INTRODUCTION
Upon checking through the political thread, I got entangled in a side-discussion about the 2008 housing crisis and buying houses. In part, this was me getting triggered by someone making an invalid claim on something that I'm rather knowledged about. In part, it was because my girlfriend and me are in the process of buying a house. It's her first; for me, I've bought an apartment nearly 5 years ago. As these things cost a lot of money, it's not something you do on a regular basis. But since the relationship between banks, governments, house buyers and sellers is a bit more complex than you might think, I thought it'd be a good idea to write down the process a bit. Note: this is under Belgian law. I have honestly no idea of the percentages in the rest of the world. Houses might be a lot cheaper or more expensive in your area, or involve more or less paperwork. Sorry, but I can't but tell my own experiences.
This writing will be about me and my girlfriend's personal journey in this adventure. It'll be important to understand all this so you can understand what I'm blabbering about in a future writing about the housing crisis (if I'm inspired enough to write about it), but neither of these are obligated literature. Or anything but the opinion of someone with an above average interest in these things. Here goes...
BASICS
Houses are one of the most important aspects of the economy. Everyone needs one, and its characteristics influence your life more than you might think. The location influences your social standing. The isolation influences the cost of maintenance. The size determines whether you can work at home or not. Even the kitchen determines (to a degree) whether you're going to eat healthy or not. And as everyone needs a house to live in, they can also be a great investment. And I should know: my parents kept the house they bought when my brother and me were young, and it's been a cash cow pretty much since we became adults. Granted: I've been living in renovations pretty much my entire youth, but I can attest that it was worth it. My brother and his girlfriend kept their two apartments when they moved to a bigger one. It's hard for them to pay up the mortgage for three houses, but this is eased by tenants who pay the rent that'll pay off these apartments eventually.
Me, I was more lucky in the fact that I was able to save a lot. When I decided I wanted to buy the apartment I currently live in, I barely had to get any loan from the bank. The cleric told me that for the money I would owe them I wouldn't be able to rent anywhere. I didn't bother to reply the truth: I HAD a rent that was lower than that. That was also the reason I was able to save up to buy this apartment in the first place.
Let's focus in on that situation a bit more. Five years ago, I was living with my brother (whom had just gotten to know his current girlfriend). I had a job and payed my brother a rent that was almost symbolic (the same kind of apartments are on average two or even three times that amount of rent as normal). I also had little expenses, so my savings skyrocketed to almost 100'000 euro's. There was an economic fallback in 2011, but even so I wasn't worried too much.
Then I saw my current apartment for sale for little over 100'000. It needed renovations and I had heard that you should add 10% of the cost of the house for the buying expenses. That turned out to be true, but I sure hope that is lower when you get in that situation (note: I recently read that Belgian notaries are the most expensive in Europe).
REAL ESTATE
The first hurdle is the estate agency. Most house owners don't want to do the hassle of selling their house, so they hire an estate firm. These usually get a percentage of the offered price. For this, they'll show potential buyers around the place and answer the most common questions (gas? electricity? the neighborhood? the size?). I was a bit different in that I knew immediately that I wanted THAT specific apartment and just that one. It was literally around the corner of where I lived, was within my budget and was great in all aspects (the apartment I shared with my brother had some loud neighbors. This one was on the top floor).
I wasn't the first one interested. The broker was fair with me and told me that there was someone else in the running. Did I want to place a higher bid? It was an invitation, but I just said no (it was easy: I wasn't in any rush).
On hindsight, it could've been that there was never someone else to begin with. The asking price isn't fixed but a guideline. The sellers and the brokers want the best buyer, but any buyer is still better than none. Regardless: my advice is to never get pressured in a bidding war. Before you decide to visit a potential house, you should already know that you can afford it(1). I repeat: never walk into a house you might not be able to afford. That takes some calculations in advance, but you really need a budget that you do not cross no matter what. Again: DO NOT CROSS THE LINE OF YOUR BUDGET! Talk to your bank in advance if you have to: they can give a pretty clear idea of your maximum budget. This maximum budget obviously should include any renovations and the 10% administrative costs that you'll be paying down the line.
If you want to buy a house with a partner, make sure he or she is on the same level as you. If a house is good, it's easy to fall in love with it. However, you shouldn't become blinded by it. Prices easily fluctuate in the thousands. I don't know how much you can save, but for most of us this means extra MONTHS working extra (or entire stacks of video games, if that's easier to visualize
).
Bidding on a house isn't easy. With my apartment, I had the luck that this previous bidder offered 100'000 (6000 euro's less than the initial asking price) but couldn't get a loan with the bank. As the seller had agreed to that price, it wouldn't be fair if I didn't had the same option. So that's what I ended up paying (well...not counting expenses, obviously).
For our current house, we offered 220'000 euro, which was 9000 euro's below asking price. This was a straight up gamble: we would be willing to pay the 229 price and half expected the sellers to meet us half way. We had much luck that the owners agreed, but it could've been that they would have refused us. Or would want to see other candidates instead. In any case: they accepted.
In any case...the next step is to sign the agreement. The agreement is an official contract wherein you both state that you are interested in buying the house at the agreed price (and have to make solid intentions of actually BUYING said house), and that the sellers cannot sell the house to someone else. This is a contract that goes for a couple months. The buyer - you - have to put a significant part of the money down. Up to 10% of the purchase price, IIRC. Remember I told you never to step in a house you couldn't afford? Well...never sign an house ownership agreement unless you have at least 95% certainty that you can get through the next steps. The reason: this is money you pay immediately, and which you'll lose if you fail to get an arrangement to pay everything.
In our case, we had to pay 9'000 euro's for the right to buy this house. It's in the real estate's bank account and will be given to the sellers (along with the remaining 211'000 euro's) on the day of the sale. In the mean time: you need to tackle the hurdles of banks and the notary.
BANKS
The talks with the banks always happen in multiple stages. At this point, you should have already talked to at least one bank representative, to have ensured your maximum amount of money you CAN rent from the bank. I strongly advice to stay well below, but I'll get to that. Anyhow...the second appointment with the bank is more serious. Take any documentation you have from the real estate with you (at the very least the price and address), and it's a good idea to already bring proof of your earnings of the last 3 months. If you plan to renovate: make this as concrete as possible. For my appartment, I already had a list of tasks to do, whom would do it (either external or me & friends) and a general idea of the extra furniture I would buy. Tenders aren't needed at this point(2), but be prepared to have them made as soon as can be done. Depending on the situation, you might even agree with the current owners to come over with an electrician, mechanic, handyman or the like to have a tender written for a prolonged time in the future.
It's possible to shop around for banks, but in my opinion banks are prepared for that. Their salesmen are friendly, kind and understanding...but are trained to only give you information you already know. I'm not saying you should follow my formula, but I simply want to know in advance what I owe banks each month. That means you have a fixed monthly payment and a fixed...erm...I guess it's called 'interest percentage' in English ("interestvoet" in Dutch). Each and every bank I've been to pushes for variable payments and/or variable percentages. Simply put: I don't believe it's beneficiary. I have no doubt that as a client, this CAN benefit you. However, the thing is: you don't know. The bank doesn't know (perhaps one or two months in advantage, but that'll be it). So it's basically gambling.
...okay, I'm somewhat exaggerating. Banks get really creative with this stuff. You can get loans where you pay back a bit at first but more later, a lot at first and then gradually less. You name it, they've got a formula for it. That would be nice if the way things are stacked up differ, but THAT is something they don't let their clients get away with. You see: when you make a monthly payment, you pay partially back "the initial sum" and partially "the interest of what you still need to pay". And this is where you really need to have payed attention during math class: banks always put interest first. I'll repeat it because it's so important: BANKS ALWAYS PUT INTEREST FIRST.
Say you borrow 100 bucks at 1% interest and a payment of ten bucks each month. Banks then draw out this graph as follows:
month 1: you pay (1%*100) 1 buck interest and 9 bucks payback (remaining: 100-9=91 bucks)
month 2: you pay (1%*91) 0.91 bucks interest and 9.11 bucks payback (remaining: 91-9.11=81.89 bucks)
month 3: you pay (1%*81.89) 0.8189 bucks interest and 9.1811 bucks payback (remaining: 81.89-9.1811=72.7089 bucks)
And so on. This whole method of counting deliberately confuses your intuition. 1% interest of 100 bucks...that's 1 buck...right? Wrong. The extra amount you'll have to pay to hold their money long enough to buy their house is pretty steep (and pretty complex to calculate). Not only is this way of counting a way to ensure maximum profits for the bank, it also allows them a way to pretend that you still owe them more than your intuition tells you. In the example: if you ask how much you've payed back the bank, you would assume this would be 30. To the bank, however, they claim you only payed 9+9.11+9.1811=27.2911 bucks (not that much, but already over twice what your intuition will think is the interest).
So as you can imagine: in a mortgage, that interest ratio (even 2 numbers behind the comma) can spell out the difference of hundreds or even thousands of dollars over time.
So to get back at a couple of paragraphs ago...remember I hammmered on having the cost of everything nailed down as much as possible? It's because of this. If you do your homework, then after you've payed for everything, your bank account should be positive, yet as close to zero as possible. If you take a good look at that nice-looking graph the bank gives you, you'll see that lending from a bank actually costs A LOT. For my apartment, I rented 36'000 euros over ten year with 398 euro's payment per month. At the end of this period, I will have payed them 47'760 euro's...those "mere percentages" will then be 11'760 euro's. Or really in the environment of one third of the initial amount.
When I made that loan, I ended up with about 3'000 in reserve (ironically exactly what I expected to end up with, but I admit I rented a few thousands extra to cover any unforeseen costs in the renovation). It's hard to calculate the impact on the rent, but it'll probably be about 1000 euro's. So...do you imagine what that would be if I had loaned 46'000 euro's instead (y'know...just to be safe?) ? Then I would have to pay back a much larger amount, and all for basically holding on to some money.
The hard part in this whole deal is that none of this is a secret. You are not getting screwed per se because they're telling you exactly what will be happening (if you are aware, that is...It's easy to lose track of what's going on when this sort of stuff is discussed when all you really want is that darn house). This is how things will be happening (again: in Belgium, though I assume many of this translates to other countries).
That bank cleric that rolls out the red carpet for you, smiles and agree with most things you say, is getting payed. Heavily. In my example, the bank will get 11'000 euro's just on interest, and this was when both the loaned amount and the interest rates were low.
Okay, I'm not being entirely fair when it comes to that loan. Somewhere in those stages (probably at the end), they'll bring up insurance. You need insurance. It's obligated, and...well...not that you're untrustworthy, but there's a higher chance the bank will agree to the loan if you just sign to this insurance. Because, y'know...you want your furniture to be reinbursed when there's a fire...right?
This is a conditional sale, but it's a deal you can't refuse.
There are two other ways the bank makes money on your loan, but I'll get to that. First, it's time for that other party you need to buy a house. A notary!
NOTARY
If you're like me, your mental picture of a notary is a dusty, grey man reading wills in a monotone voice while the heirs eyeball each other. Truth be told, the notary I had when I bought my apartment looked like that Agatha Christie cliché. The official documents were wordy and incomprehensible and while they had to be printed, they looked like they were made by a typewriter (this was 2012, mind you). While you obviously need a trusted third party, their job always seemed pretty redundant to me. Yes, it's important to know all the attests, shortcomings, debts and other sorts of catches that come with a house. Very important, even (when you buy a house from person A, you don't want to discover that A also sold his house to B and C as well and ran off with the money). But how come this isn't a fixed price rather than a percentage of the purchase? The average Joe has to work a couple months just to pay a notary for this thing, and it's not like they work their butt off for you. But they all ask the same price and the sort of advice they give spell the difference between buying a house and...well...NOT buying a house (I don't want to know how that scenario spells out. you probably will be able to cancel the bank's loan arrangements, but it won't be cheap).
To my pleasant surprise, not all notaries turn out to be bores. For our current house, the notary was a woman of about my age (about mid-thirties) who spoke in a clear fashion and explained the documents rather than take proud in reading wordy stuff. It might have helped that her assistant is a good friend of my girlfriend, but I think she's always like that. So...I probably had an accidentally boring first notary.
Nonetheless, you can't get around the fact that notaries are like the waiting room for the doctor. You've talked with a broker, banks and the notary. All of these, the owner and yourself need to find an agreement with each other. Documents need to be fetched, inspected and agreed upon. And many of this is outside your hands. The waiting can be pretty tough. I admit it: I'm a hands-on person (so is my girlfriend, btw). When I bought my apartment, the owner, myself and the apartment were pretty close by, which was a blessing. While I technically not yet had a right to go in the house(3), the owner allowed me to go in and measure everything so I could correctly estimate my renovations. As such, I spent that time planning works and browsing furniture. I strongly suggest doing the same.
RENOVATIONS-TO-BE
The difference between a house and a home is how well it is adjusted to your standard of living(4). Of course you've chosen a house that appeals to you (hopefully in a neighborhood that equally appeals), but it'll never be 100% perfect. Maybe it's the walls, the way that inhouse door looks or the stones on the porch...remember: it'll be your home. You'll be spending a significant amount of time in it, and - most importantly - it'll be YOURS. This is a huge difference with renting, where the owner can make all sorts of demands, and can throw you out and force you to turn it back the way it was before. That simply doesn't apply here. I can't say that I was very excited to browse through ikea furniture (let alone other shops) or having to choose which color(s) to paint the wall, but this is the sort of thing you should just get through.
Do you have to do this the moment you move in? Yes and no. Mostly yes. There is certainly something to say about not doing it: the move in itself will cause lots of work, and because of the loan money will be tight. In that perspective, it's better to postpone. It's also the wrong reason, though it's more based on feeling than empiric measurements. Here are two counter-arguments:
1) renovations in an empty room are much, much, MUCH easier than in a furnitured room. I can only speak from experience, but I've seen amazing differences. It's like driving a ferrari on an open road versus driving one in a traffic jam. Say you want to paint a room. It's "just" a matter of moving a wardrobe to the middle of the room, painting the wall and then putting it back. Said wardrobe is still in the middle of the room. Paint tends to get EVERYWHERE, so you'll need to cover said wardrobe in plastic. The floor? Sorry...not only does that need to be covered, but the entrance and exit of the paint area need to be carefully inspected EVERY TIME (it's a classic error that you absent-mindedly step in a patch of fallen paint and then go to the toilet, causing an immense trail).
Want to paint in different colors? Then you need to tape off the edges carefully and methodically (take note: depending on the shape of the room, the taping process can take up almost as much time as the actual painting. That's no exaggeration). Two times if you want to do, say, the ceiling in a different color. And that's just painting over a white(ish) wall. If it's already a colored wall(5) you need to apply at least one layer of white paint before anything else. And once that is all done, it takes at least a couple days for the paint to dry (during which the room very strongly smells).
I helped move a former girlfriend once. The was to get her keys on wednesday and wanted to move on friday. She also wanted to have everything painted by then. Being experienced already, I predicted disaster. She insisted, but alas: I was right. Worse: I was right in a worse way than I predicted. Her father had started out wednesday by taping the side of the ceiling and painting the wall in clear sky blue. He then proceeded to tape the upper side of the wall and painted the ceiling. As such, the paint could dry on thursday, and the furniture moved in on friday. Almost everything to that same wall, which...sort of defeats the purpose of having a wall in a contrast color, but that's not the issue. All in all: it actually looked pretty decent. And if you read the start of this paragraph again, I bet you didn't catch the one glaring problem in this course of action...the tape.
You see, the tape was applied on the upper side of the wall before it was completely dry. As a result, it turned out to be impossible to peel the tape of the wall without completely removing the paint with it. I can still envision the incredibly ugly upper side of the wall once we had the tape removed (of course her father was nowhere to be seen at that point). That the entire rest of the wall was good was covered up by furniture, leaving that one part of the wall horribly visible.
I broke up with that girlfriend not too long afterward (not because of that, obviously), but I can only assume they had to move all the furniture again (twice), all just to paint that upper part of the wall correctly.
Keep in mind: I don't tell this story to make a statement in a family feud but because these things are real hazards. I've moved a lot of furniture around in my youth, and one of the rules of live I've learned is that I simply do not pick up a heavy item with someone else if I don't know where it should ultimately go. You really want a minimal of guesstimation. "Over there" can mean a lot, but it's not fun figuring out when you're both holding a 100kg cupboard, can't properly see the other and the other can only signal with his nose. For all these reasons and more: do this in advance. The weekend in which I had my apartment, me and two friends had painted four or five rooms, put laminate in two rooms, tore down a kitchen and put up at least an ikea bookcase and wardrobe. The apartment was done in 2.5 months (while working during the day, mind you). This was to the astonishment of my parents, who had estimated at least six months. My "secret" was simple: I had put all the renovations in the correct order, had close to no waiting times (at one day I had 4 working groups: a plumber, a locksmith, someone taking measures for double-sided windows and a group that was plastering the chimney) and had the furniture move in AFTER things were ready for it.
2) in Dutch we have the saying "van uitstel komt afstel"; it translates to "delays end up in cancellations". The more you postpone things, the more likely it is that it'll never happen. It's sort of a mental state that might explain why some household chores are still left undone at your house (admit it! You've got some! ). I'm in no means an exception to this saying, except perhaps in that I recognize this of myself. I AM lazy. and I HATE renovations. However, I use those treats to my advantage. Doing it correctly from the start is, in the long run, the way that requires the least work. As said: I did in two and a half months what would take MORE work if I had planned improperly(6). Moving houses also changes your mental state. When I moved to my apartment, I didn't have much stuff, but I packed it long in advance and threw away what I couldn't be bothered to drag "all the way to across the street"(7). We do have much more now, but even so we've got a lot to throw away before the actual move. Last weekend - at the very least three months before we'll be actually moving to the new location - we cleared out the basement and argued a bit over which stuff was to be taken to the junkyard.
Which, by the way, isn't the sign of a bad relationship but of a healthy one. Every relationships, including mine, have bickering. I want to keep stuff because it hold emotional value, she points out that it hasn't left the basement in over 2 years (and that I hadn't missed it in that time). Doing this long in advance helps to come up to terms with things (eg: admitting that that singlecore pentium isn't going to see much use anymore).
...and I digress. The point is: this whole "I'm moving out!!!!" tends to take possession of your mind, and if you wield that state right, it can be a powerful ally to Get Things Done. For me, I'm delighted that doing jobs that I know will have to be done anyway won't take more time than they need. My girlfriend's motivation is in creating an even more perfect household than we currently have. But while we know it's going to be tough and will require lots of long and dirty jobs, we take motivation in the outcome.
Which is why this darn waiting can be annoying. I had it before I moved to my apartment, and I have it now: I just want it to start. I know I'm strong, smart and proactive when I need to be, but beforehand I'm mostly doubtful and lazy. That's a pretty hard situation to be in. I mean...two weeks ago, colleagues and me participated in a "spartacus run". That's a 10 km run with over 25 hindrances. Running through water, crawling through mud, climbing walls, making a human pyramid...a very powerful teambuilding experience, and on hindsight one of the best experiences of my life. But just before the start, I was shitting bricks. You started in waves with 5 minutes apart (which made it MUCH easier to stick together with your team), and the sight of the groups before us racing in the water and helping each other climb a 2 meter wall while being sprayed at by water cannons was terrifying.
I just want the renovations to start...
MORE BANK SHENANIGANS
While you and your family dream your house into reality, The bank and notary stay in touch with each other. If your loan gets approved, it'll...
...hold on. Approved? Loan? Why would the bank do that? What if you would DIE while paying off the debt? Erm...yeah...then what?
I've learned this Dutch word called "schuldsaldoverzekering", that I can at best translate to "an insurance that you can pay off the debt". I first heard about it from my brother (whom had bought a house before me) in the preparations for my apartment, but couldn't quite understand it. The way the loan is set up, I thought, wouldn't that mean that the bank take priority over your estate? Didn't the bank issued the notion that they could recover what you owed them by selling your house in case you died? Doesn't that mean that they were in a win-win situation already?
The answer to that is, of course, yes. But why settle for a win-win situation if they could be winning more? That's why this insurance thing is a thing here. On top of the loan, they want you to be insured against your own death. With them, of course, because God knows everyone but themselves can be trusted. Or, to put it less mildly: they want you to pay more as a punishment of having the guts to say alive.
My brother had warned me: it is perfectly legal (and even obligated) that banks have a way to pay off this insurance immediately. It's both more and less expensive to do that. Less expensive in that if you choose to pay the insurance each month or each year, the individual amounts are lower. More expensive in that the sum of these individual amounts dwarf the sum of the one-time payment.
The only problem is that this one time payment needs to be done at a time that your savings is at its lowest (I've already explained why). Though I knew this from my apartment, I had seriously underestimated this: it was TWENTY TIMES higher than before. Or over 6'000 euro's instead of the 300'ish from last time. Granted: the loaned sum is also much higher, but "only" about 7,5 ish times higher. I hadn't taken into consideration that this would be a loan of 25 years (compared to the 10 from my earlier loan). Oh, and I was five years older now as well.
It was even more painful for my girlfriend. Initially, this was considerably lower for her because she's ten years younger than me. But she made the mistake of filling in her medical questionnaire correctly (ironically: while complaining that I shouldn't put that ONE SINGLE JOINT I smoked in the course of the last ten years). The damn thing came back at us with the mention that she was obese, which increased her chance so much that she had to pay over 3000 euro's extra in insurance.
So...whenever someone says that being skinny doesn't pay: there's THAT. Banks rely on doctors that rely on statistics. My girlfriend has a BMI that's simply too high, and no matter how much she pleaded that she was on a diet, that she'd already lost 5 kilograms ans so on, she's stuck with that extra cost. And it can happen to you as well.
As if that wasn't enough, the bank also charges for all those visits, calls for information and so on. These costs ('dossier costs') are relatively small, but still...500 euro's for at best 5 or six hours of a bank cleric's time...for an investment that is already a triple whammy for the bank. That too is something you best don't think too hard about...
THE DAY OF THE SALE
If all goes well, the day of the sale is a formality. Your bank and notary stay in touch, the money get wired to them, the notary meets both you and the current owners, you both sign the final agreement and the notary guarantees the owners that you are good for the money. They get payed (this usually means that their mortgage on the house gets payed in full, and they get -hopefully- remaining money on their bank account), you get the keys to the house. Oh, and a congratulations, because from then on, YOU are the owner of the house.
In theory this all goes butter smooth. In practice...I'm not so sure. I'm no financial expert, but my brother is. Because both our current project and my apartment took place in the fall, it was imperative to seal the deal before January. I thought I was lucky, but then the (remember: pretty grey and dusty) notary suggested that it was a bad time at the end of the year because he wasn't so sure that the current owner would agree to it. It's five years later and I'm still pissed at that joke. Since I lived nearby and had a reasonable/good relationship with him, I just called him. He immediately agreed, and was surprised that he had to hear this from me (meaning: the notary hadn't even bothered to call him ABOUT A FREAKING 100'000 EURO DEAL!). So I pretty much crammed us in between his agenda. I'm normally a nice guy, but I was well aware of how much I was paying him so I had no issue on that whatsoever (heck...I had that take place at midnight on Christmas eve if I had to). I'm not sure whether it was the notary, an assistant or the (past) owners who asked when I was planning to move ("you're not going to do it during christmas time, right?"). I think I surprised them by saying that I already had all the equipment to paint walls and do the floors, and that friends of mine were already en route as we were about to sign this deal. And they were. I was in full forward momentum, and I didn't rest until my apartment was inhabitable.
It was apparently even more tense with my brother. In the end, I just kept with my own bank. He checked different banks and even "immothekers". I don't even know whether there's an English word for it, but it's basically a specialist in financing houses. He had gotten a better percentage there, but due to circumstances on the immotheker's side, he only got to finalize his loan on the same day as the actual sale.
For our current project, we have the peculiar feature of the house currently being inhabited. They're very nice people with two adorable daughters (unfortunately, they liked their bedroom bright pink), but of course this creates a dilemma. They're selling their house to buy another one...but that other house still needs to be found and bought. Meaning: they too will have to start this whole endeavor. Our offer on their house was slightly below their asking price, so we compensated for that by allowing them a couple extra months to pay us rent to stay in their former house...with a maximum of three months (january up to march). We agreed to it, all hoping that they would find their new home as well.
The thing is: that meant that the day of the sale wasn't likely to be even near the day that my girlfriend and me will be moving in. If it wasn't for the end clause at the end of march, hardly anything would even change for them. They wouldn't be the owners anymore, but that means that instead of paying the bank their mortgage, they would pay us rent. Rent we would be paying the bank because...well...we've loaned a shit ton of money from them. In normal cases, this rent wouldn't be enough to fully pay back our loan (we've got to pay back 900'ish euro's per month, they pay us 650) but I think I already told you that the bank likes to get creative. Well...they did. While it is considered "one loan", it's somewhat split in two. The majority goes into - you guessed it - paying the actual house. However, we've loaned 50'000 euro on top of that for renovations. Or rather: we'rea loaning UP TO 50'000 euro's for renovations. While my girlfriend and me visited pretty much every store that has ANYTHING to do with renovations and she turns out to be excellent at matching prices, choosing the correct furniture and keeping an eye on finance (okay: I sometimes have to step in on this one), it's still a bit of a gamble. In theory, it's simple math: a kitchen for this many euro's, a floor for that many euro's, bathroom for thus many...add this, that and thus, and voila: this is what the renovations cost. In practice...you don't KNOW. When my brother and me moved in our previous apartment (this was before I bought my own), we painted it in a certain color. About halfway through, my brother decided that it was too dark (it was grey with a bit of green in it) and did something we both learned was stupid: we mixed in "some more" white. The color was better so we started over using that. But it wasn't enough to cover the entire room. It was only then that we realized that one doesn't simply go to the store and get more paint of the same color. We could ask more of the original color and more white, but there was no way to accidentally hit the very same tint as was on half the wall (and man, it's amazing how just a tad bit of less or more white in paint shows). Long story short: we ended up with YET ANOTHER COLOR and starting all over. These sort of things cost extra money and damage morale. For my apartment, I ended up EXACTLY where I wanted to be (or maybe not: I didn't dare risk not having to continue to work, so I loaned two or three thousand euro's extra...after everything, I ended up with about that amount ), but that was more luck than anything else.
So when the bank proposed this to us, we could hardly say no. In the off chance of renovating less than 50'000, it would just be a loan of less than that(8). On top of that, we would get financial benefits for renovation (so better in getting tax revenue and/or a lower interest rate from the bank). And the only drawback would be that we would have to bring in proof that we genuinely bought a kitchen, bathroom accessories and the like. There's an angle to that as well, but it's more like the gamer's dilemma: EVERY FREAKING STORE OFFERS DISCOUNTS!!!! On our kitchen we got three different kinds of reductions and a free power outlet. Our bathroom varies two to three thousand euro's because we couldn't buy it at THIS discount, but when we CAN pay it, it'll probably be at THAT discount. It's as if valve is running the real estate business!
But to get back to that renovation loan: there is a two-sided catch. The renovations can take up to two years (we aim at two, three months max). During that time, our payback of the loan is just the interest.
Let that sink in for a moment, and don't have the initial reaction as me (which was "NOOOOOOOOOOOOOOO!!!!!!"). Think about it. Yes...that two year maximum means that the last payback periods also get extended up to two years. Or also: we basically pay the bank in order not to have to pay back the bank (c'mon: laugh it up. At least someone will enjoy that situation then ). I obviously describe it the way I see it, but there is a strong positive on this. Lemme explain...
For one: that interest is lower than what we would otherwise pay. It's somewhat in the 400'ish. That means that it is effectively LESS than the rent the then-no-longer owners will pay us. We can't start our renovations, but despite our huge-ass debt, we can actually save a bit of money. And as I've outlined earlier: that initial period of the loan is financially the most worrying. It's not that we'll be saving much, but since we still save money from our jobs as well, it is (hopefully) enough to overcome any renovation blunders that we hopefully don't make in the first place.
The second advantage: the payback is fixed in money...not in value. That's something I have trouble grasping with on short term, but since this is such a long term (this is for 25+ years), it's a lot easier. It's best described as "take a look at prices 25 years ago". Unless the entire monetary system crashes, inflation will ensure that money will be worth less over time. Crisii aside, this is just below 1%, but even that spells out quite a difference in 25 years. Or look at it like this: I currently make (netto) about twice what we owe the bank. This is very tight, so I really need my girlfriend's paycheck to pay for her half of the house as well. In 25 years, however, it's not only reasonable but downright expected that we will get raises because everything gets more expensive. The owed money, however, stays the same. And as such gradually takes a smaller and smaller percentage away from our household income.
There's also a third, but not many of you will be in this "luxury" position: my apartment. I'm not going to sell it. On the contrary: I'm going to rent it out. The first four years, that rent will be used to pay off the remaining mortgage on that apartment (for the record: that first loan was a relatively small one. If it wasn't for this purchase, I could've payed off the bank immediately if I wanted to). After those four years, the income from that apartment will come into my income, thus making the payback a whole lot easier. I'm putting "luxury" between brackets because we owe the bank a lot of money. I've been able to live relatively cheap for years while not having mayor expenses (I've never had a car. You'd be amazed at how much you can save if you can survive without one). That allowed me to buy the apartment, that, in a way, reduced my living expenses to zero (I do have to pay the bank, but with each month, the apartment is more mine). The same goes for my girlfriend: she simply NEVER had to pay rent anywhere, which is why she's financially pretty stable for her working history.
I won't lie: I'm already in a much better financial position than many others, but I'm not really "there" yet. For one, the apartment can only be rented out after we moved out. That initial mortgage just remains a constant recurring payment, and there's about to be a second monthly one joining in.
...and maybe you shouldn't tell the bank, but there's also a third loan being made. This isn't by a bank, but by my parents. Simply put: a bank won't loan to you unless you can prove you don't need it. Especially after the financial crisis I can't predict just how risky our loan would've been without it, but we're not playing 100% fair about our starting capital. That starting capital is really 45'000 of the 70'000 we told the bank. The remaining 25'000 is...a "gift" from my parents. That is: officially, it's a gift. They want us to be happy in this house, so they're chiming in (same reason they're going to help us with the renovations).
It is, however, a loan. They are expecting us to pay it back over the years. Not in a stranglehold contract like the bank, and with literally half the interest as the bank it's far more bearable (in addition to the fact that it remains in the family). But it is something we have to live by. It is extra money we have to put aside to pay them back in the course of 10 years.
CONCLUSION
I've calculated it: if I can't find a tenant for my apartment, I can survive...barely. Without taxes, I make about 1800 per month. Subtract 450 from the house mortgage, 400 from the apartment mortgage, 600 from daily expenses like food and electricity and about 200 from that third loan (note: this is all my part; my girlfriend pays the other half), and I strand with "savings" of 150 euro's. I don't know about you guys, but I sure hope you can save more on that per month. Unexpected costs are a thing that are...erm...well, not really expected, obviously, but overall something that might happen. I want to be ready for it. I want to move out, tenants in and get this renovation started.
Or better yet: finished already. The way it stands, I'm just seeing too many potential issues. It clouds the potential of our dream house.
Cheers,
Taleweaver
(1): we have a local television show that attempts to flip this on its head: it shows couples looking for houses with features X, Y and Z for a maximum budget of <number>. Then three agents "compete" with each other in offering that...but they always leave the price until after the visit. NEVER EVER FALL FOR THIS!!! It's bad enough that these agents just assume that the potential buyers can just pull thousands of extra euro's out of their ass, but this downplays the value of money all together (last week one dipshit even managed to show a house that was over 100'000 euro over the budget).
(2): there's a bit of a paradox in this: in this period you have to act as if you're going to move in the next day, while at the same time not be disappointed that it will take a few months.
(3): the problem here is that houses are as expensive as they are, and that humans can react pretty weird when money's short (and remember: if you're money isn't short. For example: if I had no conscience, I could go in my future appartment, smash the parts I wanted to renew anyway and then - at the actual sale - claim that I want to pay a lower price because things are smashed. This is a relatively easy way to "save" hundreds if not thousands of bucks, as there isn't much the other parties can do. That's why seemingly arbitrary rules are in place: because there are people without conscience.
(4): some might say that it's a woman's touch, but that's just sexism. At best, women are better at pretending it to be (my girlfriend changed a couple posters to different ones and we got a dressoir...compared to the remaining 95% of the furniture, the floor and the wall color, that's pretty meager).
(5): the owners of the house we're about to buy have two pre-teen daughters. In other words: my girlfriend and me buy one completely pink room.
(6): perhaps I should mention my job at that time as well. My job as PC technician unfortunately involved moving people's PC's when they were ordered to another seat. And this company was batshit INSANE on that field. Having to move over a dozen people in the course of a couple days was more the norm than exception. Because this came on top of all my other tasks AND any mistake would come back to haunt me, I quickly learned to do things as fast as I could do flawlessly (but NOT faster). Couple that with inaccurate planning by a facilities department that was run by a moron, and you'll understand that basically redoing the planning (but properly) was crucial to get things done in the correct fashion.
(7): this was in stark contrast with my brother's girlfriend, whom is addicted to her possessions. We helped her move. I kid you not: that initial house resembled a clown car. Every nook, every cranny...EVERYTHING had to be moved. Boxes and boxes of children's toys. Dusty tablewear that a niece had given her to her birthday 12 years ago. A track mill that wasn't used in five years. And so on, and so on. The result: their new house was too small to even unbox everything.
(8): I would've thought twice about this offer had I known that my girlfriend was a woman. Yes, it's sexist, but really: tell your girlfriend to buy something "up to 100 bucks", and you can be assured that everything but perhaps a dime gets spent. This is the same thing, but on a larger scale. I barely had time to be proud on the fact that we managed to get over 1'000 bucks discount on the couch (it's still 3'500 ) when she announced that "the front door REALLY needs to be changed". Since then, discounts worry me more than that they bring me joy. After all: what else will she come up with to make sure that that budget gets spent to anything? And what will that mean if there IS a miscalculation?
Upon checking through the political thread, I got entangled in a side-discussion about the 2008 housing crisis and buying houses. In part, this was me getting triggered by someone making an invalid claim on something that I'm rather knowledged about. In part, it was because my girlfriend and me are in the process of buying a house. It's her first; for me, I've bought an apartment nearly 5 years ago. As these things cost a lot of money, it's not something you do on a regular basis. But since the relationship between banks, governments, house buyers and sellers is a bit more complex than you might think, I thought it'd be a good idea to write down the process a bit. Note: this is under Belgian law. I have honestly no idea of the percentages in the rest of the world. Houses might be a lot cheaper or more expensive in your area, or involve more or less paperwork. Sorry, but I can't but tell my own experiences.
This writing will be about me and my girlfriend's personal journey in this adventure. It'll be important to understand all this so you can understand what I'm blabbering about in a future writing about the housing crisis (if I'm inspired enough to write about it), but neither of these are obligated literature. Or anything but the opinion of someone with an above average interest in these things. Here goes...
BASICS
Houses are one of the most important aspects of the economy. Everyone needs one, and its characteristics influence your life more than you might think. The location influences your social standing. The isolation influences the cost of maintenance. The size determines whether you can work at home or not. Even the kitchen determines (to a degree) whether you're going to eat healthy or not. And as everyone needs a house to live in, they can also be a great investment. And I should know: my parents kept the house they bought when my brother and me were young, and it's been a cash cow pretty much since we became adults. Granted: I've been living in renovations pretty much my entire youth, but I can attest that it was worth it. My brother and his girlfriend kept their two apartments when they moved to a bigger one. It's hard for them to pay up the mortgage for three houses, but this is eased by tenants who pay the rent that'll pay off these apartments eventually.
Me, I was more lucky in the fact that I was able to save a lot. When I decided I wanted to buy the apartment I currently live in, I barely had to get any loan from the bank. The cleric told me that for the money I would owe them I wouldn't be able to rent anywhere. I didn't bother to reply the truth: I HAD a rent that was lower than that. That was also the reason I was able to save up to buy this apartment in the first place.
Let's focus in on that situation a bit more. Five years ago, I was living with my brother (whom had just gotten to know his current girlfriend). I had a job and payed my brother a rent that was almost symbolic (the same kind of apartments are on average two or even three times that amount of rent as normal). I also had little expenses, so my savings skyrocketed to almost 100'000 euro's. There was an economic fallback in 2011, but even so I wasn't worried too much.
Then I saw my current apartment for sale for little over 100'000. It needed renovations and I had heard that you should add 10% of the cost of the house for the buying expenses. That turned out to be true, but I sure hope that is lower when you get in that situation (note: I recently read that Belgian notaries are the most expensive in Europe).
REAL ESTATE
The first hurdle is the estate agency. Most house owners don't want to do the hassle of selling their house, so they hire an estate firm. These usually get a percentage of the offered price. For this, they'll show potential buyers around the place and answer the most common questions (gas? electricity? the neighborhood? the size?). I was a bit different in that I knew immediately that I wanted THAT specific apartment and just that one. It was literally around the corner of where I lived, was within my budget and was great in all aspects (the apartment I shared with my brother had some loud neighbors. This one was on the top floor).
I wasn't the first one interested. The broker was fair with me and told me that there was someone else in the running. Did I want to place a higher bid? It was an invitation, but I just said no (it was easy: I wasn't in any rush).
On hindsight, it could've been that there was never someone else to begin with. The asking price isn't fixed but a guideline. The sellers and the brokers want the best buyer, but any buyer is still better than none. Regardless: my advice is to never get pressured in a bidding war. Before you decide to visit a potential house, you should already know that you can afford it(1). I repeat: never walk into a house you might not be able to afford. That takes some calculations in advance, but you really need a budget that you do not cross no matter what. Again: DO NOT CROSS THE LINE OF YOUR BUDGET! Talk to your bank in advance if you have to: they can give a pretty clear idea of your maximum budget. This maximum budget obviously should include any renovations and the 10% administrative costs that you'll be paying down the line.
If you want to buy a house with a partner, make sure he or she is on the same level as you. If a house is good, it's easy to fall in love with it. However, you shouldn't become blinded by it. Prices easily fluctuate in the thousands. I don't know how much you can save, but for most of us this means extra MONTHS working extra (or entire stacks of video games, if that's easier to visualize
).Bidding on a house isn't easy. With my apartment, I had the luck that this previous bidder offered 100'000 (6000 euro's less than the initial asking price) but couldn't get a loan with the bank. As the seller had agreed to that price, it wouldn't be fair if I didn't had the same option. So that's what I ended up paying (well...not counting expenses, obviously).
For our current house, we offered 220'000 euro, which was 9000 euro's below asking price. This was a straight up gamble: we would be willing to pay the 229 price and half expected the sellers to meet us half way. We had much luck that the owners agreed, but it could've been that they would have refused us. Or would want to see other candidates instead. In any case: they accepted.
In any case...the next step is to sign the agreement. The agreement is an official contract wherein you both state that you are interested in buying the house at the agreed price (and have to make solid intentions of actually BUYING said house), and that the sellers cannot sell the house to someone else. This is a contract that goes for a couple months. The buyer - you - have to put a significant part of the money down. Up to 10% of the purchase price, IIRC. Remember I told you never to step in a house you couldn't afford? Well...never sign an house ownership agreement unless you have at least 95% certainty that you can get through the next steps. The reason: this is money you pay immediately, and which you'll lose if you fail to get an arrangement to pay everything.
In our case, we had to pay 9'000 euro's for the right to buy this house. It's in the real estate's bank account and will be given to the sellers (along with the remaining 211'000 euro's) on the day of the sale. In the mean time: you need to tackle the hurdles of banks and the notary.
BANKS
The talks with the banks always happen in multiple stages. At this point, you should have already talked to at least one bank representative, to have ensured your maximum amount of money you CAN rent from the bank. I strongly advice to stay well below, but I'll get to that. Anyhow...the second appointment with the bank is more serious. Take any documentation you have from the real estate with you (at the very least the price and address), and it's a good idea to already bring proof of your earnings of the last 3 months. If you plan to renovate: make this as concrete as possible. For my appartment, I already had a list of tasks to do, whom would do it (either external or me & friends) and a general idea of the extra furniture I would buy. Tenders aren't needed at this point(2), but be prepared to have them made as soon as can be done. Depending on the situation, you might even agree with the current owners to come over with an electrician, mechanic, handyman or the like to have a tender written for a prolonged time in the future.
It's possible to shop around for banks, but in my opinion banks are prepared for that. Their salesmen are friendly, kind and understanding...but are trained to only give you information you already know. I'm not saying you should follow my formula, but I simply want to know in advance what I owe banks each month. That means you have a fixed monthly payment and a fixed...erm...I guess it's called 'interest percentage' in English ("interestvoet" in Dutch). Each and every bank I've been to pushes for variable payments and/or variable percentages. Simply put: I don't believe it's beneficiary. I have no doubt that as a client, this CAN benefit you. However, the thing is: you don't know. The bank doesn't know (perhaps one or two months in advantage, but that'll be it). So it's basically gambling.
...okay, I'm somewhat exaggerating. Banks get really creative with this stuff. You can get loans where you pay back a bit at first but more later, a lot at first and then gradually less. You name it, they've got a formula for it. That would be nice if the way things are stacked up differ, but THAT is something they don't let their clients get away with. You see: when you make a monthly payment, you pay partially back "the initial sum" and partially "the interest of what you still need to pay". And this is where you really need to have payed attention during math class: banks always put interest first. I'll repeat it because it's so important: BANKS ALWAYS PUT INTEREST FIRST.
Say you borrow 100 bucks at 1% interest and a payment of ten bucks each month. Banks then draw out this graph as follows:
month 1: you pay (1%*100) 1 buck interest and 9 bucks payback (remaining: 100-9=91 bucks)
month 2: you pay (1%*91) 0.91 bucks interest and 9.11 bucks payback (remaining: 91-9.11=81.89 bucks)
month 3: you pay (1%*81.89) 0.8189 bucks interest and 9.1811 bucks payback (remaining: 81.89-9.1811=72.7089 bucks)
And so on. This whole method of counting deliberately confuses your intuition. 1% interest of 100 bucks...that's 1 buck...right? Wrong. The extra amount you'll have to pay to hold their money long enough to buy their house is pretty steep (and pretty complex to calculate). Not only is this way of counting a way to ensure maximum profits for the bank, it also allows them a way to pretend that you still owe them more than your intuition tells you. In the example: if you ask how much you've payed back the bank, you would assume this would be 30. To the bank, however, they claim you only payed 9+9.11+9.1811=27.2911 bucks (not that much, but already over twice what your intuition will think is the interest).
So as you can imagine: in a mortgage, that interest ratio (even 2 numbers behind the comma) can spell out the difference of hundreds or even thousands of dollars over time.
So to get back at a couple of paragraphs ago...remember I hammmered on having the cost of everything nailed down as much as possible? It's because of this. If you do your homework, then after you've payed for everything, your bank account should be positive, yet as close to zero as possible. If you take a good look at that nice-looking graph the bank gives you, you'll see that lending from a bank actually costs A LOT. For my apartment, I rented 36'000 euros over ten year with 398 euro's payment per month. At the end of this period, I will have payed them 47'760 euro's...those "mere percentages" will then be 11'760 euro's. Or really in the environment of one third of the initial amount.
When I made that loan, I ended up with about 3'000 in reserve (ironically exactly what I expected to end up with, but I admit I rented a few thousands extra to cover any unforeseen costs in the renovation). It's hard to calculate the impact on the rent, but it'll probably be about 1000 euro's. So...do you imagine what that would be if I had loaned 46'000 euro's instead (y'know...just to be safe?) ? Then I would have to pay back a much larger amount, and all for basically holding on to some money.
The hard part in this whole deal is that none of this is a secret. You are not getting screwed per se because they're telling you exactly what will be happening (if you are aware, that is...It's easy to lose track of what's going on when this sort of stuff is discussed when all you really want is that darn house). This is how things will be happening (again: in Belgium, though I assume many of this translates to other countries).
That bank cleric that rolls out the red carpet for you, smiles and agree with most things you say, is getting payed. Heavily. In my example, the bank will get 11'000 euro's just on interest, and this was when both the loaned amount and the interest rates were low.
Okay, I'm not being entirely fair when it comes to that loan. Somewhere in those stages (probably at the end), they'll bring up insurance. You need insurance. It's obligated, and...well...not that you're untrustworthy, but there's a higher chance the bank will agree to the loan if you just sign to this insurance. Because, y'know...you want your furniture to be reinbursed when there's a fire...right?
This is a conditional sale, but it's a deal you can't refuse.
There are two other ways the bank makes money on your loan, but I'll get to that. First, it's time for that other party you need to buy a house. A notary!
NOTARY
If you're like me, your mental picture of a notary is a dusty, grey man reading wills in a monotone voice while the heirs eyeball each other. Truth be told, the notary I had when I bought my apartment looked like that Agatha Christie cliché. The official documents were wordy and incomprehensible and while they had to be printed, they looked like they were made by a typewriter (this was 2012, mind you). While you obviously need a trusted third party, their job always seemed pretty redundant to me. Yes, it's important to know all the attests, shortcomings, debts and other sorts of catches that come with a house. Very important, even (when you buy a house from person A, you don't want to discover that A also sold his house to B and C as well and ran off with the money). But how come this isn't a fixed price rather than a percentage of the purchase? The average Joe has to work a couple months just to pay a notary for this thing, and it's not like they work their butt off for you. But they all ask the same price and the sort of advice they give spell the difference between buying a house and...well...NOT buying a house (I don't want to know how that scenario spells out. you probably will be able to cancel the bank's loan arrangements, but it won't be cheap).
To my pleasant surprise, not all notaries turn out to be bores. For our current house, the notary was a woman of about my age (about mid-thirties) who spoke in a clear fashion and explained the documents rather than take proud in reading wordy stuff. It might have helped that her assistant is a good friend of my girlfriend, but I think she's always like that. So...I probably had an accidentally boring first notary.
Nonetheless, you can't get around the fact that notaries are like the waiting room for the doctor. You've talked with a broker, banks and the notary. All of these, the owner and yourself need to find an agreement with each other. Documents need to be fetched, inspected and agreed upon. And many of this is outside your hands. The waiting can be pretty tough. I admit it: I'm a hands-on person (so is my girlfriend, btw). When I bought my apartment, the owner, myself and the apartment were pretty close by, which was a blessing. While I technically not yet had a right to go in the house(3), the owner allowed me to go in and measure everything so I could correctly estimate my renovations. As such, I spent that time planning works and browsing furniture. I strongly suggest doing the same.
RENOVATIONS-TO-BE
The difference between a house and a home is how well it is adjusted to your standard of living(4). Of course you've chosen a house that appeals to you (hopefully in a neighborhood that equally appeals), but it'll never be 100% perfect. Maybe it's the walls, the way that inhouse door looks or the stones on the porch...remember: it'll be your home. You'll be spending a significant amount of time in it, and - most importantly - it'll be YOURS. This is a huge difference with renting, where the owner can make all sorts of demands, and can throw you out and force you to turn it back the way it was before. That simply doesn't apply here. I can't say that I was very excited to browse through ikea furniture (let alone other shops) or having to choose which color(s) to paint the wall, but this is the sort of thing you should just get through.
Do you have to do this the moment you move in? Yes and no. Mostly yes. There is certainly something to say about not doing it: the move in itself will cause lots of work, and because of the loan money will be tight. In that perspective, it's better to postpone. It's also the wrong reason, though it's more based on feeling than empiric measurements. Here are two counter-arguments:
1) renovations in an empty room are much, much, MUCH easier than in a furnitured room. I can only speak from experience, but I've seen amazing differences. It's like driving a ferrari on an open road versus driving one in a traffic jam. Say you want to paint a room. It's "just" a matter of moving a wardrobe to the middle of the room, painting the wall and then putting it back. Said wardrobe is still in the middle of the room. Paint tends to get EVERYWHERE, so you'll need to cover said wardrobe in plastic. The floor? Sorry...not only does that need to be covered, but the entrance and exit of the paint area need to be carefully inspected EVERY TIME (it's a classic error that you absent-mindedly step in a patch of fallen paint and then go to the toilet, causing an immense trail).
Want to paint in different colors? Then you need to tape off the edges carefully and methodically (take note: depending on the shape of the room, the taping process can take up almost as much time as the actual painting. That's no exaggeration). Two times if you want to do, say, the ceiling in a different color. And that's just painting over a white(ish) wall. If it's already a colored wall(5) you need to apply at least one layer of white paint before anything else. And once that is all done, it takes at least a couple days for the paint to dry (during which the room very strongly smells).
I helped move a former girlfriend once. The was to get her keys on wednesday and wanted to move on friday. She also wanted to have everything painted by then. Being experienced already, I predicted disaster. She insisted, but alas: I was right. Worse: I was right in a worse way than I predicted. Her father had started out wednesday by taping the side of the ceiling and painting the wall in clear sky blue. He then proceeded to tape the upper side of the wall and painted the ceiling. As such, the paint could dry on thursday, and the furniture moved in on friday. Almost everything to that same wall, which...sort of defeats the purpose of having a wall in a contrast color, but that's not the issue. All in all: it actually looked pretty decent. And if you read the start of this paragraph again, I bet you didn't catch the one glaring problem in this course of action...the tape.
You see, the tape was applied on the upper side of the wall before it was completely dry. As a result, it turned out to be impossible to peel the tape of the wall without completely removing the paint with it. I can still envision the incredibly ugly upper side of the wall once we had the tape removed (of course her father was nowhere to be seen at that point). That the entire rest of the wall was good was covered up by furniture, leaving that one part of the wall horribly visible.
I broke up with that girlfriend not too long afterward (not because of that, obviously), but I can only assume they had to move all the furniture again (twice), all just to paint that upper part of the wall correctly.
Keep in mind: I don't tell this story to make a statement in a family feud but because these things are real hazards. I've moved a lot of furniture around in my youth, and one of the rules of live I've learned is that I simply do not pick up a heavy item with someone else if I don't know where it should ultimately go. You really want a minimal of guesstimation. "Over there" can mean a lot, but it's not fun figuring out when you're both holding a 100kg cupboard, can't properly see the other and the other can only signal with his nose. For all these reasons and more: do this in advance. The weekend in which I had my apartment, me and two friends had painted four or five rooms, put laminate in two rooms, tore down a kitchen and put up at least an ikea bookcase and wardrobe. The apartment was done in 2.5 months (while working during the day, mind you). This was to the astonishment of my parents, who had estimated at least six months. My "secret" was simple: I had put all the renovations in the correct order, had close to no waiting times (at one day I had 4 working groups: a plumber, a locksmith, someone taking measures for double-sided windows and a group that was plastering the chimney) and had the furniture move in AFTER things were ready for it.
2) in Dutch we have the saying "van uitstel komt afstel"; it translates to "delays end up in cancellations". The more you postpone things, the more likely it is that it'll never happen. It's sort of a mental state that might explain why some household chores are still left undone at your house (admit it! You've got some!
). I'm in no means an exception to this saying, except perhaps in that I recognize this of myself. I AM lazy. and I HATE renovations. However, I use those treats to my advantage. Doing it correctly from the start is, in the long run, the way that requires the least work. As said: I did in two and a half months what would take MORE work if I had planned improperly(6). Moving houses also changes your mental state. When I moved to my apartment, I didn't have much stuff, but I packed it long in advance and threw away what I couldn't be bothered to drag "all the way to across the street"(7). We do have much more now, but even so we've got a lot to throw away before the actual move. Last weekend - at the very least three months before we'll be actually moving to the new location - we cleared out the basement and argued a bit over which stuff was to be taken to the junkyard.Which, by the way, isn't the sign of a bad relationship but of a healthy one. Every relationships, including mine, have bickering. I want to keep stuff because it hold emotional value, she points out that it hasn't left the basement in over 2 years (and that I hadn't missed it in that time). Doing this long in advance helps to come up to terms with things (eg: admitting that that singlecore pentium isn't going to see much use anymore).
...and I digress. The point is: this whole "I'm moving out!!!!" tends to take possession of your mind, and if you wield that state right, it can be a powerful ally to Get Things Done. For me, I'm delighted that doing jobs that I know will have to be done anyway won't take more time than they need. My girlfriend's motivation is in creating an even more perfect household than we currently have. But while we know it's going to be tough and will require lots of long and dirty jobs, we take motivation in the outcome.
Which is why this darn waiting can be annoying. I had it before I moved to my apartment, and I have it now: I just want it to start. I know I'm strong, smart and proactive when I need to be, but beforehand I'm mostly doubtful and lazy. That's a pretty hard situation to be in. I mean...two weeks ago, colleagues and me participated in a "spartacus run". That's a 10 km run with over 25 hindrances. Running through water, crawling through mud, climbing walls, making a human pyramid...a very powerful teambuilding experience, and on hindsight one of the best experiences of my life. But just before the start, I was shitting bricks. You started in waves with 5 minutes apart (which made it MUCH easier to stick together with your team), and the sight of the groups before us racing in the water and helping each other climb a 2 meter wall while being sprayed at by water cannons was terrifying.
I just want the renovations to start...
MORE BANK SHENANIGANS
While you and your family dream your house into reality, The bank and notary stay in touch with each other. If your loan gets approved, it'll...
...hold on. Approved? Loan? Why would the bank do that? What if you would DIE while paying off the debt? Erm...yeah...then what?
I've learned this Dutch word called "schuldsaldoverzekering", that I can at best translate to "an insurance that you can pay off the debt". I first heard about it from my brother (whom had bought a house before me) in the preparations for my apartment, but couldn't quite understand it. The way the loan is set up, I thought, wouldn't that mean that the bank take priority over your estate? Didn't the bank issued the notion that they could recover what you owed them by selling your house in case you died? Doesn't that mean that they were in a win-win situation already?
The answer to that is, of course, yes. But why settle for a win-win situation if they could be winning more? That's why this insurance thing is a thing here. On top of the loan, they want you to be insured against your own death. With them, of course, because God knows everyone but themselves can be trusted. Or, to put it less mildly: they want you to pay more as a punishment of having the guts to say alive.
My brother had warned me: it is perfectly legal (and even obligated) that banks have a way to pay off this insurance immediately. It's both more and less expensive to do that. Less expensive in that if you choose to pay the insurance each month or each year, the individual amounts are lower. More expensive in that the sum of these individual amounts dwarf the sum of the one-time payment.
The only problem is that this one time payment needs to be done at a time that your savings is at its lowest (I've already explained why). Though I knew this from my apartment, I had seriously underestimated this: it was TWENTY TIMES higher than before. Or over 6'000 euro's instead of the 300'ish from last time. Granted: the loaned sum is also much higher, but "only" about 7,5 ish times higher. I hadn't taken into consideration that this would be a loan of 25 years (compared to the 10 from my earlier loan). Oh, and I was five years older now as well.
It was even more painful for my girlfriend. Initially, this was considerably lower for her because she's ten years younger than me. But she made the mistake of filling in her medical questionnaire correctly (ironically: while complaining that I shouldn't put that ONE SINGLE JOINT I smoked in the course of the last ten years). The damn thing came back at us with the mention that she was obese, which increased her chance so much that she had to pay over 3000 euro's extra in insurance.
So...whenever someone says that being skinny doesn't pay: there's THAT. Banks rely on doctors that rely on statistics. My girlfriend has a BMI that's simply too high, and no matter how much she pleaded that she was on a diet, that she'd already lost 5 kilograms ans so on, she's stuck with that extra cost. And it can happen to you as well.
As if that wasn't enough, the bank also charges for all those visits, calls for information and so on. These costs ('dossier costs') are relatively small, but still...500 euro's for at best 5 or six hours of a bank cleric's time...for an investment that is already a triple whammy for the bank. That too is something you best don't think too hard about...
THE DAY OF THE SALE
If all goes well, the day of the sale is a formality. Your bank and notary stay in touch, the money get wired to them, the notary meets both you and the current owners, you both sign the final agreement and the notary guarantees the owners that you are good for the money. They get payed (this usually means that their mortgage on the house gets payed in full, and they get -hopefully- remaining money on their bank account), you get the keys to the house. Oh, and a congratulations, because from then on, YOU are the owner of the house.
In theory this all goes butter smooth. In practice...I'm not so sure. I'm no financial expert, but my brother is. Because both our current project and my apartment took place in the fall, it was imperative to seal the deal before January. I thought I was lucky, but then the (remember: pretty grey and dusty) notary suggested that it was a bad time at the end of the year because he wasn't so sure that the current owner would agree to it. It's five years later and I'm still pissed at that joke. Since I lived nearby and had a reasonable/good relationship with him, I just called him. He immediately agreed, and was surprised that he had to hear this from me (meaning: the notary hadn't even bothered to call him ABOUT A FREAKING 100'000 EURO DEAL!). So I pretty much crammed us in between his agenda. I'm normally a nice guy, but I was well aware of how much I was paying him so I had no issue on that whatsoever (heck...I had that take place at midnight on Christmas eve if I had to). I'm not sure whether it was the notary, an assistant or the (past) owners who asked when I was planning to move ("you're not going to do it during christmas time, right?"). I think I surprised them by saying that I already had all the equipment to paint walls and do the floors, and that friends of mine were already en route as we were about to sign this deal. And they were. I was in full forward momentum, and I didn't rest until my apartment was inhabitable.
It was apparently even more tense with my brother. In the end, I just kept with my own bank. He checked different banks and even "immothekers". I don't even know whether there's an English word for it, but it's basically a specialist in financing houses. He had gotten a better percentage there, but due to circumstances on the immotheker's side, he only got to finalize his loan on the same day as the actual sale.
For our current project, we have the peculiar feature of the house currently being inhabited. They're very nice people with two adorable daughters (unfortunately, they liked their bedroom bright pink), but of course this creates a dilemma. They're selling their house to buy another one...but that other house still needs to be found and bought. Meaning: they too will have to start this whole endeavor. Our offer on their house was slightly below their asking price, so we compensated for that by allowing them a couple extra months to pay us rent to stay in their former house...with a maximum of three months (january up to march). We agreed to it, all hoping that they would find their new home as well.
The thing is: that meant that the day of the sale wasn't likely to be even near the day that my girlfriend and me will be moving in. If it wasn't for the end clause at the end of march, hardly anything would even change for them. They wouldn't be the owners anymore, but that means that instead of paying the bank their mortgage, they would pay us rent. Rent we would be paying the bank because...well...we've loaned a shit ton of money from them. In normal cases, this rent wouldn't be enough to fully pay back our loan (we've got to pay back 900'ish euro's per month, they pay us 650) but I think I already told you that the bank likes to get creative. Well...they did. While it is considered "one loan", it's somewhat split in two. The majority goes into - you guessed it - paying the actual house. However, we've loaned 50'000 euro on top of that for renovations. Or rather: we'rea loaning UP TO 50'000 euro's for renovations. While my girlfriend and me visited pretty much every store that has ANYTHING to do with renovations and she turns out to be excellent at matching prices, choosing the correct furniture and keeping an eye on finance (okay: I sometimes have to step in on this one), it's still a bit of a gamble. In theory, it's simple math: a kitchen for this many euro's, a floor for that many euro's, bathroom for thus many...add this, that and thus, and voila: this is what the renovations cost. In practice...you don't KNOW. When my brother and me moved in our previous apartment (this was before I bought my own), we painted it in a certain color. About halfway through, my brother decided that it was too dark (it was grey with a bit of green in it) and did something we both learned was stupid: we mixed in "some more" white. The color was better so we started over using that. But it wasn't enough to cover the entire room. It was only then that we realized that one doesn't simply go to the store and get more paint of the same color. We could ask more of the original color and more white, but there was no way to accidentally hit the very same tint as was on half the wall (and man, it's amazing how just a tad bit of less or more white in paint shows). Long story short: we ended up with YET ANOTHER COLOR and starting all over. These sort of things cost extra money and damage morale. For my apartment, I ended up EXACTLY where I wanted to be (or maybe not: I didn't dare risk not having to continue to work, so I loaned two or three thousand euro's extra...after everything, I ended up with about that amount
), but that was more luck than anything else.So when the bank proposed this to us, we could hardly say no. In the off chance of renovating less than 50'000, it would just be a loan of less than that(8). On top of that, we would get financial benefits for renovation (so better in getting tax revenue and/or a lower interest rate from the bank). And the only drawback would be that we would have to bring in proof that we genuinely bought a kitchen, bathroom accessories and the like. There's an angle to that as well, but it's more like the gamer's dilemma: EVERY FREAKING STORE OFFERS DISCOUNTS!!!! On our kitchen we got three different kinds of reductions and a free power outlet. Our bathroom varies two to three thousand euro's because we couldn't buy it at THIS discount, but when we CAN pay it, it'll probably be at THAT discount. It's as if valve is running the real estate business!
But to get back to that renovation loan: there is a two-sided catch. The renovations can take up to two years (we aim at two, three months max). During that time, our payback of the loan is just the interest.
Let that sink in for a moment, and don't have the initial reaction as me (which was "NOOOOOOOOOOOOOOO!!!!!!"). Think about it. Yes...that two year maximum means that the last payback periods also get extended up to two years. Or also: we basically pay the bank in order not to have to pay back the bank (c'mon: laugh it up. At least someone will enjoy that situation then
). I obviously describe it the way I see it, but there is a strong positive on this. Lemme explain...For one: that interest is lower than what we would otherwise pay. It's somewhat in the 400'ish. That means that it is effectively LESS than the rent the then-no-longer owners will pay us. We can't start our renovations, but despite our huge-ass debt, we can actually save a bit of money. And as I've outlined earlier: that initial period of the loan is financially the most worrying. It's not that we'll be saving much, but since we still save money from our jobs as well, it is (hopefully) enough to overcome any renovation blunders that we hopefully don't make in the first place.
The second advantage: the payback is fixed in money...not in value. That's something I have trouble grasping with on short term, but since this is such a long term (this is for 25+ years), it's a lot easier. It's best described as "take a look at prices 25 years ago". Unless the entire monetary system crashes, inflation will ensure that money will be worth less over time. Crisii aside, this is just below 1%, but even that spells out quite a difference in 25 years. Or look at it like this: I currently make (netto) about twice what we owe the bank. This is very tight, so I really need my girlfriend's paycheck to pay for her half of the house as well. In 25 years, however, it's not only reasonable but downright expected that we will get raises because everything gets more expensive. The owed money, however, stays the same. And as such gradually takes a smaller and smaller percentage away from our household income.
There's also a third, but not many of you will be in this "luxury" position: my apartment. I'm not going to sell it. On the contrary: I'm going to rent it out. The first four years, that rent will be used to pay off the remaining mortgage on that apartment (for the record: that first loan was a relatively small one. If it wasn't for this purchase, I could've payed off the bank immediately if I wanted to). After those four years, the income from that apartment will come into my income, thus making the payback a whole lot easier. I'm putting "luxury" between brackets because we owe the bank a lot of money. I've been able to live relatively cheap for years while not having mayor expenses (I've never had a car. You'd be amazed at how much you can save if you can survive without one). That allowed me to buy the apartment, that, in a way, reduced my living expenses to zero (I do have to pay the bank, but with each month, the apartment is more mine). The same goes for my girlfriend: she simply NEVER had to pay rent anywhere, which is why she's financially pretty stable for her working history.
I won't lie: I'm already in a much better financial position than many others, but I'm not really "there" yet. For one, the apartment can only be rented out after we moved out. That initial mortgage just remains a constant recurring payment, and there's about to be a second monthly one joining in.
...and maybe you shouldn't tell the bank, but there's also a third loan being made. This isn't by a bank, but by my parents. Simply put: a bank won't loan to you unless you can prove you don't need it. Especially after the financial crisis I can't predict just how risky our loan would've been without it, but we're not playing 100% fair about our starting capital. That starting capital is really 45'000 of the 70'000 we told the bank. The remaining 25'000 is...a "gift" from my parents. That is: officially, it's a gift. They want us to be happy in this house, so they're chiming in (same reason they're going to help us with the renovations).
It is, however, a loan. They are expecting us to pay it back over the years. Not in a stranglehold contract like the bank, and with literally half the interest as the bank it's far more bearable (in addition to the fact that it remains in the family). But it is something we have to live by. It is extra money we have to put aside to pay them back in the course of 10 years.
CONCLUSION
I've calculated it: if I can't find a tenant for my apartment, I can survive...barely. Without taxes, I make about 1800 per month. Subtract 450 from the house mortgage, 400 from the apartment mortgage, 600 from daily expenses like food and electricity and about 200 from that third loan (note: this is all my part; my girlfriend pays the other half), and I strand with "savings" of 150 euro's. I don't know about you guys, but I sure hope you can save more on that per month. Unexpected costs are a thing that are...erm...well, not really expected, obviously, but overall something that might happen. I want to be ready for it. I want to move out, tenants in and get this renovation started.
Or better yet: finished already. The way it stands, I'm just seeing too many potential issues. It clouds the potential of our dream house.
Cheers,
Taleweaver
(1): we have a local television show that attempts to flip this on its head: it shows couples looking for houses with features X, Y and Z for a maximum budget of <number>. Then three agents "compete" with each other in offering that...but they always leave the price until after the visit. NEVER EVER FALL FOR THIS!!! It's bad enough that these agents just assume that the potential buyers can just pull thousands of extra euro's out of their ass, but this downplays the value of money all together (last week one dipshit even managed to show a house that was over 100'000 euro over the budget).
(2): there's a bit of a paradox in this: in this period you have to act as if you're going to move in the next day, while at the same time not be disappointed that it will take a few months.
(3): the problem here is that houses are as expensive as they are, and that humans can react pretty weird when money's short (and remember: if you're money isn't short. For example: if I had no conscience, I could go in my future appartment, smash the parts I wanted to renew anyway and then - at the actual sale - claim that I want to pay a lower price because things are smashed. This is a relatively easy way to "save" hundreds if not thousands of bucks, as there isn't much the other parties can do. That's why seemingly arbitrary rules are in place: because there are people without conscience.
(4): some might say that it's a woman's touch, but that's just sexism. At best, women are better at pretending it to be (my girlfriend changed a couple posters to different ones and we got a dressoir...compared to the remaining 95% of the furniture, the floor and the wall color, that's pretty meager).
(5): the owners of the house we're about to buy have two pre-teen daughters. In other words: my girlfriend and me buy one completely pink room.
(6): perhaps I should mention my job at that time as well. My job as PC technician unfortunately involved moving people's PC's when they were ordered to another seat. And this company was batshit INSANE on that field. Having to move over a dozen people in the course of a couple days was more the norm than exception. Because this came on top of all my other tasks AND any mistake would come back to haunt me, I quickly learned to do things as fast as I could do flawlessly (but NOT faster). Couple that with inaccurate planning by a facilities department that was run by a moron, and you'll understand that basically redoing the planning (but properly) was crucial to get things done in the correct fashion.
(7): this was in stark contrast with my brother's girlfriend, whom is addicted to her possessions. We helped her move. I kid you not: that initial house resembled a clown car. Every nook, every cranny...EVERYTHING had to be moved. Boxes and boxes of children's toys. Dusty tablewear that a niece had given her to her birthday 12 years ago. A track mill that wasn't used in five years. And so on, and so on. The result: their new house was too small to even unbox everything.
(8): I would've thought twice about this offer had I known that my girlfriend was a woman. Yes, it's sexist, but really: tell your girlfriend to buy something "up to 100 bucks", and you can be assured that everything but perhaps a dime gets spent. This is the same thing, but on a larger scale. I barely had time to be proud on the fact that we managed to get over 1'000 bucks discount on the couch (it's still 3'500
) when she announced that "the front door REALLY needs to be changed". Since then, discounts worry me more than that they bring me joy. After all: what else will she come up with to make sure that that budget gets spent to anything? And what will that mean if there IS a miscalculation?
