Michelle and Erick Set Their House In Order
by Tony Chavira
For a few years, Michelle, Erick and their young daughter rented a home through a family friend and saved as much money as they could to buy a home in Southern California. When Michelle became pregnant with their second child, they knew that the time had come to really begin searching.
Despite feeling a bit naïve about homebuying, they fearlessly jumped right in. They knew they’d have to work within their budget, but they had children to consider. Some locations simply would not be safe enough to raise a family.
A relative recommended a property manager and they started hunting right away. But after three bids were rejected, they began to notice that the property manager only recommended places that neither of them were interested in seeing. He really shot himself in the back when they put money down on a place in Fontana in 2008. Though they were approved and began the paperwork, he became increasingly pushy about them closing the deal. Nervous about approaching the next step and unclear about how to move forward, Erick and Michelle decided to pull out and let the home go back onto the open market. A couple of days later it was reposted with a $40,000 price reduction. At that point it became totally clear: the manager simply did not have their best interests in mind.
Jumping to another, more knowledgeable agent, they were finally given a proper list of things to do. By outlining their credit history, banking history, current financial situation, and the positives and negatives of their current credit score, their new agent was able to provide a roadmap for applying for mortgages to get the kind of home they wanted. It turned out that they’d be ideal candidates for the Federal Housing Assistance (FHA) program. Their accountant, who knew how to turn a deal into an investment, also recommended the program as the best way forward. With these two professional recommendations, Erick and Michelle decided to move forward with the FHA paperwork.
The FHA mortgage loan program ended up being both a curse and a blessing. Though the paperwork was considerable and approvals infrequent, the mandatory FHA inspection process ended up being invaluable. Erick and Michelle’s budget was limited, which would usually mean that their options were limited as well. If they wanted a low-maintenance home, they might have to live in a marginal neighborhood. If they wanted something in a nicer neighborhood, they’d probably have to find a home that needed a lot of work, and maybe even another loan to bring make it alivable. Had they applied for a conventional mortgage, they would have been trapped with those options.
The FHA program was developed to avoid that kind of decision, though in order for the purchase to be FHA-approved, they would have to achieve a very good credit score—they had been working on theirs for years—and find a home that met a certain standard of quality, further limiting their choices. But they would only have to come up with 3.5% down, which is great if you’re a responsible homeowner with a steady job. Michelle, despite being a stay-at-home mom, had her own in-house salon and party planning company while Erick worked as a business analyst for a major health care provider.
They went house-hunting at least twice a week for several months, visiting home after home and struggling to find a good place in a good neighborhood at a good rate. They would be the first to admit that they should have done a little more research before they first began looking. They wasted a lot of time either looking at places that weren’t right or simply setting their expectations too high. And some houses they couldn’t even see; their agent would stop short of entering. The first time this happened, they asked her why, and she responded plainly: the home’s in a shambles, the interior is filthy, and there are homeless people squatting inside.
As Trevor discovered in a previous article, being patient is a pain in the ass. Michelle and Erick found that this was especially true with short sale homes in their price range, which take a notoriously long time to close. They’re called “short” because the banks come up short once the home’s sold, since the property sells for less money than the original homeowner’s loans were worth. These days, short sales are only set up to threaten the original homeowners into renegotiating their payments or re-evaluating their mortgages. In Michelle and Erick’s case, dealing with a short sale meant waiting indefinitely for homes that would be “for sale” one day and “off the market” the next.
Michelle and Erick’s place
They found the little house (with a huge back yard) they purchased in Ontario, California after a deal fell apart on another home they really wanted. As if it were meant to be, an FHA inspector had just approved the Ontario house, which had been an investor-owned property, fully maintained and kept up to code. There was only one catch (which they discovered after they bought the place: the investor had been using the property to store leftover bricks. Hundreds of them had been buried under the dirt in their backyard.
But after a 30 day escrow (and a year and a half of trying), they were handed the keys to their first home and moved in. With their two kids, including a ridiculously cute baby boy.
Unlike buyers in my previous articles, Michelle and Erick had another, equally important bit of research. They had very young children and needed to make sure they lived as far as possible from someone on the list of registered sex offenders. Though many who have completed their sentences are rehabilitated, when you have children you simply cannot take chances. They were sure to check the neighborhood before touring each home. But shortly after moving into their new house, a neighbor came to them with a flier. Having thought they had taken every precaution, they were shaken to discover that their next door neighbor was on a different offenders list, one that wasn’t required to be placed on the Internet.
Once they did the research, it turned out that his convictions were a bit vague, but it still left them both uneasy with being friendly with the man, who they already felt was strange. One thing was for sure, though: they wanted to let him know that they knew. So one day, Michelle waited with the kids at home as Erick walked next door to approach the man on his front lawn. He was clearly uncomfortable, but invited Erick into his home and sat him down on the couch. His story about how the charges got on his record was interesting and creative, but it didn’t negate the fact that Erick and Michelle were not comfortable with him spending any time near them or their children. Their neighbor been relatively respectful of their privacy.
Michelle and Erick don’t plan on moving any time soon, but as long as everyone plays by the rules, everything should be all right. You can’t catch everything, no matter how much research you do ahead of time, but it was frustrating for Erick and Michelle to finally find their ideal home, then discover that they had no control over the one thing they worried about most.
Next week, we will focus on a couple in Arizona who watched as their house and investment plans were drastically affected by the wide economic swings of the past five years.