Murphy's Law Pt. 2

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If you haven’t already read our previous struggles during the build, go ahead and read this first as a primer.

If you haven’t already read our previous struggles during the build, go ahead and read this first as a primer.

To be clear, both posts were not to collect sympathy from the readers. But rather I wanted to publish them because I think they have the potential to save someone unneeded stress and thousands of dollars.

Rates (Updated):

In my original post I spoke about how not being able to lock in a mortgage rate contributed to a huge part of the stress of the process. Rates finally peaked in October with the 30 year fixed rate eclipsing 7%—a far cry from the 3.05% that was available when we went under contract on the house in January of 2022.

Rates continue to stay elevated (including sales prices in many cities) making it unaffordable for millions of Americans to own a home. I don’t know how this story ends. I truly feel for everyone, especially the younger folks who are trying to purchase their first home. The market is incredibly difficult with supply essentially non-existent in some areas.

From late November of 2022 all the way until late January of 2023, I called every bank, broker, and friend I knew trying to shop the best rate. The best I was able to come up with was a 5.75% 30 year fixed with about 45 days before closing. Even some of the adjustable rate mortgages (ARMs) were unattractive comparatively.

Then along came Mr. Schwab (partnered with Rocket, more on this later). I know I had looked into them months before but never actually talked to anyone there to confirm their online rates. So I reached out as I saw they were offering rate discounts for certain tiers of qualifying assets. We had a large portion of our money tied up in TD Ameritrade so we simply initiated a transfer of funds from TD to Schwab and ended up qualifying for a 0.50% discount on a rate.

There was no catch. It was a relatively simple process. So now my 5.75% turned into a 5.25%. This image comes to mind.

Schwab only handled the transfer of funds. The rest of it including the rate lock was handled by the Rocket. During the sales process, Rocket threw out the idea of a 10/6 ARM, which after the 0.50% discount was being offered at a 4.625% rate. For those unfamiliar with ARMs, what the 10/6 means is the rate is locked for the first 10 years of the loan and adjusts every 6 months based on the current market conditions. There were also caps on the upper and lower end as well as how much it can move within a 6 month period.

This type of ARM wasn’t offered from any other banker or broker I had previously spoken with. I had asked Rocket to pull the monthly costs between the 5.75% rate (fixed, no discount), the 5.25% rate (fixed, with discount), and the 4.625% rate (ARM, with discount). It turned out that we were going to save almost $8,000 per year by going with the ARM. So even if during that first 10 year window where our ARM is locked and we never had a chance to refinance, we would still be saving almost $80,000. That would give us a very large cushion to work against (assuming we don’t spend the money beforehand).

My thought process was the same as it had been months ago. It felt like inflation in the past few months has started to cool, and that most “experts” have a similar view that the Fed will end up cutting rates before 2025. Now after the Silicon Valley Bank disaster and potential contagion with other banks, it could end up happening much sooner than expected.

Based on all of this information we locked in the 10/6 ARM at 4.625%. Luckily, we were able to lock a few days before the February FOMC announcement and unemployment report (which turned out to be very hot and caused rates to spike again). Finally, a small win.

I’d be shocked if we weren’t able to refinance again even lower at some point within the next 10 years, maybe even with a 3 handle. A boy can dream.

The lesson here: Do your due diligence on shopping around for rates. It may end up taking a ton of time but you never know what you could end up with if you have some connections or find some discounts similar to the Schwab deal. Had I never asked, I’d likely be stuck in a 5.75-6% fixed rate right now.

It’s also important to have a general idea of Fed policy as they are the ones setting the path for interest rates. I think doing an ARM at any point since 2020 wouldn’t have been a very smart decision as the Fed was already stuck on zero and there was likely only one way they could go—up. Rates could even continue spiking if a re-ignition of inflation concerns pop up. But I’m willing to take that risk to then try to refinance into a shorter duration fixed product in a few years.

Also, do not do an ARM without doing your due diligence or speaking with a financial advisor. They are not for everyone and there is a level of risk that you have to be able to handle. Everyone I spoke with about the ARM agreed that we fully understood the risks and were taking a calculated bet that will hopefully work out for us in the long run.

Shop Local:

As mentioned previously, Schwab partnered with Rocket Mortgage to do this loan. We had originally used Rocket (d/b/a Quicken Loans) on our first home purchase 7 years ago, but only because my old college roommate was working there at the time. The rates and home prices weren’t really as crazy as they are now so it wasn’t a big deal to use them.

Before getting started on the loan, our realtor warned us about using someone like Rocket, but our hands were essentially tied by getting such a good comparative rate—and she agreed. My thought was who cares if we miss the close by a few days or whatever else bad could happen, as there was essentially nothing Rocket could do to screw it up enough that would cost us more than the $8k/year we were going to save once the loan closed.

The day we locked in the rate, we submitted all of the documentation within a few hours. We were off to the races. At this point we were probably 40 days out from close. The next step was to get the appraisal ordered and executed. From day 1, I expressed concerns about our home not appraising because of some of the added material and labor inflation that was baked into our build over the past year. Every person I talked to tried to calm my fears.

One of the documents we were required to submit to Rocket was the sales agreement document of the purchase price showing all of the selections we made including allowances and overages. So I submitted that document to Rocket with the caveat that it wasn’t a fixed price build. We had made thousands of design decisions that made the price go up and down on a weekly basis.

We received a warning from Rocket that they were going to appraise the house soon. Then a few days later we received a reply saying good news your home appraised above value. Well, the value was $3k above the contract price of the house that we went under contract on 15 months ago. The catch was it was about $85k short of what we were actually in for.

What had happened was the appraiser (Amrock) never looked at the upgrades we selected. When we sent Rocket and the appraiser the list of upgrades, they raised the appraisal value by about half, still showing us $39k short. Which now meant that we needed additional funds to close. Without having our existing home on the market we likely weren’t going to have enough funds to close so we opened up a pledged asset line with Schwab to act as a bridge loan until we could collect the equity from our existing home sale. We thought this was the best move tax-wise and timing-wise.

For 3 straight weeks I went back and forth with Rocket and the appraiser saying they were doing their job wrong (and that’s putting it politely) and were completely incompetent.

For example, they said they couldn’t find any good comparables. Within 2 minutes my realtor was able to pull a list of 8 or 9 potential comparables in which the appraiser had only used 2 or 3 of them. They also used a comparable to a 20 year old house that wasn’t even in the same subdivision (of all new builds no less than 3 years old).

I sent them 3 comparables that were in the same neighborhood as us (2 on the same street!) that they hadn’t previously used in their appraisal adjustment. One of the comparables was adjusted down only about 2% but then came in roughly $300k higher than what we were under contract for. In the appraiser’s notes, they literally stated: The comp was considered an outlier because of its similarity to the subject and having a significant higher sales price.

Excuse me? That’s literally the definition of a comp. You can’t pull an outlier because it doesn’t support your narrative. Every single person outside of Rocket I spoke with said they’ve never heard something like that coming from an appraiser.

Then when I sent them more comparables, they put one of the addresses in wrong. I texted it to Rocket and triple checked it so there was either a mistake on Rocket’s end or the appraiser’s end. Regardless, they just said “the address could not be found”. Why would I send them a fake address? Didn’t anyone think to check to confirm the address that I had sent?

At the end of the day I was able to get them to finally agree to some of the comparables we sent them and get them to appraise our house for $3k higher than what we paid for it, which means I didn’t have to pull in additional funds for close.

The cherry on top was when I got the final disclosure with closing costs I noted that my appraisal fee went up 3 separate times over those 3 weeks. I’m assuming it was because I kept having to go back to both parties to show them how to do their job for them—because they had an IQ of 50. Rocket wasn’t able to help us out on a lender credit for our troubles. Had they gotten the correct documents from the first appraisal or had an appraiser that actually knew what they were doing, we would have likely not had to deal with the extra cost and annoyance.

Then, once it came time to gather the closing documents, Rocket missed the date. They acted like someone would reach out, no one ever did.

We gave them 0 stars out of 10 across the board. Absolutely horrendous communication and execution. The company is run by teenagers. They will feed you with lies acting like they care. They don’t. It’s just another transaction for them. The appraiser from Amrock was insanely incompetent. Run, don’t walk, if you somehow end up with these people.

Lesson: Shop for a local lender that knows the market in your area. Only use lenders such as Rocket as the very last resort if you are able to secure a very good discount like I was able to. Do your due diligence before hand and you may be able to find better deals out there. You can also discuss 2:1 buy downs with your builder.

We knew we were going to be eating a shit sandwich and that’s exactly what was served.

Where to save money:

There were a few areas where we were able to save some money by doing it ourselves. Buying pretty much anything through a builder seems to always be more expensive. That’s because they already have you on the hook and many people building a new house want it completely finished by the time you move in.

Here’s a short list of some high ticket items that could save you thousands:

• Lighting: We were given a lighting allowance of about $3,600 that we had to use or lose. Once we hit that allowance, we put single light bulbs in all of the other rooms then purchased much cheaper sconces, chandeliers, and vanity lights online. If you are handy at all this is a great place to save some money. Ask them to put in caps or single bulbs to get past closing then come in afterwards and do it yourself.

• Fence: We knew we wanted a fence for the dog. The builder was trying to charge us an additional 20% on top to do the paperwork to add the cost of the fence into the loan. I reached out separately to 2 other fence companies and was able to save almost $5k by going directly to them and avoiding the markups.

• Closets: For the master we did an IKEA build. The builder grade closets were ok, but not great. We were able to upgrade ours to an IKEA buildout by doing it ourselves. It was super simple and pretty cheap all things considered.

• Window treatments: You’ll likely be able to save a decent amount by not buying blinds, shutters, or specialized glass with the builder. In our master bathroom we had 3 large windows that the neighbor could possible see through. So I bought some cheap film for $20 on Amazon and covered them to make them look like frost.

• Bid out anything you can: We were forced to use the builder’s vendors for cabinets, flooring, paint, landscaping, hardware, etc. If you have the chance to price shop, you’ll likely be able to save a good chunk of money between the different bidders. You’ll just have to spend more time reviewing and price comparing. It’s worth it in my opinion.

The burning question:

Would I build again?

Honestly, I’ve flip flopped on my answer many times. I think it definitely helps going through the process once before and understanding the pitfalls to avoid. Although, I’m sure there will always be new adventures on the next one.

If you asked me a few months ago I’d say hell no. However, today I think my answer is yes, I would build again. I’d make sure I get a reputable builder that doesn’t try to cut corners and can give you as much price transparency as possible. And I’d try to negotiate as many things as possible beforehand depending on market conditions. Assume you’ll go over 10-20% even if everything goes perfect. If you’re fine with that number then go for it.

Ultimately, it comes down to the fact that our first home was the traditional starter home and I spent so much time making updates to it to make it a home that fit our style. Not that I didn’t enjoy doing it but it had its limitations on what I had always wanted. Basic stuff too, like parking in a garage that could actually fit a truck, not having my clothes spread out across 3 separate rooms, having my own office that wasn’t shared with the kids’ playroom, living room, and gym, etc.

When you build a custom home you’re able to pick pretty much anything and make it your own from the start. We lived under our means for 5+ years to finally enjoy some of the fruits of our labor. While I still plan on adding my touches to this new house, we’re starting from a much more upgraded base where really nothing major needs to be done at this point. I’ll find ways to tinker with it just out of general boredom.

At the end of the day, it feels good to finally be done with it and I’m sure we will settle into it soon and love our time here. To everyone who is planning on building a home in the future or currently in the process, I’m always open to providing additional feedback via email to help you on your journey.

Godspeed.