So here’s the thing about being a first-time home buyer. You make mistakes–or at least I did. Not huge irreparable mistakes–but mistakes. And so today, since my wounds are still raw, I thought it would be a good idea to share some of those mistakes with you all here so that you all don’t make the same ones. There is SO much that goes into buying a home, and you put your faith in so many different folks–from the real-estate agents, to the lenders, and the escrow peeps and the insurance dudes–that something is bound to go awry somewhere along the way. But it’s all good, it’s all part of the process…so today, I’m gonna talk to you about our first big flub. (In case you’re new here, and haven’t been following along, I’m documenting my experience of becoming a first-time home-buyer with the online real-estate site, Trulia. And in order for this post to make sense, you may want to catch up a bit on this post about how I got pre-approved for a loan, and this post on actually finding our dream jungalow.)
So, the basic gist of our flub-up? We should have gotten a loan for the full appraisal (and loan approval) amount of $590,000. You see, I was so excited about the fact that we were getting the house for less than our offer, that it didn’t occur to me to take out a loan for more money than the house cost. I didn’t even realize what a mess-up that was until last week, when I found myself at the bank feeling very confused, a bit embarrassed and really bummed.
Now I should probably preface this by saying that (in case it’s not already painfully obvious) I’m pretty ignorant when it comes to this whole credit schtick. I didn’t have any student loans (I went to school in-state, my parents helped me out, I worked and I was on scholarship, too). And right after college I moved to Italy and stayed for seven years. I had never had a real credit card until I got back to the U.S. and I was almost 30. So, I spent the last six years building up enough credit to be able to qualify for a loan–no easy feat when you’re a freelancer with a short credit history, and your looking for a house post subprime mortgage crisis.
Now that you understand just how late to the party I was, let’s get back to the bank. So here I am sitting across from this not-so-friendly banker thinking, I own a house now! I can get a loan because I own a house. I always hear people saying things like ‘take a loan out against the house’ so I am thinking, ‘Perfect. We’ll take out a $20,000 loan to redo the horrible galley kitchen, fix the sewage and do the termite stuff.”
Well, much to my dismay, I quickly (and not-so kindly) discovered that just because I have the keys in my hand to our new pad, doesn’t mean I can take a loan out against the house. After actually welling up at the bank (so embarrassing I was totally PMSsing…) I learned that I can’t get a loan against the house until at least six months has passed of paying mortgage. I didn’t have enough ‘equity’ in the home, even though we put down 20%. Such. A. Bummer. Everyone was like “Oh, yeah, you should have borrowed more when you bought the house to pay for the updates.” Oy. If someone told me that during the home-buying process than I wasn’t listening.
So, where there is a will there is a way. The not-so-friendly banker suggested that I try and raise my credit limit on my credit card in order to help pay for the house updates. It’s pretty complicated because not all home-improvement folks accept credit card as payment so we have to shuffle our money around, live off the credit cards while we use our actual money to pay our contractor and the other kind fellows who are helping to fix up our house. But, it’s a way to get the updates done before we move on July 1st, so we are basically doing the best we can with our stupid mistake. I was also kicking myself for not doing more research to prevent silly things like that from happening. Especially when there was help right under my nose on the super helpful Trulia blog where there is a whole section on Money Matters that addresses issues just like these, from Credit Lessons to The 10 most important questions to ask your Lender, or even post like: What You Need To Know About Home Improvements and Taxes–which you better believe I’ve read about five times already. So much helpful stuff. Anyway, you live you learn, right?
So, yes. The above image is of the kitchen as it looks right now (remember how it looked before?). I’ll be sharing an update on that soon, including what tile we finally decided on! We’re living off credit cards but our kitchen is now an open space as opposed to a horrible galley kitchen and it’s gonna be amazing :D
*I’m documenting our entire journey of becoming first-time home owners in partnership with the online real-estate site, Trulia. Catch up on all the posts here.
Zoe says
Oh, that makes my stomach turn. Glad it will work out alright, and know that at the very least this is not something I’ll forget now and I’m sure that’s true for lots of folks x
Sandrine says
In French we say “only those who do nothing make no mistakes”. There is no house buying without small (or big) issues. In a year you’ll be laughing about it.
Gabrielle Mader says
Hi Justina! I started following you since you’ve been on board with World Market, I’m an ambassador but I’m starting to feel out of my league..with all the new people coming in. Anyways…I LOVE old homes..bungalow, tudors, anything with a history…I’ve shared my journey on my blog too (we bought our cottage 4 years ago on Cinco de Mayo} but it’s slow going for us…I live in Whittier on the Orange county/Los Angeles county border. I frequently stalk old homes and put them up on my blog….I would love to stalk yours..I love your style I look forward to following your Jungalow by the river to see you transform it.
Justina says
Thanks Gabrielle! Welcome to the Jungalow ;)
Marty says
Hmm, maybe a short term mistake. Your mortgage payment goes on for thirty years but the credit card debt can be paid off much quicker and so overall you pay less interest even though the rates are higher up front. What you pay total is what you need to consider not just ease of credit. You’ll be fine in a few years and can laugh over this trauma. My hint: put in far more electric outlets in your kitchen than you can possibly use today and you won’t be sorry. Good luck
Justina says
great advice! Thank you Marty!
carswell says
There’s always something when it comes to banks and home buying – especially if you’re doing anything other than the conventional buy and move in.
My former partner and I bought a fixer upper (that’s being kind) and did indeed borrow a substantial sum on top of the actual mortgage to do the work. We were tearing down a poorly built 1/2 story addition, laying foundation on that side and rebuilding two floors to match the original part of the building. We were gutting the interior and doing all new electric, plumbing and drywall.
So – you would think that once we took possession and started making payments we could just draw on the extra funds as we needed them.
Nope. The bank would not let us do that (why not is a complete mystery and we couldn’t get a straight answer out of anyone) but they generously offered us a $5000 line of credit.
Ummm what????!!!! We borrowed $40,000 on top of the mortgage. $5000 will barely get the foundation dug and layer – and then what????? It’s not as though they didn’t know this was the plan all along.
In the end we actually got a line of credit at another institutions (which annoyed the heck out of me because we were paying interest on the $40K we’d borrowed from the first one even though we couldn’t access it) and now were going to be paying interest on the credit line. As soon as we got our occupancy permit the first bank released the funds and we paid out the line of credit – but boy – you sure learn some lessons along the way about how banks operate.
Frustrating to say the least.
Justina says
Oh my goodness! That’s terrible! I’m so sorry you had to go through that, but yes, at least we’re learning along the way. In situations like these it’s best tolook on the bright side!
carswell says
It was a pain to go through – and gave me enough ranting about the vagaries of banks stories for a lifetime – but in the end it didn’t hold us up which was the main thing.
My point though was that it’s easy enough to find yourself in a position you weren’t expecting through no fault of your own. You figure that banks and other professionals will walk you through the process and advise you accordingly – but that doesn’t always happen.
Ya just gotta make the best of it. My biggest problem is that this is my “forever house” and I can’t make good use of all that I learned on the next one. LOL.
Amy says
I have to say thank you for putting your mistakes out there. As someone who had never carried debt before (in state college with parental help!) other than a credit card that I was easily paying down, jumping into a mortgage at 35 was a big, painful step and I was unprepared. My mistake? Getting an FHA loan and now I may be stuck with mortgage insurance I can’t get rid of. I’m just getting to the point where I may be able to dump it if it’s allowed. Beating myself up about this? Yes. Trying to look on the good side of things? You bet. Best of luck!
Jess says
My understanding is that the only way you can get rid of PMI on an FHA loan is to refinance, and you will have to have the equity to do that. Good luck, I hope it happens for you.
Amy says
Oh man, the thought or trying to refinance fills me with dread. Thanks for the good thoughts!
Yaling says
We also made lots of mistakes when we bought our first house. We also bought a fixer-upper (we had too much confident that we could do it after watching too many HGTV shows:-) The whole house remolding project became my full-time job and consumed all my time, energy and money.
One of the biggest mistakes we made was hiring a friend’s father as the contractor. At the beginning, we thought having someone we knew would be better since it’s our first time remolding a house and had no experience working with a contractor. WRONG!!! It ended up delaying our project for a very long time because we couldn’t rush him. Also, it’s hard to negotiate prices with a friend. We ended up overpaying for many things.
So, for our current home, we only hire contractors that have good reputations and people we don’t know personally. We learned our lesson!
Justina says
great lessons and advice! Sometimes it’s better to work with strangers!!
joanna // jojotastic says
first, hang in there, lady! and second… as someone even just remotely considering buying a home soon i really appreciate your candor and level of detail when talking about the process. your realness is seriously SO appreciated as i start thinking about dipping my toes into this scary, scary water. xo!
Justina says
Great to hear that you’re finding the posts helpful!! xoxo and good luck! Ig’s scary but you just gotta kinda dive in…
Caitlin says
Oh Justina, that sucks!!! But thank you for being so brave and helpful by sharing your first flub! I sort of messed up my first house too, I kind of rushed into it because I was excited to be getting married and to become an “adult” and then took a significant paycut because I was miserable at my job and we’ve been stuck in this house for almost five years not able to afford any improvements! I am dying for a little refresh at least!
I think it could be a good thing you don’t have that much more mortgage debt at the moment and I know in the end your home will be SPECTACULAR – so just keep reminding yourself of that :) Good luck and we’ll be right here when you need to vent!
Justina says
Awww thank Caitlin. Not being able to make the changes you want on the home must be so frustrating, but still probably not half as bad at staying at a job you hate, right? I think you made the right choice. There are so many little things you can do while you’re waiting to afford the bigger things.
Benissa Alvidrez says
I totally understand what your going through but I really feel your agent should of adviced you more in detail thats what they are paid to do!!!
Sarah says
Hi Justine, I’m fairly new to reading your blog but now I’m even more interested in your story than I was before. This is because instead of keeping your mistakes to yourself, you’ve decided to show your human side in order to help others and to show that it’s okay to be human and to not know everything! I’ve had so many of these moments myself. Hang in there. The remodel is going to be terrific!
celine@aquahaus says
You are so rad for sharing this process with us! Get it girl!
Jac says
Be careful putting expenses on CC. Interest rate may be incredibly high. Live without expensive door handles, lighting, painting, decorative items, etc. They can all wait.
Antonella says
I second Jac here. Better to wait than spend on a credit card! The interests will kill you, please be careful!
Shavonda says
Man o man am I glad I read this. Our situation isn’t the same as yours, but its still very helpful. Our first house was an FHA loan with all kinds of first time homeowners credits. We ended up with mortgage insurance, and extra fees like mandatory flood insurance, school tax, etc. But the house was practically brand new and didn’t NEED any updates. We knew it was our “foot in the door” to the real estate market and only planned to live there for a few years before moving on. Fast forward to where we are now and we are currently in our second home, so no special credits, but we bought a home that cost less than what we sold our previous house for, got into a conventional loan and paid 20% down. The issue we are having now is that this house is older and is a bit of a fixer upper in that we need to add on a bedroom and bathroom as well as make some updates. Im always so confused about what we can do to pay for these things. I mean.. Do we take out a line of credit? Do we take out an equity loan? Do we scrimp and save til we can pay in cash? Its all so confusing. I imagine doing an addition is gonna cost some pretty good money, but we are so wary to pile on debt when were in a good place right now. The money part of owning a home is the pits! Thanks so much for sharing.
Jeffrey says
After reading this post I feel like you are living my life 12 years ago. When we purchased our 100-year old former restaurant-bar/home, we were told by the mortgage broker that they were adding our construction funds into our mortgage. Isn’t that great?
When we needed the funds, after lots of demolition, we were told by the bank that it was a “bridge” loan. I asked what is a bridge loan and the banker said, “as you pay for renovations, we will pay you back the funds you spend. ” Now isn’t that typical banker speak? We borrowed extra money because we didn’t have the extra money, and then we need to spend more to get the money back?
So in the end we did just as you, cash on hand and a lot of C.C.
Good luck with your project and congrats.
aprilneverends says
Hi Justina! Your house now looks much like ours) but ours is more torn apart or so it seems) But there are good things:
a) you actually already have much more understanding of the finances in the process. I’m,for example, pretty much as dumb as I was, because my husband happens to be so smart in all this, and he deals with all this credit and bank and etc. stuff which makes my brain foggy, and that’s how I try to understand but still stay pretty ignorant.
BTW it’s my fourth house (and third “forever” house. lol. ). And you, being the first time buyer, already know much more than me. And knowledge, as my mom used to tell me, is the only thing that can’t be taken from us))
b) it took us three or four month even to look for and find a contractor, because we were in such state of initial after-purchase shock)) Another couple of months to understand what we want/can/should. Then blueprints, permits, etc.
We bought last September-the remodel started last week. So.You’re doing good. You’re fast. And you seem like a pretty fearless person. And I think your remodel (house itself, contractors, everybody involved) will benefit from it tremendously.
c) I could’ve put it shorter-respect! And of course plenty of good luck. It will be beautiful!
Alison Gilbert says
Justina! You didn’t make a mistake…. not really. You cannot get a mortgage for more than the sale price, banks don’t let you borrow more than what you are paying for the home – even if it appraises for more and even if you are paying less than the asking price. It is not possible. I get these questions ALL the time – people want to borrow more than their mortgage amount so they have the funds for renovations.
There is one sort of loan product that allows for this type of thing it is called a 201k FHA loan -this is where in addition to your mortgage amount you can borrow money for construction costs, but it is a very difficult process and requires a lot of oversight and is difficult to qualify for. . .
In terms of borrowing against the house immediately after you purchase the home – yes you have to wait at least 6 months and then you have to refinance and get another appraisal – if the home appraises for more than you paid and you have substantially more equity than when you purchased, you could qualify for a HELOC (Home Equity Line of Credit) but it is unlikely that after only 6 months you would even get to this point – unless you had done substantial renovations already (the market is great… but not that great!).
I cannot believe your agent and/or lender did not tell you these things during the purchase process?!!? We should have worked together . . . ;)
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