What are YOU doing with your stimulus check?

I still haven't decided. And since I haven't gotten mine yet, I am not committing the money to anything until its been cashed. But its still a good question. What are you going to do with a free $600 - $1200+ check?

From what I have read, the checks are not to be taxed income and will not effect next year's tax returns (if anyone can cite something that says otherwise, please let me know). That being said, assuming the money is free as in beer and freedom ... then I still don't know what I am going to do with it. From what I understand Em and I will be getting $1200 (married filing jointly) but we shall see.

My initial thought was to use it to buy some of the stuff we were going to buy anyway for the house ... but in the end that just means I stuck it into our saving account which doesn't seem very fun ;-)

Today when I had a few free minutes I came up with the following list, aprox. in increasing order of "fun" (which happens to be the inverse of the "responsible" things to do):

• Add to emergency fund
  
• Mortgage - hurray for saving interest and money for whenever we sell the house
• Em's last school loan
• Car loan - thats 4 months of of payments!
• Retirement - I took a small hit switching companies before all my money was vested, the new pay was worth it but most of that is going toward house improvements at the moment
• Upgrading some of the purchases we are going to make for the house irregardless (e.g. buying really nice washer/dryer or refrigerator instead of just nice)
• Extra misc house stuff we would like but aren't planning on buying
• Vacation fund - Em and I want to go on a big trip next year .... maybe
• LCD TV for downstairs (e.g. something like THIS)
  

Yep, the TV is sounding nice.

However, after making that list, I turned the piece of paper over and wrote down everything we want/need to buy in the next couple months related to moving into the house. Some of that list included.

• Bedroom furniture
• Living room furniture
• Yard stuff (rakes, shovels, mower, hoses, trimmer, patio furniture, etc)
• New exterior door
• Mattress, linens and towels for guest bedroom
• kitchen island thingy
• bookshelves for the office
• refrigerator
  
• washer/dryer
• window treatments
• paint
• cleaning supplies
• Ethernet cable and wall adapters (I want to run it throughout the house)

So, since that list is bigger and much more immediate I think we are just going to sock it away to use on some of those thing and the tons more that come with home ownership, moving and suddenly living in a space 3x bigger than you were a week ago.

So ... what are YOU doing with your rebate?

Break Even Point

Big Red asked what I meant by "break-even" on my last post so here is my explanation. He may have only wanted a brief description ... but my intention was to write up a detail description of the math I did (including charts and spreadsheets) ... but I am way tired for some reason so here is something in-between (skip to the example if you just want numbers) ....

(Any and all info may be wrong. This is what I believe to be true and what I based my decisions on. If anyone finds a mistake please let me know, but don't be surprised. It has happened once before. Maybe twice)

Lending money is risky. Lending large amounts of money is riskier. Lending large amounts of money against something that might lose value or burn down is even riskier. Therefore, mortgage lenders take out insurance against the situation where you can't pay them, and they can't sell the property to recoup their investment. Thus, Private Mortgage Insurance.

To make things even better, you the borrower get the opportunity (must) pay the PMI for your lender. Basically your paying for the insurance of you defaulting ..... if you have less than 20% equity in your home (someone, somewhere statistically decided that if you have >20% equity in the home then the chance of you defaulting AND them not being able to get their money back is low enough that they don't need insurance).

What is home equity? Basically the difference between the home's value and the loan against it. So, with each mortgage payment you pay starting with your first and until you have >20% equity built up (and have had the home re-appraised and gotten the lender to agree to remove it) you must also send in your PMI payment. The PMI amount is based on some percentage of the loan amount (I can't remember the exact formula) but for us its about 7.3% of a month's payment. After you have 20%, you don't pay it any more.

A second option our lender had was a form of "financed PMI". It boiled down to: A) you don't pay PMI ever, no matter the equity and B) your interest rate is a small bit higher. How much higher? Our initial good faith estimates put it at 3/8% higher. Under this plan, you pay a higher mortgage payment for whole life of the loan ... which is less than the original mortgage payment + PMI.

Assuming the "normal" monthly mortgage bill as our "zero", the normal PMI option added around $77 to our bill each month while the "financed" option added $33. However, the $77 is only paid until you have 20% paid off, while the $33 is paid for the whole term of the loan.

So ... after many paragraphs ... the break-even point I referred to is the amount of time (number of payments) at which point both choices are essentially equivalent.

For example:

If you wanted a $200,000 home and could put 10% down ($20k) your payments would be about $1,065 / month (not including taxes, insurance, utilities or anything else). Assume you pay the minimum each month and the interest rate is 5.875% (PMI) and 6.25% (financed PMI).

If you go the PMI route, you pay an extra $77 / month that doesn't go toward the principle or interest (total payment = $1,142). Since at the beginning of a loan most of the payment is interest, it will take you aprox 89 payments or 7.4 years to get to 20% equity ... at which point you don't pay any more PMI. However, cumulatively you have now payed a total of $6,853 in PMI.

If you had chosen the financed route, your mortgage payments would be $1,108 which is $33 cheaper than the PMI option. After 89 payments you will have paid $2,979 LESS than the PMI option. IF you took $1,133 of that savings and put it toward your principle you would also have 20% equity in your home and still be $1,845 ahead. However, starting with the 90th payment your now paying $43 MORE than you would be otherwise.

Essentially, each payment going forward is taking $43 out of the $1,845 savings and after 41 payments your at the break even point. At this point, 10.8 years later, with either option you would have paid the same amount of money.

So, if you plan on living in the house <10.8>10.8 years, regular PMI is the way to go. Simple, right?

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Thats the simplest version. If you put more down, then you will get to 20% faster and the break even point moves up (15% down with the same figures means a break even point of only 6.75 years). Also, if you plan to pay anything extra each month or at all, this can moves things up dramatically (mainly b/c at first the amount of principle you are paying is small, so extra contributions really add up). If you averaged just $50 extra each month, the BEP moves up to 9 years (6.6 years averaging $150).

Also, as I typed this, I realized something else that I hadn't thought of until now .... at the break even point you will have paid the same amount either way, but will have slightly less equity in your home with the financed option ... b/c your interest rate is higher, your paying less principle each month. This will move the BEP up slightly but I don't care enough to recompute the numbers.

AND this doesn't take into account 80/20 programs which I hear are more rare now, where you take out one loan for80% and another for 20% at a higher rate but don't pay any PMI since niether is >80. We didn't look into these so I can't really explain them much more.

Basically, if just depends on how long you think you will live there. If its less, the financed option makes a ton of sense (or if you think you could refinance to a lower rate but given how low things are at the moment, thats probably unlikely). If you think it will be more (our situation) then the PMI made more sense. If your anywhere close, then the difference will be small (a few hundred dollars) so it really wouldn't matter.

You can find a slightly screwed up Google Spreadsheet (imported from excel) with some of the formulas I used, HERE. Yes I spent too much time on it and yes its not complete but it did what I needed. Plus I am a huge nerd.

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Wow, that was a TON longer than I wanted ... hopefully it answers your question and makes some sense, and isn't completely wrong.

If anyone else has any questions please feel free to ask.


Oh yeah, its my birthday :-) so I am going to go to bed now. Thank you to everyone who wished me a happy one and thank you to everyone who didn't know but now feels guilty (don't be).

Apraisal, long week, sore arm

We got news today that our house was appraised for 5% more than what we paid which is very nice because A) it means we didn't pay too much for it, B) instant "return" on investment :-p, and C) thats 5% less we have to go toward 20%. :-)

I forgot to mention in my last post that I ended up deciding to go with the "normal" PMI route after all. After a ton of excel-spread-sheet-ing and going back and forth I decided that given the fact that we intend to pay a bit extra each month, it was more likely we would live in our house longer than the break-even points (I did the math was 10%/12.5%/15% and extra month payments ranging from $0 to $300). Now with the added "free" equity we get on the house with the numbers went even lower so I am guess-timating that the break-even point is around 4.6 years which should be much less than our stay in the home.

This week is shaping up to be a long but interesting one. This weekend Em and I are traveling to Louisville for a college roomate's wedding (90% of my 15 readers will be there) which should be a great time. In order to take off Friday and not have to use vacation hours (I don't have that many saved up since I started the new job) I am working extra each day this week. The good thing is that the work is really interesting right now and we are making some real progress on our current project.

Also, tomorrow night we have our first softball game of the season. It is going to be interesting to see how the league and the team plays (slightly different rules than what we had in Cinci) and I have heard we finished aprox. second last year which is promising. A few guys and I went out at lunch and threw a couple balls around for 30 minutes and many my arm is tired already. At least I know I haven't lost everything since the last time I played.

Speaking of games with balls and bats .... last week I was the winner of the company's Cards tickets so Em and I went with my cousin and his wife (we had a blast). The seats were real nice and we saw a great game which is always the most important part.

Oh, and today I finally broke down and wore shorts to work. ;-) I know, poor me. Its funny how you get used to wearing "real" clothes to work and how it still makes me feel weird going to work in shorts, tennis shoes and a polo. Nice, but weird.

The Earth Done Quaketh, and stuff

-- thank you Lewis Black

Yep, the other morning (as anyone who has seen/heard the knews in the past 3 days should know) there was an earthquake centered in south eastern Illinoise. While not real close to us in STL, any amount of close when talking about the earth moving violently up and down, is too close. The shaking didn't last long, but did last long enough to wake Em and I from our sleep. I only woke up enough to convince myself that whatever was making the noise wasn't my concern and to tell Em that "no, its not an earthquake, its probably just a train, go back to bed" .... evidently my brain functions when half asleep, just in the completely wrong way.

Other than being the first earthquake I have actually felt ... it wasn't a big deal. Many people I talked to sleep through it. This included my grandma who slept through it but thought she was going crazy when she found her china cabinet and grandfather clock doors open the next morning. She didn't immediately believe a friend she talked to on the phone, but while she was talking we got the first aftershock which quickly opened up her china cabinet doors again ... mystery solved.

The only thing new on the house front to report is that the sellers sent back our inspection report with what they were agreeing to have fixed. They agreed to everything except two things: 1) the plumber they talked to said that the downstairs bath was properly vented to code and would give us a signed letter stating it (fine by me), and 2) they aren't going to pay to have a new circuit run into the garage for the garage door opener (I wish they would, but not a big deal). Since they agreed to have everything else fixed, we went ahead and agreed and sent everything back. Oh, also we locked in our interest rate and got our final "correct" good faith estimate which was less than what we were expecting (yay) but a slight increase on the rate (changes every day, we ended up with 5 and 7/8%). Nothing to do now but secure home owner's insurance (or a letter stating that we CAN be insured), look at more appliances and furniture and start planning the move.

Work has been busy as ever. We finally got a signed SOW for our work with the National Sex Offender Registry so we have started on that (should be aprox a 6 week effort for two of us concluding with installation of web services at two states (TBD) and possibly presenting at a national conference in Baltimore). Its getting exciting, if not scary. I had to remember everything I knew about Java web services and learn a whole bunch of new stuff in a single day.

Also, we had our work's quarterly meeting on Friday (nice lunch and presentation) this past week. It was really nice. They discussed the financials (we are doing well and given the economy, very well over the past 2 years), recently awarded contracts, work in the pipeline, upcoming events, etc. Its amazing how much more ownership and connection you feel in a smaller company and how much you realize your actions actually effect the bottom line when compared to working as a contractor to a large international company. Plus its crazy and cool to find out that of the ~100 employees, we have 5 or 6 PHDs, a MD, the ex-CTO of NASA, and a 3-star General all working for us in various ways.

Last night Em took me out for a early birthday dinner to a Japanese/Asian Fusion restaurant we had never been to before and we had a great dinner (ordered way too much food, but thats an ok problem to have) and tonight she baked me a wonderful pineapple-upside-down cake and had our parents over for gifts (I got a new iPod-FM transmitter, a book on herb gardens, some clothes, and a large enamel-coated cast iron stock pot. ;-) )

Oh, and I went and hit some golf balls today for the first time in a few years. Happily I wasn't as bad as I thought I would be. Sadly, I was still very bad.

Repair Requests and Frost

Firstly, we sent our repair requests to the sellers yesterday requesting that the following be fixed:

• kitchen and lower bathroom outlets have properly grounded GFI switches installed
• new dedicated circuit run to garage door opener
• two upstairs drains refitted to iron drain stack (new fittings)
• downstairs bathroom drain properly vented

** all of the requests were also followed by "by a licensed electrician/plumber".

Hopefully they will agree to make the changes (none are major and could be easily/quickly done if they have someone come out) or if they don't have the time, to give us the money to do it ourselves. We have 10 days starting yesterday to come to an agreement with the sellers on these issues (per our contract), however, I am not sure what exactly we can do if they were to say no, other than walk away (which we don't want to do). I am primarily concerned with the electrical work b/c water damage is bad, electrocution or fire is worse.

The only other news on the housing front is that we briefly went around to a couple furniture stores and a Lowes to look at living room furniture, bedroom sets, washer/dryers, and refrigerators. I had an idea of how much each of these things costs since we went looking a couple months ago, but its still amazing. I understand "you get what you pay for" and that there are real differences from a "cheap" appliance or furniture and "nice" ones .... but come on. I can't figure out the different between a 1k or a 2k fridge that would justify the cost. Really I don't understand why a 1k fridge costs as much as it does .... but if you want a decent side-by-side your in that ballpark. Anyway, it looks like its a good thing we got the house for a good price ... its gonna cost us more than a few $$$ to deck it out :-p

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The only other thing going on is the crazy weather. Frost on my car!? In mid April!? Did Mother Nature go on an early vacation?

Home Inspection

Today we had the home/termite inspections done and were able to show the house to my dad (he was out of town this past week) and Em's aunts, including the one who helped us a ton with our mortgage.

I was a bit leary about the home inspection. Firstly, its the basis for our last possible chance to back out. We still haven't found any reason to want to, thank God, but its a big milestone. Secondly, you are putting a lot of faith and decision making power in the hands of a psuedo-stranger and his expertise. Also, until you actually meet the person, ask them questions and see how they are going to conduct the inspection, its hard to judge quality.

Our Realtor suggested an inspector she had worked with on numerous previous occasions from Central Building Inspection Service Co. here in town and I am happy to report that the house didn't have any problems and Pat did a great job.

Out inspector did a very thorough job (exterior, roof, garage, both floors, plumbing, electrical, drainage .....) and was happy to answer all of my questions with tons of details and suggestions. Plus, he was certified for the termite inspection so we were able to get both done in the same ~1.75 hour time span.

This evening, the inspector emailed me a copy of his formal report which detailed every aspect of the home, any problem areas he found and any suggestions he had for things to fix and/or watch our for. One really nice thing was that for the small problems he found, he included photos he took while he was there for reference which will make it a ton easier to remember where in the house the issue was and what exactly he was refering to.

The only minor issues he found were:

• garage door is powered via an extension cord run through the wall which should be changed to a separate circuit
• two joints where sinks tap into the cast-iron drainage stacks used the wrong kind of rubber connectors which should be changed
• the new basement bathroom sink drain isn't properly vented
• a number of the downstairs outlets aren't grounded but have 3-prong plugs
• one outlet near a sink should be changed to a ground-fault-interrupt equipped outlet
• window in garage has a crack
• no problems with the roof but its "older" and will probably need some work in 5+ years
  

Some unexpected (by me) bonuses we found were

• for most of the walls in the finished basement, they installed insulation between the drywall and the concrete which they didn't have to do
• attic construction was done with larger beams spaced closer together than current code dictates (not cost effective today) which is stronger
• hot water heater is ~2 years old
• drains work well with good water pressure (he turns on all of the faucets while working through other rooms and nothing backed up or drained too slowly)
  

Nothing big. We will talk to our Realtor this week to discuss what repairs we will request and/or what credits we will want to have these fixed ourselves. I was very happy to find out that the major systems in the house were all functioning well (plumbing, heating, drainage, water heater, furnace, etc) and that the walls/foundation/attic didn't have any problems. There were no signs of any type of insect or other animal problems and all cracks were superficial (we have plaster and masonry walls so there were quite a few).

One more big step done. :-)

Accepted!

We accepted their counter-offer tonight after viewing the house with our parents and the Realtor and are totally pumped!

We went by after work tonight and walked through the entire house a couple times, showing everyone what we loved about it, and trying to see if we could find any reason to delay (we found none).

A few more signatures and initials (not nearly as many as I would have accepted ... they are smart and don't redo the entire contract but just send you a short list of the lines changed and to what) and we formally accepted their offer. Now we just have to wait until closing (2 months) which is a bummer since we are so excited but that gives us plenty of time to do a ton of work in the meantime.

Firstly, we have the house and termite inspections being done Saturday (in the contract we had 10 days) and will see if there are any problems we didn't find and/or if there is anything we want fixed or replaced. Next, we need to finalize our final financing, and get appraisals, title searches, and surveys done (lender and title company handle these).

Other than that, we just need to start thinking about paint colors, researching a few of the minor changes we want to do (e.g. we want to replace the back exterior door with a new one, I am thinking about getting some type of security system, etc), figure out if we need to get a moving truck, buy a couple appliances (refrigerator, washer/dryer), and finally think about what kind of dog we might get :-D

Thats pretty much it until closing where we have to sign a TON more documents and pay any balance of closing costs (lender fees, title company fees, pro-rated taxes/insurance/other, etc). This shouldn't be anything given we put 1% down for our earnest money (applied then) and they agreed to pay 2k of the rest. Also, I need to look into how much a A/C might run (theres looks older but I am waiting for the inspection to figure out exactly) and how the home warranty exactly works (basically they paid ~$500 and if any of the major parts of the house have problems in the first year, we just pay a small deductible to get it fixed, nothing else).

On the financing front I am 95% sure we are going to just put 10% down and do the lender financed PMI. We have the cash on hand to put more down (not including our emergency fund or the money in our everyday checking acct ... thanks for the reminder Kooz) but I would like to have it on hand to make sure we have everything perfect .... and then probably apply the rest toward the house later in the year. I am thinking to do the financed PMI b/c I crunched the numbers and assuming we didn't pay anything extra each month (we probably will) it will take 11+ years to break even compared to the financed option (it would take aprox 7 years to get to 20%, after which no more PMI, but we would have been enough in the "hole" that it wouldn't be until 11 years have gone by that the financed option would start to be more expensive). Since our best guess is that we will be in the home around 7-12 years, this seems like the best option. (if anyone would like to know how I computed this, let me know and I will send you the Excel document)

Thats about it. Finally, here for your enjoyment are some of the dozens of photos I took tonight (not my best work, but they give a decent feel for the house, with the other people's decent furniture). More of the photos can be seen HERE.

Counter-Offered-x0r

This morning they sent back a counter offer that was almost exactly the middle ground between us (while keeping the closing costs and home warranty :) ) and a few other minor changes (move back closing a week b/c they don't have a house yet) .... we think its an intriguing offer and expect that we will probably accept it tonight after our viewing with the parental units, barring any unforeseen problems (they gave us until tomorrow morning to respond).

The Craziness Continues.

-- A big "Thank You" to everyone who left encouraging comments and that I have talked to over the past couple days. Its been crazy stressful (especially considering my normal need to feel in control) but everyone has been a huge help in staying positive and offering helpful advice. If anyone has any questions about any part of what we have done or are doing, please feel free to ask. While I don't promise to response in the next day or so, or that my response will be good ... I will still try my best.

Thanks.

Pictures and an update hopefully later tonight....

Freaked Out! We put an offer on a house!

Let me back track a bit .... It has been a crazy week or two and things have been moving too fast for me to blog about. The very condensed version is below ....

As you should know by now, if you know who I am and read this blog, Em and I have been planning on buying a house this spring since before we even moved back. Over the past few months we have gone out on numerous occasions looking at houses and areas of town. Over that time we got a pretty good feel for what we wanted, what we could afford in different parts of town, what we hated, etc. The only things left to do were to start the formal process. (Note: I had visions of this process taking a fair bit longer and me having more control of things .. and while they haven't gone that way, so far I am happy with how everything has gone)

Early last week we met with Em's aunt who is a loan officer with Wells Fargo and we discussed our financials, what we were looking for in a house, our budget, what price range we were thinking, various costs and fees, the home financing process, etc. To be honest, I was a bit leary of keeping it within the family b/c if things ever didn't go well, it could leave us in a bad situation ... but I have been very impressed so far. Wells Fargo's rates (family discount? ;-) ) are very competitive and its really nice having someone to email/call whenever you have a question. As it turns out Em and I are on the "conservative" side of things and got pre-approved for easily more than we ever wanted to spend. With a couple Good Faith Estimates in hand (for various price points to compare) we called the Realtor that her aunt suggested and who has helped out a few other family members.

We spoke over the phone and via email several times with the Realtor during the rest of last week and met with her on Saturday for our first fun filled day of official house hunting. We paired a list of 10-15 down and ended up seeing 6 or 7 homes that first day in a couple different possible areas. Of the first wave, one stood out as being at a good point in our price range, having all of things on our "NEED" list and most of the "WANT"s. The only downside was that it needed a small amount of updating and/or minor work (replacing interior doors, maybe widening a door way, etc. We left things there until last night.

After our first day we decided to go see a few more (3) on Tuesday (yesterday) and some more this upcoming Saturday. The Realtor setup the appointments (its great having someone else do it for you) and we left shortly after work. Of the three we saw, one was very nice with great features but at the very top of our price range and still needed some updating, and the other was decent on the main level, but had the craziest "barn/old-west" inspired basement that quickly pushed it to the NO list.

The middle one we saw .... we loved. It was at a great point of our price range, in a good area of town (in the middle between where I work and Em works and not too far from the family), has a ton of great features and needs little to NO work or updating. The house is a brick ranch with 2+1 bedrooms, 2 full baths, hardwood floor throughout, new windows, a formal dining room, a nice backyard w/ big trees, 2 car garage, updated kitchen, and a finished basement (one bath and the +1 bedroom are down there along with a large family room, work shop and laundry room).

... here area a couple pics I swiped from the listing ....

The house just came on the market and given how much work they had put into it, it was already getting some decent attention. Since we couldn't find a single thing wrong with it we setup another walk through for tomorrow and ended up putting in a contract tonight! We offered a few thousand less than asking + 2k toward closing and a home warranty ... they have until noon tomorrow to get back to us.

You may be wondering how things happened so fast and why/how we put in an offer only seeing it once. Well things started moving much faster b/c we didn't have any idea how long it might take and we wanted to be able to close aprox. a month prior to our lease ending so that we could clean, fix up anything, paint, and move without being rushed (plus giving the timing, or first payment will be still after our last month of rent so no double dipping).

Also, in the contract we signed tonight, we made it contingent on tomorrow's walk through. So, if for some reason either of us or one of our parent's finds something wrong tomorrow, we can still back out and get back our earnest money (1% paid tonight). Assuming they accept, we have 10 days to get our inspections done and if they find anything we don't like, the sellers won't agree to any fixes/credits we want, or for any other reason we can back out then too.

We haven't finalized our financing situation yet. We are preapproved for more than we offered and have our estimates on monthly amounts and closing costs but haven't decided exactly how much we are going to put down (somewhere between 10% and 15%) and/or if we are going to do normal PMI or take advantage of a special Wells Fargo is offering at the moment. The special basically boils down to the fact that you don't have to pay PMI with <20% style="font-size:85%;">6.125% instead of 5.75%). I am still crunching the numbers (or will tomorrow) but some rough estimates I did this evening make it seem like we would be better off with the "financed PMI" plan until we have lived in the house for aprox. 12 years. After that it would be more expensive to the tune of ~$40/month .... but until then you are ahead of the PMI solution (estimating that it would take us just over 7 years to get to 20% if we put 10% down and didn't pay anything extra each month .... which we probably will).

So thats where we are at. I will post updates when I find out more and photos after tomorrow's walk through. I am totally excited and freaking out at the same time. Its amazing that we might soon be "home owners" (more exactly mortgage owners) and its also scary to think that we just pledged to pay more money than either of us has made cumulatively in either of our lives and to pay it out over a time period longer than I have been on this earth. Craziness!!!

...... in case anyone is interested, other than all this house mess, we have been very busy with work stuff, taking in the brief gorgeous weather last weekend by going to Lone Elk park to see the buffalo and elk, batting cages to get ready for the softball season, etc.