When I asked for a mortgage pre-approval the bank advised me to first find a house that I like, and then get back to them to prepare a pre-approval letter for the exact amount that I was going to offer. At the time I took the advice seriously, but now I can finally laugh with them at my ingenuity.
My idea of buying a house was that it is a slow process that works roughly as follows. First, you get pre-approved. Then you go to open houses, and you start making offers. If one is accepted you have a house inspection. Depending on the results, you go back to the negotiating table. After that is done, you get your mortgage, and finally you get the property. In a few years, you have made a lot of money.
This idea is completely wrong, and not only in the area where I have been looking.
First, if you need a mortgage you are already in big, big trouble. Most of the decent houses are bought for cash, even if another offer with a mortgage goes a lot higher. With a mortgage you only have access to a limited pool of problematic properties that nobody wants.
Second, the process is extremely fast. If you would like to sleep over it, the house will remain your dream house. Sales occur days or even hours after the listing is posted.
Third, if you need an inspection you are also already in trouble. Perhaps you worry a little about structural damage, asbestos, termites, radon gas, or an oil tank or other toxic waste buried in the yard? Then perhaps you should not be on the market. And don’t even think about lead paint, not to mention cell towers beaming right into your bedroom (more about this later on this blog). And if you ask to bring an inspector at the open house the answer is “no — we don’t want the inspector to disturb other potential buyers.” If you really want an expert opinion, short of becoming an inspector yourself your only option seems to be to bring an inspector in incognito. Someone who pretends to be your sibling by engaging in casual conversation on how that picture over there looks just like that common ancestor of yours, but then later whispers to you estimates for repairing the water-pump they spotted in a corner of the basement.
A good model for today’s buyer seems to be that of a derelict in a toxic wasteland who by chance suddenly becomes billionaire and so decides to buy real estate in various “hot spots” of which they know nothing, just in case they happen to be there one day.
Here is how the only offer I made went. First, there was absolutely no way to visit the property before the open house. And at the open house, after one hour the seller’s broker announces that bids close in thirty minutes. I actually scrambled together an offer. So hastily this was done that in hindsight I am very thankful that the seller did not even want to talk to us, despite the fact that we went over the asking price by 20%.
I have heard many calculations of the money you supposedly save by buying a house with a mortgage instead of renting. But all of these seem to omit an important point. Even if you do get the house, you will have to pay a lot more than if you had cash.