Buying a home in Houston TX – My Journey

This is reposted from the original post in r/RealEstate

—————————————————————————————————————————————————–

I have never given my personal experiences in reddit as others usually have the same experiences as me and relay it better than i could. However, I feel compelled to share my journey of buying a single family house in Houston, specifically Rosenberg. The reason being that this market is moving fast so hopefully my story helps someone navigate during this crazy market.

—————————————————————————————————————————————————-

My journey began March of 2021 when I officially moved to Houston from Vancouver, Canada where I had been living for the past 14 years. I had gotten married one year previously and my Wife was born and raised in Houston. We decided to move back to Houston as we wanted to start a family and Houston was a much better place to do that in my opinion. Buying a home was one of those reasons.

Upon reaching Houston I landed a decent job working remotely for a bank while my wife worked for a major tech company and was also remote. We found a great newly built 3 br apartment which was close to her family so they could help with the baby. Our financial outlay at that point was as follows:

Combined income: $255k/yr gross including salaries and bonuses. (~$14.5k after taxes per month before bonuses)

Rent/utilities: $2700/month

Combined Savings: $150k

Car/Insurance: $700/month

Combined debt – $120k (all student debt). Monthly payments of $150/month.

Credit Score (Wife): 780

My credit score: 700 (my credit history is only 7-8 months though).

So were doing pretty well and we calculated combined we could probably get approved for a $800k-$1M house. However, we wanted to ensure that we wouldn't be too screwed if one of us lost our job so we decided to find a house with a max purchase price of $400k.

We ultimately decided we wanted to live in Fort Bend County and hired a well known real estate agent and got to work.

3500 sqft, 2 story, 4br + 3b, modern hardwood floors, decent sized back yard, game room, max age of house – 10 yrs. Nothing too crazy we thought.

We then QUICKLY found out that $400k in 2021 was not the same as what you would get in a house for $400k pre pandemic. The market was indeed crazy and houses that were valued at $300k in 2019 were now $400k+ in 2021.

This meant that houses in the $400k price in fort bend county tended to be around 2700 sqft and if they were above 3000 sqft they were a lot older homes where the floors were old and the general house had to have a lot of work put into it.

We must have seen 30-40 homes in a 3-5 month span. This may seem normal, and it probably is but with a new baby and new jobs it was super exhausting. Even more so when we did not like any of them! What was even more crazy was that homes that I thought were insanely high in price, were selling for 30-40k over listing! Sometimes even 50k+ over. I thought i had left the Toronto housing market behind me, but alas here I was again with houses going way over list.

We then realized we may have to lower our expectations of the house or up our budget. Since raising our house price didnt seem too prudent we lowered our wants on the house in terms of age and square footage.

Somewhere around early January of 2022, we then found a home in Sugar Land listed at $370k. It was of course an older home with older wooden floors but it was 3000 sq ft with large bedrooms and best of all it was a 3 minute drive from my in laws which was great for dropping the baby off and generally for my wife to see her parents. This house was as perfect as it was going to get and my realtor agreed.

We put in an offer of $400k (hurt my soul but had to be done) with $6k in earnest money, 30 day closing and a full appraisal waiver, We got the house but our happiness was short lived.

The lender's appraisal company valued the house at only $365k – lower than the list! I was ready for the appraisal to maybe come in $5-$10k less than our offer price but not for it to be lower than list. I saw the comps and it did not make any sense, but we had no power in this situation. Our appeal even failed. This meant that we had to make up the $35k difference plus whatever we wanted to put down + closing costs.

Now keep in mind, we could have easily afforded this but coming from a finance background it made no sense for me to do this. If the bank was only valuing it $35k less than what I was going to pay for it, i could be setting myself for pain when we would be looking to sell it 5-7 years down the road (5-7 yrs is how long we planned to stay in the house). I did not and still do not believe the Houston housing market will continue to climb as strongly as Vancouver, Toronto, SF etc have done historically.

I backed out of the deal and was ready to take a $6k hit. Luckily our realtor was able to negotiate with the seller to get that money back due to his relationship with the seller.

At this point I was a bit tired and devised a new strategy – buy new construction. There are no bidding wars for new construction homes and appraisals 99.99% of the time came in at list. The only downside to this was that there were no new constructions in the areas we were looking at in our price range. We still refused to up our budget.

After a few weeks of looking, my wife came across a new construction home in Rosenberg TX. List price was $415k – ok it was a bit higher but whatever. We drove that day to go see the home which was still under construction but were able to see a model home – basically a replica. We loved it and agreed to buy the house right there and then. Great success!

Now this is where I want to talk about how we financed our house. As pointed out earlier we were in a relatively healthy position financially. However we did not want to put too much down and were really hoping we could tie in the closing costs to our mortgage. We spoke to a few brokers and each of them said that we could qualify for programs where we only had to put 3.5% -5% down but still had to pay closing costs up front. That seemed fair enough.

The builder of our house also recommended their lender who stated they would provide ~$15k in closing cost credits with 3.5% down- that seemed amazing! So i requested a term sheet from them.

Keep in mind, this was all around February and the house was going to be finished building in June which is when we were going to close. This was annoying because this was around the time when the Fed announced rate hikes and we couldnt lock in a rate till May (1 month before closing). At the time I am writing this I was approved for a rate of 5%, up ~1.75% from when we agreed to purchase the house! Pain.

Anyways i got term sheets from various brokers. Long story short they were all offering the same rate (these went up over time as I waited for May to roll around) and were charging an origination fee of around 1% ($4k). Everything else was standard as one would expect for closing costs. So all in all I was going to have to pay ~$22k which included down payment of 3.5% and closing costs.

I then got the term sheet from the builder's lender and my alarm bells went off immediately. Their closing costs amounted to about the same as the other brokers even after the incentive! How was that possible i thought? As i read a little bit closer, I realized they were jacking up their origination fees to 2% (not the worst thing apparently) but were also charging me about $6k to lower my rate to what other brokers were offering. They also seemed to be charging me higher for things like appraisals etc. Basically the incentives provided were a wash and provided me with no real gain.

I was ready to go with one of the original brokers I was working with until i called my own place of work to see if they potentially had any programs for their employees. BOY DID THEY. The loan officer of my work basically told me there was a program where there were no down payments required and no closing costs. My bank would only make money on the interest rate (which was actually lower than the other brokers) and the loan value would be 103% of the home price. This was a great deal and after reading the fine print I signed off on it!

I am now waiting for my house to be finished building and I have got my closing date of June 21.

It has been a truly exhausting process to buy this home and what I have realized is that everyone associated with selling/buying a home dont make it exactly easier. The market has cooled down the last month or so but I still hear stories of people being outbid by $50k on a house that appraised for $100k less than offer. Boggles my mind.

Anyways – this is my story and I hope it provides a little insight into the buying home process. Happy to answer any questions people may have! Also good luck if you are in the middle of buying a home!