I got word that the Seller of the condo unit on which I made an offer just got approved under the Home Affordable Foreclosure Alternatives (HAFA) program. According to this article, HAFA is "[a]imed at borrowers who are underwater on their mortgages and who've been denied a modification via HAMP [Home Affordable Modification program]... The program pays cash to both the borrower and lender to encourage a short sale, a deal in which the bank accepts the proceeds of the home sale as full repayment of the mortgage debt, forgiving any loss." Supposedly, the Seller will be getting $3,000 if this deal goes through.
Assuming that the Seller's agent is telling the truth, she resubmitted the short sale approval paperwork on Tuesday. The Seller's agent also claims that the short sale lender's own negotiator is recommending my offer. I've been told to expect a response in the next 30 - 45 days.
I guess I shouldn't presume that the short sale approval will be forthcoming, but I have to admit, I have. In order to temper my expectations, I've been reading blogs like this one, which is forecasting another significant price correction in the California housing market.
Friday, September 16, 2011
Sunday, September 11, 2011
Stiffing Bank of Mom and Dad
I previously wrote that my Snowball Plan will come to a screeching halt now that I'm purchasing a condo. In actuality, I've just revised my Snowball Plan, yet again, to include my anticipated new debts: my mortgage and the down payment lent to me by Bank of Mom.
Come 10/31/2011, my debts will look something like this:
Based upon these estimates, here's my new Snowball Plan ver. 3.0.
I know that the "real" Snowball Plan requires me too pay off my debts in the order of the smallest balance to the largest. I do plan to pay off my smallest debt first, but I'll also be snowflaking $4,000/year to my Bank of Mom debt.
Some would argue that the $4k/year snowflake should be applied to my student loans instead of to Bank of Mom. But I feel that Bank of Mom deserves the not-so-insignificant snowflaking since she was generous enough to lend me the money interest-free. Additionally, my mom's 69. God knows how much longer she'll live. She got a relatively clean bill of health recently so I'm thinking that she'll be good for at least another 10 years. Hence, my goal is to pay off Bank of Mom in 10 years. I guess I should also be prepared to make a balloon payment for the balance in the event my mom's health deteriorates prematurely. The bottom line is, I intend to take my debt to Bank of Mom seriously and will treat it no differently than any other debt to a "real" creditor.
I'm going to switch gears now and I'm going to engage in some catty gossip. My best friend recently confided to me that she and her husband also "borrowed" approximately $20,000 from the husband's parents for their down payment. It's been 8 years and they've paid back $0.00 so far. In the mean time, they've taken vacations, bought a new car and made improvements to their house. My BFF claims she feels guilty for stiffing the in-laws, but not guilty enough to initiate a repayment plan. My BFF further feels that it's her husband's responsibility to make the repayment arrangements since they are his parents.
I'm appalled at my friend's cavalier attitude about how she and her husband are stiffing Bank of Mom and Dad. I guess since her in-laws haven't said a "peep" about being repaid, perhaps the in-laws intended to "gift" the money. Either way, the issue has been swept under the rug and no one is dealing with it.
I'm a bit disappointed with my friend. No matter how you slice it, she and her husband are deadbeats. They're deadbeats because they're stiffing their family members on a significant sum. Even assuming that the in-laws were willing to gift the money, my friend and her husband are deadbeats since they didn't pay taxes on the non-exempt portion of the amount that was gifted to them.
I wonder if the in-laws have forgotten about the "loan"? Or I wonder if it will always stay in the back of their minds that their kid and his wife stiffed them?
Come 10/31/2011, my debts will look something like this:
| 10/31/11 | Fed'l Sub'd Student Loan | $ 50,558.49 | @ 5.125% | Fixed |
|
| Mortgage | $ 274,000.00 | @ 3.875% | Fixed |
|
| Down Payment | $ 68,500.00 | @ 0.000% | Fixed |
|
| TOTAL | $ 393,058.49 |
|
|
Based upon these estimates, here's my new Snowball Plan ver. 3.0.
I know that the "real" Snowball Plan requires me too pay off my debts in the order of the smallest balance to the largest. I do plan to pay off my smallest debt first, but I'll also be snowflaking $4,000/year to my Bank of Mom debt.
Some would argue that the $4k/year snowflake should be applied to my student loans instead of to Bank of Mom. But I feel that Bank of Mom deserves the not-so-insignificant snowflaking since she was generous enough to lend me the money interest-free. Additionally, my mom's 69. God knows how much longer she'll live. She got a relatively clean bill of health recently so I'm thinking that she'll be good for at least another 10 years. Hence, my goal is to pay off Bank of Mom in 10 years. I guess I should also be prepared to make a balloon payment for the balance in the event my mom's health deteriorates prematurely. The bottom line is, I intend to take my debt to Bank of Mom seriously and will treat it no differently than any other debt to a "real" creditor.
I'm going to switch gears now and I'm going to engage in some catty gossip. My best friend recently confided to me that she and her husband also "borrowed" approximately $20,000 from the husband's parents for their down payment. It's been 8 years and they've paid back $0.00 so far. In the mean time, they've taken vacations, bought a new car and made improvements to their house. My BFF claims she feels guilty for stiffing the in-laws, but not guilty enough to initiate a repayment plan. My BFF further feels that it's her husband's responsibility to make the repayment arrangements since they are his parents.
I'm appalled at my friend's cavalier attitude about how she and her husband are stiffing Bank of Mom and Dad. I guess since her in-laws haven't said a "peep" about being repaid, perhaps the in-laws intended to "gift" the money. Either way, the issue has been swept under the rug and no one is dealing with it.
I'm a bit disappointed with my friend. No matter how you slice it, she and her husband are deadbeats. They're deadbeats because they're stiffing their family members on a significant sum. Even assuming that the in-laws were willing to gift the money, my friend and her husband are deadbeats since they didn't pay taxes on the non-exempt portion of the amount that was gifted to them.
I wonder if the in-laws have forgotten about the "loan"? Or I wonder if it will always stay in the back of their minds that their kid and his wife stiffed them?
Saturday, September 3, 2011
August 2011 Progress Report
My focus on my personal finances took a serious nose-dive after I paid off my private student loans in March. Paying off my private student loans literally free'd-up $900/month in my budget and I started living the "good life." I stopped paying attention to my spending and spent money like it grew on trees. I'm happy to say that with $900/month in discretionary spending, I didn't get myself into any trouble. But I really hadn't saved much and I hadn't significantly paid down my $50k+ federal student loans either.
MY DEBT
In light of the fact that I've decided to buy a condo, my debt snowball will come to a screeching halt. Rather than putting the extra money towards paying down my student loans, I've decided to "invest" it in real estate. Only time will tell whether this is a good financial move on my part or not.
SAVINGS
The savings I report here is with respect to my emergency fund only and does not include my future spending earmarks. The increase in the chart above does not represent an actual increase in my savings. I merely shifted money from my unreported earmarks to my EF. I figure I'll need more $ in my EF since my housing budget will likely double in the next couple of months.
In case you were wondering, my unreported earmark fund is down from $10.8k in June to $4,765 currently. This makes me a bit nervous.
MY "X"-FUND
My "X"-Fund represents a part of a windfall that I had originally set aside either as an emergency fund or a down-payment for my first home. Either way, it's money that I didn't intend to touch unless it's for an emergency or for reinvestment purposes.
In February 2011, my X-Fund had $28,573.36. I used approximately $26,319 in March to pay off my private student loans. It left me with only about $2,254.58, but I slowly built the balance back up to $5,898.14 by July. In July, I sold a bunch of my company stock, liquidated one of my Roth IRA accounts and shifted some of my earmark money to my X-Fund which explains the sudden $13k+ jump.
I anticipate this fund will be exhausted in October on closing costs and home improvements.
MY ROP (LIFE INS) FUND
Long story short, I'm pretending to pay myself an additional $55/month for a "hypothetical" return of premium (ROP) term life insurance policy. I'm basically trying to "earn" back the term life insurance premiums through savings and investments.
Considering I saved $55 last month and my gain was only $36.26, I guess I lost money on my investments. But who didn't in August?
MY NET WORTH
August was a brutal month for my 401k, IRAs and other investments. It could've been worse, though. I didn't suffer as big a loss as I could have since I liquidated a bunch of my company stocks and one of my Roth IRA account at the end of July in anticipation of buying my first home.
The breakdown and the history of my net worth can be seen here.
MY DEBT
|
| Starting Debt (6/08) | Last Month | This Month | DIFFERENCE |
| Private SL | $49,528.99 | $0.00 | $0.00 | $(0.00) |
| Fed'l SL | $55,852.68 | $50,965.88 | $50,834.65 | $(131.23) |
| Car Loan
| $9,779.33 | $0.00 | $0.00 | $(0.00) |
| CC
| $13,610.75 | $0.00 | $0.00 | $(0.00) |
| TOTAL
| $128,771.75 | $50,965.88 | $50,834.65 | $(131.23) |
In light of the fact that I've decided to buy a condo, my debt snowball will come to a screeching halt. Rather than putting the extra money towards paying down my student loans, I've decided to "invest" it in real estate. Only time will tell whether this is a good financial move on my part or not.
SAVINGS
| LAST MONTH | THIS MONTH | DIFFERENCE |
| $10,324.10 | $13,834.42 | +$3,510.32 |
The savings I report here is with respect to my emergency fund only and does not include my future spending earmarks. The increase in the chart above does not represent an actual increase in my savings. I merely shifted money from my unreported earmarks to my EF. I figure I'll need more $ in my EF since my housing budget will likely double in the next couple of months.
In case you were wondering, my unreported earmark fund is down from $10.8k in June to $4,765 currently. This makes me a bit nervous.
MY "X"-FUND
| LAST MONTH | THIS MONTH | DIFFERENCE |
| $5,898.14 | $19,369.56 | +$13,471.42 |
My "X"-Fund represents a part of a windfall that I had originally set aside either as an emergency fund or a down-payment for my first home. Either way, it's money that I didn't intend to touch unless it's for an emergency or for reinvestment purposes.
In February 2011, my X-Fund had $28,573.36. I used approximately $26,319 in March to pay off my private student loans. It left me with only about $2,254.58, but I slowly built the balance back up to $5,898.14 by July. In July, I sold a bunch of my company stock, liquidated one of my Roth IRA accounts and shifted some of my earmark money to my X-Fund which explains the sudden $13k+ jump.
I anticipate this fund will be exhausted in October on closing costs and home improvements.
MY ROP (LIFE INS) FUND
| LAST MONTH
| THIS MONTH | DIFFERENCE |
| $1,478.27 | $1,514.53 | +$36.26 |
Long story short, I'm pretending to pay myself an additional $55/month for a "hypothetical" return of premium (ROP) term life insurance policy. I'm basically trying to "earn" back the term life insurance premiums through savings and investments.
Considering I saved $55 last month and my gain was only $36.26, I guess I lost money on my investments. But who didn't in August?
MY NET WORTH
| LAST MONTH | THIS MONTH | DIFFERENCE |
| $187,411.16 | $186,209.75 | -$1,201.41
|
August was a brutal month for my 401k, IRAs and other investments. It could've been worse, though. I didn't suffer as big a loss as I could have since I liquidated a bunch of my company stocks and one of my Roth IRA account at the end of July in anticipation of buying my first home.
The breakdown and the history of my net worth can be seen here.
Short Sale Approval Is Supposedly Coming Next Week
I just got word from my agent that the seller submitted her final approval paper work for the short sale along with a recommendation from the short-sale lender's negotiator. The short sale is expected to be approved some time next week with an anticipated closing date of 10/10/11. I requested that the closing date be pushed back to 10/31/11. I haven't heard back from my agent so I'm not sure whether my request will be honored or whether it will jeopardize the deal.
Anyhow, here's my new monthly housing budget, assuming the short sale is approved:
Mortgage (P&I): $1,289 @ 3.88% interest (3 disc pts)
Assoc Fee: $320
Property Tax: $343 (est.)
Payback Mom: $225
Insurance: $45
Total: $2,222
My current housing budget is:
Rent: $1,175
Renters Insurance: $20
Total: $1,195
Difference: $1,027/month+
Anyhow, here's my new monthly housing budget, assuming the short sale is approved:
Mortgage (P&I): $1,289 @ 3.88% interest (3 disc pts)
Assoc Fee: $320
Property Tax: $343 (est.)
Payback Mom: $225
Insurance: $45
Total: $2,222
My current housing budget is:
Rent: $1,175
Renters Insurance: $20
Total: $1,195
Difference: $1,027/month+
Wednesday, August 24, 2011
Maybe I Shouldn't Have Countered
Hmmmm... No response from the short sale lender after we put our counter-to-their-counter in writing. Is it possible that the delay is caused by a new boss at BofA's troubled mortgage servicing department?
I initially thought BofA's lack of an immediate response as a sign that it's crunching numbers to decide whether to accept our counter. I would think that if BofA was planning to stand firm, it wouldn't have asked for a written counter and just rejected us verbally. But now I'm wondering if BofA is entertaining other offers right now? Am I being cheated on???? Surely they've read the most recent bad news in the San Diego housing market, right?
I don't deal with uncertainty in my personal life too well. I dwell and obsess. Maybe that's why I've never been married and am still single. Hmph.
I guess I need to think about the bright side - - the longer this is drawn out, the better, because my apartment lease doesn't end until November 3o, 2011. If we had a sales contract now, we'd probably close by the end of September, leaving me with double housing payments (rent + mortgage) for two months.
And perhaps I just need to remind myself that if this doesn't go through I'll still be okay...
I initially thought BofA's lack of an immediate response as a sign that it's crunching numbers to decide whether to accept our counter. I would think that if BofA was planning to stand firm, it wouldn't have asked for a written counter and just rejected us verbally. But now I'm wondering if BofA is entertaining other offers right now? Am I being cheated on???? Surely they've read the most recent bad news in the San Diego housing market, right?
I don't deal with uncertainty in my personal life too well. I dwell and obsess. Maybe that's why I've never been married and am still single. Hmph.
I guess I need to think about the bright side - - the longer this is drawn out, the better, because my apartment lease doesn't end until November 3o, 2011. If we had a sales contract now, we'd probably close by the end of September, leaving me with double housing payments (rent + mortgage) for two months.
And perhaps I just need to remind myself that if this doesn't go through I'll still be okay...
Saturday, August 20, 2011
Counter Offer
I'm not exactly thrilled with my agent. When the short sale lender countered at $375,000, I was expecting my agent to discuss with me viable arguments with which we can counter. But instead, my agent's attitude was, "comps are comps." It was almost as if "comps" were gospel and irrefutable. W T F?? The only advice I got was an unscientific/unproven hypothesis that a short sale lender will likely accept an amount that equals 95% of its counter.
Fine. I decided I'll play them at their own game. I carefully examined the comps. As I previously noted, the "comps" weren't exactly comparable to my unit. When I pointed these out, my agent responded, "Those are all cosmetic. At most, it will get you a $10,000 discount."
Okaaaay. I then looked at the numbers.
I thought the last argument about the recent market dive could be irrelevant. But according to the WSJ article titled, New Round of Upheaval Reduces Home Buyers' Urgency to Do a Deal (Note: click on top search result to get full article), many buyers are actually reducing their offers because of the market dive. Maybe it wasn't superfluous at all.
My agent verbally conveyed our counter on Thursday to the short sale negotiator (whose fee I agreed to pay if this deal went through). Yesterday, the short sale lender requested that we put our offer in writing.
Will the short sale lender accept? Or will they counter? I'm on pins and needles.
Fine. I decided I'll play them at their own game. I carefully examined the comps. As I previously noted, the "comps" weren't exactly comparable to my unit. When I pointed these out, my agent responded, "Those are all cosmetic. At most, it will get you a $10,000 discount."
Okaaaay. I then looked at the numbers.
- Comp #1 (a 1185 sq. ft. unit) closed escrow on 7/15/11 for $410,000.
- Comp #2 (a 997 sq. ft. unit) closed escrow on 6/10/11 for $375,000.
- Comp #3 (a 997 sq. ft. unit) closed escrow on 3/8/11 for $367,500.
After careful consideration, please counter with $342,500. My unit does not include upgrades and appliances of the other comps such as newer carpet, paint, hardwood floors, kitchen appliances and washer/dryer. I believe that the upgrade/appliance/repair allowance is valued at $10,000+.
The price per sq ft of one of the comps was $345.99 (i.e., $410k div. 1185 sq ft). Using that price, I've calculated: $345.99 x 1019 sq ft = $352,562 - $10,000 = $342,564.
The short sale lender based its counter on June/July comps, but I think it's worthwhile to point out that the stock market took a significant dive in August, which has reduced the net wealth of many potential buyers, including myself. I imagine that other buyers' purchasing abilities have been similarly affected.
I thought the last argument about the recent market dive could be irrelevant. But according to the WSJ article titled, New Round of Upheaval Reduces Home Buyers' Urgency to Do a Deal (Note: click on top search result to get full article), many buyers are actually reducing their offers because of the market dive. Maybe it wasn't superfluous at all.
My agent verbally conveyed our counter on Thursday to the short sale negotiator (whose fee I agreed to pay if this deal went through). Yesterday, the short sale lender requested that we put our offer in writing.
Will the short sale lender accept? Or will they counter? I'm on pins and needles.
Wednesday, August 17, 2011
The Short Sale Lender Countered - And I'm Not Happy
I just got word that the short sale lender countered... $46k above my offer. The counter was based upon comps of recent sales in the development.
But comps are a peculiar thing - - they're not necessarily apples-to-apples comparisons. First of all, the "comps" conveyed with a fridge, washer and dryer (approx value $3k) and my unit would not. The other unit had wood floors (kitchen and bath), newer carpet and range/oven/dishwasher upgrades. So even without taking the condition of my unit into consideration, there should be a discount.
I've asked my agent whether I can look at the property again. After all, I suspect that there are issues with the unit that I didn't catch the first time around, like a leaky toilet that the seller tried to hide with towels.
I learned that the seller owes approximately $450,000 on the unit. The short sale lender wants $375,000. My agent says that with her experience, a short sale lender would more likely than not accept a counter that equals approximately 95% of the approved amount. In other words, my agent estimates that the bank would be hard-pressed to reject a counter of $356,250.
I'm having a hard time right now separating out emotions and sound financial judgment. My bank has already pre-approved me for the full $375,000 amount. And if I can seal the deal now, I can get a mortgage at 3.75% APR (with 3 discount points).
I can make the payments, but I'll be seriously house poor. And I'm not sure whether the home is worth $356,000 to $375,000. Based upon the sale prices of comparable units from 1989, it looks like the home values are back to what they were in 2003. But if you look at the graph below, 2003 was in the beginning stages of the housing bubble.
Of all the properties that are on the market right now, I like this unit the best for the intangibles -- a south facing patio/windows, a "walkable" location, beautiful landscaping, etc. But... I'll also be paying a premium for these intangibles.
I have until Thursday to make up my mind. I'm not sure whether I should walk or buy.
But comps are a peculiar thing - - they're not necessarily apples-to-apples comparisons. First of all, the "comps" conveyed with a fridge, washer and dryer (approx value $3k) and my unit would not. The other unit had wood floors (kitchen and bath), newer carpet and range/oven/dishwasher upgrades. So even without taking the condition of my unit into consideration, there should be a discount.
I've asked my agent whether I can look at the property again. After all, I suspect that there are issues with the unit that I didn't catch the first time around, like a leaky toilet that the seller tried to hide with towels.
I learned that the seller owes approximately $450,000 on the unit. The short sale lender wants $375,000. My agent says that with her experience, a short sale lender would more likely than not accept a counter that equals approximately 95% of the approved amount. In other words, my agent estimates that the bank would be hard-pressed to reject a counter of $356,250.
I'm having a hard time right now separating out emotions and sound financial judgment. My bank has already pre-approved me for the full $375,000 amount. And if I can seal the deal now, I can get a mortgage at 3.75% APR (with 3 discount points).
I can make the payments, but I'll be seriously house poor. And I'm not sure whether the home is worth $356,000 to $375,000. Based upon the sale prices of comparable units from 1989, it looks like the home values are back to what they were in 2003. But if you look at the graph below, 2003 was in the beginning stages of the housing bubble.
Of all the properties that are on the market right now, I like this unit the best for the intangibles -- a south facing patio/windows, a "walkable" location, beautiful landscaping, etc. But... I'll also be paying a premium for these intangibles.
I have until Thursday to make up my mind. I'm not sure whether I should walk or buy.
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