The One with the First Home
We bought a home! ... And then, we un-bought a home. Although my blog draft on January 24 started with that same sentence, I never saw the second one coming.
Buying a home is the single most exciting and horrifying thing I've done. I imagine the second occurrence of this excitement and anxiousness to be when I'm going into labor with my first baby; you're overwhelmed with joy, but scared how the baby will get from in here to out there — you know what I'm sayin'. Moms tell me the process and explain how it feels but I'll never know until I experience it for myself.
Here's an abridged timeline:
Jan 16: Home is listed for sale, we tour twice, and make an offer
Jan 17: Sellers negotiate with us for 24 hours and accept our offer
Jan 22: We pay an earnest deposit to the title company
Jan 23: We sign our mortgage loan paperwork
Jan 29: Home is inspected, negotiated, and terms accepted
Jan 30: Home appraisal is scheduled but could take two weeks
Feb 2: We learn home is in a flood plain and need flood insurance, put appraisal on hold
Feb 5: We learn what flood insurance costs, what it means for resale and begin backing out
Feb 6: We learn we've signed binding paperwork and may be forced into litigation
Feb 7: We send an addendum asking for a release from contract, the sellers accept, we're free
So what did this really look like?
Essentially, we toured three homes on January 16 using their street names for reference — and they all had what I lovingly referred to as old people names: Burt, Garfield, and Gertie. Burt was a split-level that was low in our budget but going to require too much work to bring it up to acceptable code. (My dad is a contractor.) Garfield was an old cottage that we were going to outgrow too soon. And Gertie was an old lady that was well-maintained and well-loved by its owners for 44 years.
Gertie was a brick exterior so it was well insulated. It had a new roof, new windows, new furnace and water heater. It didn't have the ideal kitchen cabinets, bathroom, flooring, or paint colors, but we knew those were minor cosmetic changes. So we made a full offer.
It's worth noting we felt like God was calling us to this house. The owners couldn't close for 2 months, we're in a lease for 5. The husband and wife were retired and their decor reminded us of our grandparents. The wife was a teacher, Ty's a teacher. There was a work room in the basement, my dad's always had a work room in the basement. And we felt like Finny would love that yard — not to mention the St. Bernard two doors down.
After some negotiating, the sellers accepted and we celebrated bigly that weekend.
We looked forward to the inspection and appraisal to come and started dreaming of all the options to turn this house into a home. Painted kitchen cabinets and new hardware. New tile and vanity in the bathrooms. A movie projector and party basement. New shutters and a fresh coat of paint for the front door. All things that would cost money, sure, but nothing that would break the bank.
Nothing huge was found in the inspection so we ordered the appraisal and started looking into insurance options. Our home insurance premium came in below what we estimated making our monthly mortgage lower and we. were. pumped.
On Friday, February 2 Luke-the-Loan-Guy, as we affectionately call him, gave me a call to inform us Gertie was in a flood plain. "OK, cool. So we need to get flood insurance or something?" To which he responded, "Yeahhh, it's actually a pretty big deal. You may want to look into it a little more, but you'll need to sign some paperwork for the government and get a separate insurance policy."
I enjoyed the weekend and dug into it on Monday. I texted my brother and sister-in-law something like, "We have to get flood insurance, blegh." And then I learned what it all meant.
This is going to get a little nitty gritty into flood insurance stuff but I feel like everyone should know because I sure didn't and I don't want this to happen to anyone else.
Talk to me about flood insurance.
FEMA is the Federal Emergency Management Agency. In this story, they're the bad guys that turn out to be good in the end but for awhile you hate them and wish they weren't a part of the story. Like Professor Snape in Harry Potter — people are still debating if he's bad or good. I raise you one and ask you to tell me if FEMA is bad or good. But I digress.
The National Flood Insurance Program aims to reduce the impact of flooding on private and public structures. It does so by providing affordable insurance to property owners...
When you own a home you should have homeowners insurance. You don't have to but you should because duh. If this home is in a flood plain and you do not have a loan for it, you are not required to have flood insurance.
If this home is in a flood plain and you're financing it through a loan, it is a federal law that you must have flood insurance, most often provided by FEMA. There are workarounds to not going through FEMA but that's more headache than it's worth.
Going through FEMA means the rate is set. If Farmer's Insurance gives you a quote for flood insurance, it will be the same rate as Geico, State Farm, Progressive, etc. etc. etc. This is because they didn't set the rate, they accessed it through FEMA by typing in your flood zone type and address. I'm sure there's more to it than that but the fact of the matter is, there's no way around it.
This doesn't seem like a big deal.
It is. Your homeowners insurance will be a set amount dependent on the size of home and type of materials used to build it. Your flood insurance will be roughly that same amount or more depending again on where you're located in the flood plain and what type of home you have. Luke-the-Loan-Guy told us he was surprised at how low our estimate was. But it blew us out of the water. Not only does that annual premium price divide into your monthly mortgage, but you also have to pay a full year's premium at closing of the house because insurance works one year in advance.
That doesn't seem that bad.
It gets worse. According to my boss, FEMA raises the rate every year and can mail you a letter at any point in time notifying you that your rate was raised. We were not about to deal with that -ish, let alone cut into our savings that much more to pay up-front at closing.
So how'd we get out of it?
Honestly, it was scary. We signed our contract. We paid an earnest deposit. We paid for our inspection. We ordered our appraisal. We saw only a handful of options ahead:
- We try to back out and potentially lose $1,200 in the deposit, inspection and appraisal.
- We try to back out and potentially go into litigation since we already signed the paperwork.
- We go through with buying the house as planned, add flood insurance and deal with the costs.
None of those options sounded fun so we panicked. $1,200 is a lot to lose when you're on a tight budget and trying to buy a house. Going into litigation is scarier because you don't even know what that means. Will we be sued? Will we pay them $100 per day for every day the house was off the market? Or worse, do we go through the whole thing as planned? Buy the house, be tight on cash, and potentially have a hard time reselling because we're in a flood plain?
Luckily, we had some nice realtors who took care of it for us. They drafted an addendum to our contract with the help of my lawyer sister-in-law. They sat down with the sellers' realtor and explained our situation. And they got us out of it. We lost a little of our deposit for the inspection but will get the rest of the money back. As bummed as we are to back out of the house, we feel extremely lucky and like God took care of it for us.
Here's the important part.
If you're buying a home, check the disclosure. If anything is marked as "I don't know," find out. There's a map online to check for flood plains and there's a website to see past sales and appraisals for that address. Use your resources before jumping in to anything. Ask your realtor, ask your Luke-the-loan-guy, ask your home-owning boss. Your husband, your lawyer sister-in-law, your contractor dad, your architect brother. Someone has been through it before you and is willing to help. Get their input and decide if the home is still for you or not.
And if not, get the heck out. We'll miss you, Gertie — you old lady.