The Money

When my wife and I began to consider purchasing our first home, we made a close inspection of our financial situation to see what, if anything, we could afford. Our major concern was that I had zero credit history. Because of this, we were afraid that we would have to spend a few years building credit and saving money. 

While prudence and good sense would’ve stopped me at that point and said, “Oh dear, I suppose we’ll have to revisit this idea in a few years,” I refused to admit defeat. Instead, I hit the books (the eBooks, more accurately) and started looking for ways to make buying a home work for us. I literally spent weeks sitting around trying to find the perfect balance between closing cash and monthly payments, but no matter what I learned, it seemed that my unripe credit score was our biggest obstacle.

At that point, the quest stood upon the edge of a knife. If we strayed but a little, it would fail to the ruin of all, yet hope remained while company was true. I decided in a final desperate attempt, that I would venture through the Black Gate to my first Visa card. While I heard that one does not simply walk into a decent credit score after two months of building credit, I had destiny on my side. To my surprise, my score immediately shot up to a more than adequate number.

I suddenly saw a chain of events similar to the Rube Goldberg-like game, Mouse Trap, unfolding before me: if everything went as planned, the cheese would be mine. There are many lenders who participate in one or two of the first-time home buyer programs, but only a few who provide them all. My interest was in maximum flexibility, as I wasn’t sure which program would be best for us. Eventually I contacted both a lender from Homestreet Bank, and a lender from Umpqua Bank. 

While unconventional, I requested that both lenders answer my list of questions over email. I chose to communicate via email because it allowed me to formulate all of my questions fully, without having to worry about a hard sell or forgetting something important. I also wanted documented answers from each lender so I could compare their programs side-by-side. I stated all of these reasons openly in my email, but both lenders tried to call me right away instead (instant fail). However, within half an hour, I had an email from the Homestreet lender answering all of my questions, and providing a list of documents I would need to provide in order to continue the process. The lender from Umpqua did eventually reply to me, but her reply was simply to say that she’d be happy to answer my questions in-person, while completely ignoring the long, itemized list of questions that I had already sent her (double fail).

I called the lender from Homestreet right away and set up an appointment to discuss my options and submit paperwork. Within that same week, I met with her, and she told me that instead of the precarious Rube Goldberg device I had expected, my plan was actually a prudent, responsible means for financing my first home. She looked over my documents and told me that she’d contact me within a week to let me know how much we could qualify for. It ended up taking two weeks, but when we received the news it was very, very good.

I'll skip details about the exact numbers, but I'll definitely lay out our financial scheme. I've spoken with several friends and acquaintances about either their home buying plans or their recent purchases, and I wasn't surprised that none of them have heard of all of the programs that are out there for first time buyers. While the programs are readily available, I had to research an unseemly amount of difficult-to-read government websites in order to put all of it together.

The foundation of our loan rests on an alternative credit score compiled by the underwriting department of Homestreet bank. I know that I cleverly manipulated an allusion to Lord of the Rings  earlier in order to create a humorous exposition about my credit score; I made it seem like that number was the "One Ring" that made the whole loan process possible. And in a sense, it was. I wouldn't have felt comfortable going to the bank without it. However, it ended up being useless because my score was so new. Instead, I gave Homestreet the names and numbers of my employer, landlords, utility companies, and insurance companies, and they determined that I do indeed have a long-standing history of paying my bills on time, which meant that I was able to qualify for the rest of the loan products.

The body of the loan is a regular old FHA Loan. The Federal Housing Administration doesn't lend the money, they just insure the loan. With the FHA's insurance, only 3.5% of the purchase price is required as a down payment, rather than the 10-20% required in a conventional loan. While that puts a down payment more within our reach, there are other costs involved. Because the lender is only requiring 3.5% down payment, they charge an extra mortgage insurance on top of the monthly payment. This mortgage insurance is charged up until the home owner reaches about 20% equity, at which point it can be ended.

On top of the FHA Loan, we've been approved to take advantage of the Oregon Bond Rate Advantage Loan. In the Oregon Bond loan, the state steps in and issues a revenue bond to fund our mortgage at below-market interest rates. While I do understand what that means, when I try to explain it, all that comes from my mouth is a low groaning noise. What it means for our mortgage is that we get locked in at a 3.5% interest rate on a 30-year, fixed-rate loan. Tubular is an understatement. The catch is that should we desire to sell our home within the first seven years, we'd be required to pay back a portion of the investment, which has a parabolic percentage curve that peaks in the fifth year.

The frosting on the cake has been graciously donated by Clackamas County, through whose help we plan to receive $10,000 in assistance with our down payment and closing costs. The CHAP, or Clackamas Homebuyer Assistance Program as it's known to the acronym-adverse, requires that we attend an 8-hour first-time homebuyer seminar and an orientation class, after which we receive yet another shiny government product. It's really a second loan with 0% interest and no payments due, unless we sell the house in the first ten years. If we need to sell early, the loan is immediately due in full. After ten years, though, the debt is forgiven entirely.

None of the above products are meant for investors or people who want to move within a short period of time. The incentives and penalties are specifically designed to keep people in the same home for a decade or more, which suits Lindsay and I just fine. We'll keep the state and county happy with our commerce and taxes, and I really hope that we'll be able to integrate into our neighborhood and become functioning parts of our community. We're really aiming for a low, stable monthly mortgage payment that should stay within our means under most circumstances, and these products are designed to give us just that.

With our confidence in the power of good in Middle Earth restored, we even plucked up the courage to start talking to a real estate agent. We met with her over the weekend and now have a date next Friday to visit our favorite listings. This Saturday, we'll be attending our 8-hour class for CHAP, and we have the orientation next Wednesday. Just today we got our pre-approval letter, which means the underwriters at Homestreet have officially approved our loan, and all we have to do is go out there and buy something. From what seemed like a hopeless situation a couple of months ago, a tangible future has emerged, and we're so excited I think our heads might explode.

I'll be writing soon to reflect on our first outing with our real estate agent, and hopefully I'll have some pictures of the houses we visit.