thankfully we keep records of everything (where my OCDness actually paid off, what what ) and we were able to easily give them everything they requested.
Now why do I share all this? Simple, we had no clue that we would spend weeks shoveling out all our information to get a loan that we knew we could pay for. Here are the things I wish we had known about purchasing a house:
1. We live in a credit world. Even if you don’t believe in purchasing things on credit, you need to establish a credit history early so that when it comes time to purchase something as large as a house you can prove you can. Before you turn 21 getting a credit card is easy; they want you in the credit system early! After 21 it becomes increasingly more difficult to get a credit card and start your credit history. Get a card early but be responsible with it. Really and truly if we both had gotten one credit card when we were in college, put one purchase on it a month, and paid it off at the end of the month we would have been in great shape for securing a loan. I’m not an advocate of credit cards but we live in an economy that is credit based and if you want to make a large purchase one day you have to be part of the system.
2. Keep records of everything! Even if it is a digital copy or bills, keep it stored away and organized. Even with traditional credit checks they will need a large amount of info from you. Have it ready cause they will want it.
3. The paperwork is never ending and at times will be ridiculous. Be prepared to send in something at least once a day for a month.
4. The process is stressful, even for the most prepared. Once we had the bid in on our house it was stress city from bid day to closing day, about a month between the two. Even though we were preapproved for our loan, we could possibly lose our loan and interest rate during the full loan application process (this comes after you have a signed contract on a house)
Now on top of the loan journey we had the journey of purchasing a foreclosure. Entering stage right, the government. Here are a few things we learned along the way in purchasing a foreclose:
1. You can get a ton of house for a great price. When a house goes into foreclosure and is then put back on the market you will not be paying market price for the property. We were going to be paying well below market value for our new place and getting more house (square footage) than we thought we could afford.
2. When the appraiser from the bank appraises your house (to make sure the house is worth the amount you are being lent) they will make sure that the house is in a livable condition. Their idea of livable might be different than your idea.
3. When purchasing a foreclosure you are purchasing a property that is being sold as is. When you make a “normal” house purchase, any problems that the appraiser finds with the condition of the house will fall on the home owner. For a foreclosure purchase the buyer (us in this case) is responsible for any repairs the appraiser deems necessary for move in. If repairs are needed you will pay for these repairs before you even take ownership of the house. So in order to get your loan you have to shell out money for repairs..
In our case thankfully our house was in relatively great condition. All work that needed to be done was for the most part cosmetic. The roof was practically brand new, the HVAC systems were in great shape, no major damage to the structure of the house, the foundation was solid, ect. Some foreclosures are in terrible shape and need MAJOR work to them. We were so grateful that the previous owners took care of the property and didn’t let it completely go to shambles.
We were given a list of repairs that needed to be done before we could close on the house but we were very fortunate that we were already aware of the fixes and we had budgeted for those before we put a bid in. We were a little surprise that some of the “fixes” needed to be done before move in but we had to get them done before the bank would give us our loan.
Phew! That was a lot. I hope that in there there is some information that might be helpful to someone who is like us and lives off a cash system. At one point in the process Philip and I both thought that we would not be able to get a loan and would need to spend the next year or two establishing a credit history. Thankfully we talked with our bank and we found out about the nontraditional credit checks and we got around the system because we had a zero history. Had we just had a low credit score rather than a zero one, we would have been in bad shape. At this stage of the economy the housing lending agencies are pretty much only giving out loans to those with good credit history or those that are able to qualify for a nontraditional credit check. Moral of the story, establish a great credit history or save all your pennies and pay for a house fully in cash, you know like they used to do way back in the day when houses cost about as much as one year of salary…
And that’s all she wrote on that subject. Feel free to ask any questions you might have about our journey. We want to be an open book when it comes to making a purchase like this. As we went through this journey we had no clue how hard it would be. We both agreed that people are not open about the process and that can hurt those who have never been there before. Even though this was our first home purchase we learned a ton during this process and hope to help others!
Cheers,
Savannah and Philip
Oh The Potential 