House Buying Part 3 - Parental Advice

After determining that this house thing might actually be possible, and obtaining a general understanding of how houses work, my next step was to talk to the people who I assume know everything…my parents.

My (retired) parents live about an hour away in a lovely farmhouse on a huge field. Basically, they live in the place and house that I wish I could live in, but can’t because there aren’t many jobs in the country. Gathering my financial information and the sum of my research, I headed out to their home for dinner – and a little consultation. After a delicious meal of pot roast, potatoes, green beans, and salad (why do moms always make way too much food when people come over for dinner?), I pulled out my papers and brought up the idea.

The Conversation:

I started by telling them that I wasn’t sure if this was something I was ready to do, but I wanted their input on the financial situation, as well as the practical aspects of owning versus renting.

My dad highlighted the difference as being a lifestyle choice. He told me that in terms of cost, the two things are similar – a house involves repairs and maintenance, all of which costs money. It’s impossible to really predict the cost…you could pay very little or quite a bit, depending on chance, but overall it averages out. The difference, according to my dad, is that owning a house makes you responsible for upkeep. You have to maintain the lawn, the structure, and the integrity of the building. You can be creative and flexible with your furnishings, but are responsible for their upkeep. If you don’t want a lot of work, he said, don’t buy a house. Then again, if you enjoy the feeling of ownership and the pride of a job well done…a house is for you.

I liked this advice. I genuinely enjoy a lot of yard-tasks (I actually miss shoveling snow!), and I like fixing things myself. I’m the person who wants to own the DVD instead of streaming it, own the book instead of borrowing it, and fix the leak in my room myself without waiting for anybody.

They also emphasized the importance of re-sale. Location, they said, was critical – I would want a neighborhood with long-term value, not too close to the city (Detroit – not a good place), and not on top of the freeway or a main road. They also stressed the important of getting a three bedroom house, and avoiding trilevels and bilevels for the purpose of selling the house later.

The Finances: My parents were more hesitant about the financial side of things. They told me that I wasn’t really any worse off than they were when they bought their first house…but that age had taught them caution. My mom said she really couldn’t advise me not to try to buy property now – since I wouldn’t exactly be saving very much after all of my apartment costs (particularly with rent increasing by at least $100/mo when my lease is up) – but she’d recommend a larger down payment and more emergency money if at all possible. But if that wasn’t possible…well, she figured it was a toss up, but I could probably manage it if I really wanted to (and really watched my spending for a while).

My Thoughts: I chewed on this information for about a week, and couldn’t really make up my mind what to do. I started tossing around the idea of trying to find a roommate, but I didn’t really want that…I either want to live alone or with a significant other in a permanent partnership (even scarier than buying a house!)…I’m done with roommates. Unless they’re of the feline variety. Then I tossed around the idea of getting a second job, but I didn’t want that either. Then I spent some time on Zillow and thought that if I bought a house in a less-than-ideal location (closer to Detroit but still in safe neighborhood), I could definitely afford it…but resale would be harder.

Magical Phone Call:

I was walking to the grocery store after work on a Thursday, enjoying the fall sunshine in the lull before the darkness of winter begin, intending to pick up some apples. I was cheerfully oblivious to all thoughts of houses, apartments, rent, mortgages, or anything else, instead paying attention to the red leaves, warm sun, and great music playing through my headphones…and then my phone rang.

“Hello?” I said, pausing the music and lifting the phone to my ear without checking the caller ID.

“Hey, Jess?” my mom asked. “Do you have a few minutes?”

“Sure. I’m just out taking a walk.”

“Your dad and I were talking, and you know your sister is selling her house, right?”

“...yes…”

“Well, what you may not know is that we actually loaned her the money to buy that house. It was a good investment for us, because we barely make anything on our retirement investments with the interest rate being what it is. We basically sold it to her on a land contract, and she’s been paying us every month instead of the mortgage company. Since she’s selling her house, we will be getting all of our money back and were wondering if you’d be interested in a similar arrangement.”

“…are you serious?” I struggled to process this.

“Yes. We could lend you a maximum of $200,000 – preferably more like $180,000 – and the house would be in your name. You would have to show proof of homeowners insurance and tax payments, and would pay us the current market interest rate – I think it’s around 4% right now – for five years. Then we would update the interest rate to whatever it is in 2022. The advantage is that if something disastrous happens, you can skip a payment if you absolutely have to, and we’ll make a lot more interest on our money than we would otherwise. 4% is also probably less interest than you would pay on a loan, since you’re young and don’t have much credit yet. We’ve actually done this for two of your siblings now. What do you think?”

“Well…that sounds awesome. I don’t know though, are you sure you don’t need that money?” I have something of an independent streak and wasn’t sure I liked the idea of help.

“It would help us, actually. We’d be getting your payments every month on top of the social security, so it’d be easier to budget. Plus, like I said, we’ll make more money on it in the long run.”

“It sounds great,” I said. “I’ve been thinking, and I definitely want to buy instead of rent; I just hadn’t ironed out exactly how or when that could happen.”

And with that, I established that I would be obtaining a personal loan (see the part 2 post) at 4% interest with an arm of five years. The process had begun!