Erin and David Walk Into a Home and Buy It
by Tony Chavira
One day, Erin was searching Zillow and found a house she liked. She and her husband, David, decided that they would give it a look. They went through the home, saw that it fit their criteria, and said “This is it. We want to buy this home.” The next day, they made an offer. And seven weeks later they moved in.
It was that simple. And they only moved in for the price of their inspection.
David and Erin were originally from Oregon, but had lived in far-off countries at different points in their lives. When they met each other, Erin had just returned from New Zealand and David was working steadily after finishing his duty in the Navy. After they married, they rented an apartment in Salem while working for an emerging e-commerce company. Slowly but surely their job responsibilities expanded to the point where they assumed they would stay in Salem. For two people who were perfectly comfortable getting up and moving to any part of the world, this was a huge decision.
Their whirlwind approval process seems striking when compared to my other first time homebuyer stories. What made their situation different?
First, their circumstances. They were both young and working full-time jobs. Their credit scores were extremely high. And the restored 1930s home in a historical area of Salem was going to cost them around $150,000.
Second, because David was a veteran, they were able to use the Department of Veterans Affairs Loan Guaranty Service. This was created in the 1940s to cope with the crippling combination of a struggling World War 2 veteran community and the government’s inability to affect the way banks provided credit to veterans who could not immediately get jobs upon returning home. In part, the program was meant to serve as a kind of bonus for veterans. Since it would likely have bankrupted the stressed 1944 U.S. government to hand out cash bonuses to everyone who did their service, the Loan Guaranty seemed like a fair deal. Besides, many World War 2 veterans were young men who hadn’t been given the opportunity to establish credit beacuse they’d immediately gone into the military when they came of age.
The Loan Guaranty Service works like this: when a veteran wants to buy a home, the VA does an inspection of the space, to make sure that it’s worth the selling price and that the homebuyer won’t have to spend a ton of cash for renovations. They then provides the homebuyer with a Loan Guaranty Letter, which guarantees that if the homebuyer defaults on their mortgage payments, the VA then will take ownership of the home. They can then resell it on the open market to whomever they want, veteran or not.
Naturally, this deal works pretty well for banks, which have no real risk. It also works out pretty well for veterans, though they still need to apply for a loan through regular channels and still need to get approved like everyone else. It can even work out well for the VA, who may make a profit on the sale of the home. As the current guaranty limit is $417,000 in the lower 48 states and $625,000 in Alaska, Hawaii and the South Pacific, the risks are not seen as so dramatic that the program runs the risk of being cut from the government budget.
With their credit scores established and VA Loan Guaranty in place, Erin and David got a great mortgage rate and moved in within the month. Their home still needed some repairs, which the owners dealt with before Erin and David moved in. Some of the rooms were in need of renovation, others were awkwardly space-planned, and the fireplace was wrongly advertised as functional. But overall, it’s a great place and they’ve put a lot of effort into making it work for them.
The thing is, Erin and David have an interesting perspective on buying a home which Reid (subject of a previous story in this series) also found to be true. When approaching the idea of buying a home, Erin and David stuck to this plan: “Don’t buy more house than you need.” Properties are cheap and easy to come by around Salem, but they have friends who bought more than they needed and either defaulted or are struggling. Others bought older homes and immediately leveraged their equity to pull out a loan for a massive renovation. But Erin and David know that their home is fine as they bought it. It has a roof that keeps out the rain, strong floors and proper insulation. Water, gas and electricity run through it properly. It’s only a mile or so away from their work. And it holds all of their stuff. Ultimately, isn’t that what it’s supposed to do?
Yes, they would like to renovate the bathroom and the kitchen. They want to redo some of the rooms for guests, and later for their children. But they have no illusions about how much that will cost, and they do not view their home as sn bank. It is a home, and they want to live in it. They worked hard and earned it, and now they want to enjoy it without the fear of struggling to cover gigantic monthly payments.
Next week, we’ll focus on a couple in Massachusetts who also bought as much home as they could afford ... in fact, maybe a little less than they could afford.