Two surprises I didn’t account for during my house hack purchase.

           Two surprises I didn’t account for during my house hack purchase.

                         “Don’t say you can’t. Instead ask yourself how can I.”

Before I begin this post, I want to let everyone know that I am purchasing my house hack in New Jersey. I am sharing this because expenses and prices of home vary from place to place.

I am almost home free with my first house hack purchase. The process has been faster than I thought. Originally I figured I would close in 45 to 60 days because I was using residential financing but I am actually on pace to close in 35 days. With the help of Bigger Pockets I have been able to plan out every expense for the most part. Two things caught me by surprise though. The first thing that caught me by surprise was the fact that I thought that my down payment was going to be less than what it actually is. The second thing that surprised me was the fact I am required to pay 5 months ahead of my property taxes. Even though these two expenses surprised me, I was able to figure out a way to come up with the capital through different accounts and back up funds.

1.Down Payment

When my girlfriend/partner and I first applied for a pre-approval letter from a lender, we were told that we were eligible for a conventional low down payment loan with no PMI. When I received this news, I was super excited because something I see when people house hack is the amount of potential cash flow that gets taken away from PMI (Private Mortgage Insurance). One thing I failed to ask because my excitement was in the way was about how much of a down payment I would need to put down. I actually never asked.

A couple of months later when we found the house hack property we wanted, we decided to put an offer on it and it got accepted. When I began filling out all the paperwork for the loan, I figured that my down payment would be 3.5% down. The agreement price of the home we put under contract was 405K. So 3.5% of that would be 14,175 bucks. Only problem was that the conventional loan I agreed to, required a down payment of 5% which is 20,750 dollars. That is a 6 thousand dollar difference. After speaking to my partner about the 6K mistake I made, we agreed that it made sense for us to use some of the emergency funds we had to cover the difference because the property is a good deal.

A mistake like this could have cost us way more than 6K because if we didn’t have the 6k to cover the difference, we would have looked irresponsible in front of all the parties involved. We would have lost a lot of time which is something we cannot get back. Worst of all, we would have probably lost relationships with everyone who took their time out to help us. My mortgage officer was referred to me by a close friend so if I would have backed out the deal it would have made my friend look bad. I would have wasted the sellers time which might not affect me that much but because I am trying to become more of an active investor, who knows if I was buying a house from another active investor in that town. I would have potentially showcased how irresponsible I was and that could have hurt me in the future. I could be over thinking all of this but who knows.

2.Property Taxes

A lot of people might not know this but New Jersey has really high property taxes. The property taxes for the property I am in the process of purchasing is 7,886 big ones! Even though this is pretty high, when I analyzed the property the numbers still made sense so I was ok with it. Something I didn’t realize I had to do was pay for the first 5 months of property taxes during closing. I thought I only had to pay the first month ahead. So instead of 657 dollars, I have to pay 3,285 dollars. That’s a pretty big number.

My girlfriend/partner and I once again had to sit down and really talk about the numbers. We decided to take that out of our furniture fund to cover the extra expense. We were ok with doing this because for the first 5 months, we now didn’t have to worry about property taxes which would help us save more money monthly which will then allow us to buy furniture but just at a slower pace.

If my partner and I didn’t have an emergency fund or some kind of back up, these surprises could have broken us. For those wondering why we didn’t ask the sellers to help us with the closing costs, it’s because the sellers had multiple all cash offers on this property. The only reason they chose ours was because of the relationship we build with the agent and his ability to sell the sellers on us. So the moral of the story is that you can’t ask questions you don’t know to ask so it might be a good idea to have a backup instead of expecting everything to go the right way.