I have more to tell you about the numbers from June, something obvious but important that I now have great visual data to support. I also need to tell you about our new plan because we aren't going to be trying to pay the car off by August now. However, we had a chance encounter yesterday that is begging me to write about it so that's what you're getting today.
We went into town yesterday to take Trey and his cousins to an airplane museum. They absolutely loved it and you'll be able to read about it in Chronicles in the next couple of days after the pictures are uploaded.
We went to the museum first thing and then to lunch. After lunch, Trey went with his Aunt Heather and all the cousins to go play in a pool and on a slip and slide. Tia and I were going to go do a small bit of shopping and if time permitted, go see a movie. It would be the third movie we had seen in a theatre in 3 years. Everyone should go to a movie at least once a year, don't you think?
During the week, my wife and I had been looking at some floor plans and there was one that I wanted to see in real life. On paper, it really had my interest but I wanted to know what it really looked like.
On our way to the stores, she called to see if they had a model of that home. Guess who answered the phone?
You remember our little visit with the house guy last week, the one that enjoyed talking down to us? Let's call him Pete from now on. She called and we went to a different city to check on this model home and Pete was there. It turns out that last time we just happened to catch him at the other model home and this was his office for the next couple of weeks. The neighborhood is all sold, including the model, so he'll be moving on to a new subdivision to peddle his wares.
We looked around the house and it was nice but it didn't do it for me. My wife asked what the price of the house was just so we knew. Pete wouldn't just tell us, he sat us down to give us a spiel. His mistake.
We did get the price in fairly short order. $360,000.
I was wondering how people bought a $360,000 home. I guess I shouldn't really wonder. We could buy one if we wanted. It would take up a large portion of our money but we could do it. We talked about it a great deal on the way home and maybe I'll go into that in a different post.
Pete started off by saying that most people don't like ARMs. I totally agreed and we moved on. He asked if I knew what a 2/1 Buydown was. I know that I shouldn't be surprised because of the large number of money games out there but still, with all the reading I do on housing, how is it that I have never heard of this creature?
He gladly explained and like all these things, I'm going to give a short rundown for anyone else that hadn't heard of this. It starts with a 30 year fixed rate loan and then they add a twist. For the first year, you have an interest rate 2% lower than the fixed rate. The next year, you have an interest rate 1% lower than the fixed rate. So, if you get a loan at 6.5%, the first year will be 4.5% and the second year will be 5.5%. The 2% and 1% are the 2 and 1 in the name. Now let's get to the buy down part.
What they do is put the money that you won't be paying in interest those first two years onto the total price of the home and it just adds into your house payment. In the example Pete used of a $200,000 initial purchase price (we'll cover this later in this post) at 6.5% for 30 years, $4,600 would be added on to the purchase price which would increase the house payment by $29.
Pete was making notes on a piece of paper which he told me was mine to take so that I could review everything when we left. That was handy and I didn't wait until we left. In the example, the normal payment would be $1,264. The first year the payment would be $1,013. The second year it would be $1,135. The theory is that the reduced price by $250 the first year and $129 the second year gives you time to make more money and prepare for the final price of the house. He told us that cutting a mortgage payment by $100 was big. Dude, if you don't have $100, don't buy a $360,000 home.
I grabbed *my* paper, *his* pen, and *his* calculator and did some figuring while he tried to sell my wife beach front property in Florida that will soon be covered by water from the melting ice of Greenland. Okay, truthfully, I don't know what he was telling her but this is what I told her when I got done with my calculations.
"If we do a 2/1 buydown, we don't pay $4,560 in the first two years but over the 30 years of the loan, we pay $10,440 instead."
"That's not right," Pete said.
Hell, maybe I misunderstood something that he had explained to me so I walked him through my process to which he replied, "Yes, that is right," to which I replied, "I'm not going to pay twice as much as I need to for something," to which he gave me the "you will get raises when you start your new job" speech to which I said, "I'll just stick with a 30 year fixed rate with no twists," to which he finally shut up . . . for a second.
His next thought, he caught himself before he said something incredibly stupid to me.
He was going to tell me about EBP loans but said, "You're probably not the kind of guy that would do an interest only loan, are you?"
"No," said firmly with a look of "You do not want to open this can of whoop ass on that scam."
He picked up on it and he moved on.
He told us about a great deal if we bought a house in the next couple of weeks where we could get a third-car garage (a $10,000 value) for free.
"We only have two cars and don't want a three car garage," I said.
"I can get you 6,000 sq feet of sod at a different place," he said.
Actually, that one interested us but I was so tired of dealing with Pete that I didn't say anything not to mention the fact that we told him we probably wouldn't be buying for a couple of months and he kept throwing out these "act now" deals at us.
"That would be nice," Tia said, and we closed the meeting and left, pretty much deciding that we will never deal with Ivory Homes ever again because of one guy. It's not so much that he was throwing out these scams at us because I know a lot of people take them and that's how they get into the homes. It was that he didn't listen to a thing we were saying. He should have read my post and your comments on customer service. We were telling him what we wanted and he was doing everything in his power to do the opposite.
One final note which I picked up on in the meeting and pointed out to my wife later and my brother when we got to his house. Every example he used (I didn't post about them all or I would have ended up writing a second book) was with a house that costs $200,000. Ivory Homes does not have any houses within 50 miles of where we were sitting that were under $220,000. He was using an imaginary number so that the house payment numbers would seem small. $1,200 for a house payment? Easy, peazy, lemon squeezy (5 Sword Points for the first person to tell me the movie that's from).
He had already told us that the house we were interested in was going to cost around $360,000. Couldn't we have used those numbers? Sure but everything would have been 75% more. A 2/1 buydown would have cost us $17,000. The house payments would have been $2,000.
You want to get people to buy into the dream of owning this beautiful house and buy into the dream that it will be easy to afford before you start talking about reality. Once you get them committed to owning the house, you can guide them through the rest of the process and take the money out of their bank account (almost as fast as they can put it in).