Mo Mortgage, Mo Problems: a house log

One of the first steps we took when we officially dubbed ourselves “house hunters” was to find out how much house we could afford. Sure, we knew what was in our bank account and what sort of mortgage payment we could handle… but it is not about what we think. It is about what the banks think. So we made an appointment with our lending agent (the same guy who helped us buy & later refinance this house) so he could analyze our assets to estimate what loan amount we will get – which obviously will assist us determine the price range of the new house that we should be hunting for.

We were cautiously optimistic about this appointment. Optimistic because in the years since our first purchase in 2006 we have saved more and now that we are married we knew we could combine our assets (we were engaged in ’06 when we purchased this house, and Sherry was only four months into being self-employed as a freelance copywriter so her income was considered “unstable” and I had to qualify for the house loan all by myself). But although we assumed we had to be in a better position today than we were four and a half years ago with only one income to consider, we still were not doing cartwheels because we know that banks are much more conservative these days. Plus now I am the one who has only been self-employed for a few months. So Sherry can call me unstable this time.

In preparation of our big loan meeting, we gathered old tax forms & W-2s and calculated bank account balances. Then we sat down with our lending guy. His news was not strong. Since I am no longer employed by the company that contributed 75-ish percent of our income in 2009 the banks were not going to count that income since I was no longer with the company. Not one dime of it. Instead, they’d base their approval solely on income from our current jobs (i.e. this journal) from the 2009 tax year. Without naming numbers, let us simply say that made us look less like two people who’d been working full-time for 6 years, and more like one person who simply landed their first job after graduation. Crap.

Our lending agent said that in order to get this year’s journal income considered (which is not a ton, but is certainly more than our ’09 earnings) we’d have to wait until our 2010 taxes officially hit the books next spring.

Cue the womp-womp sound effect.

But simply as we were about to mentally put our house hunt on hold, we got some good news. Despite the income issue, our good credit and our on-time mortgage payment history with our current house could still get us approved for a loan equivalent to the value of our current house. Good, except that buying a house of the same value does not necessarily get us that smidge of extra square footage that we think will come in handy in the coming years as our family grows.

Then a light bulb went off (okay, more like our agent flipped the switch). We had forgotten about all of the equity in this house that we get to leverage by selling it. In other words, since we have paid off half of this house (it was extremely affordable and we put a lot of money down) that means our next house can be this house-and-a-half thanks to rolling that equity (read: money) over into the new house after selling this one. Not that we are looking to go that big or spend that much. At all. But it is comforting to know that we will not be stretching financially (well, we already know how much we can afford, it is simply pleasant to know that the bank might simply agree).

So let us simply say that taking a pay cut to be your own boss along with your self employed wife is not the best strategy to get the bank on board with you. Lesson learned.

In the end we are glad with the outcome of the pre-approval process since the number we are approved for puts us right in the ideal window to find a slightly-larger version of this house (about as big as we had hoped to make our current house back when we talked about adding a small addition on the back to give us some room to grow in the future when there are more The house team around). And this pre-house-hunting research gives us some extra leverage with realtors and sellers (they seem to like us pre-approved folks).

Now that we have the money stuff semi figured out, it is time to pin down what we are looking for in the next house when it comes to style, layout, and all that good stuff. Knowing Sherry there is going to be a list involved. The girl is list crazy.

Psst- We announced our big winner for this week’s contest at the end of Monday’s original contest post. Click here to see if it is you.