Friday, September 30, 2011

Update - This is No Fun

It's Friday and we should be cruising into closing.  We've got to finish packing and be out of our apartment on Sunday.  One night in a hotel, then close on Monday.  Not fun, but not terrible.

Things began to fall apart today at around 3pm.

Dealing in Bad Faith
A few weeks ago, the house sustained significant flooding in the basement during Hurricane Irene.  The seller described this as a once in a decade type event, and we also confirmed with neighbors that flooding was unusual.  We were concerned though that the washer, dryer, water heater, and central air equipment might have been damaged.

We were told through the seller's attorney that the water heater was being replaced due to damage, and that the seller had paid for the basement to be pumped, cleaned, and treated so that mold wouldn't grow.

We inquired about the other equipment - we were afraid that it might be damaged or destroyed.  We requested that the seller have all the equipment inspected and pay for repairs if necessary.  The seller's attorney stonewalled us saying that it was their duty to deliver the items in "working order".  We want back and forth, but in the end, unfortunately that's the wording of the contract.

Flash forward to today - my attorney sends along the detailed final closing costs (more on that later) and it includes a $200 credit for the dryer.  He contacted the seller's team, and we find out for the first time that the dryer was destroyed.  We had inquired about the equipment and asked for them to be inspected, but we did not specifically ask what condition they were in.
Such a headache!

In the contract, the seller had included a rider which said if any of the equipment was no longer in working order, we'd get a $200 credit per item.  We included a rider subsequent to theirs, which said all equipment must be delivered in working order and that our rider supersedes theirs in all cases.  Therefore, the seller is obligated to deliver the equipment in working order.

So now we are headed to a standoff.

The dryer, new, cost >$1,000 (it really is a high end machine).  We think $750 is fair compensation, as it is a few years old and I found several listings on the internet for the machine ranging from $750 to $1,000.  The language in the contract is clear that the seller needs to deliver a working machine.  Since that is not an option, we're in a bit of a gray area.

The worst part is that we are heading into this standoff with no leverage.  The seller and his team know that we are out of our apartment and will be staying in a hotel.  The dollar difference is only $550, and it's not worth it for us to refuse to close and burn through the $550 in truck rental and hotel costs in a few days.

I think the seller and his team are clearly acting in bad faith - we inquired about the equipment weeks ago but we first hear about this just before closing.  Their $200 offer is ridiculous given the value of the machine and that we are legally in the right.

I can't say I feel that this is going to work out well for us.

Surprises in Closing Costs
We've discussed what closing costs would be for months with our mortgage broker as we knew we'd be tight on cash.  We found out today that we need to pony up several thousand dollars more on Monday, and there's nothing we can do about it.

The first increase in closing costs is expected - at closing you have to pay for the interest due on the loan for the remainder of the first month.  When we had scheduled closing to be in late September, that total was four or five days worth of interest.  Now that we are closing in the very beginning of October, we owe almost a whole months worth.  The good news, though, is that our first mortgage payment won't be until December.

The second area where we were surprised was in the property taxes due up front.  Property taxes can be collected by a municipality annually, semi-annually, or quarterly.  Our broker assumed it would be quarterly.  At closing, the buyer has to reimburse the seller for the property taxes paid that cover the days, weeks, and months after closing.

In our case, White Plains collects taxes semi-annually, not quarterly, so the two payments are much larger and cover longer periods of time.  We found out today that the seller recently made a payment covering many months ahead, so now we have to reimburse him for that.  There wasn't really a way to know this ahead of time, but the end result is a few thousand dollars due Monday that we weren't expecting.

On To Closing
Our attorney and Realtor are contacting the seller's team over the weekend to try and work something out about this dryer.  They are in the wrong, but we have zero leverage, so we'll see how this plays out.  It will be interesting to see the seller and his attorney face to face on Monday - I'd like to sign the final document then tell them both how I really feel.

Tips to Avoid Being Stuck in a Bind
  • Communicate frequently with the seller.  We should have explicitly asked him if anything was no longer in working condition.
  • Avoid being forced to close - if we had our apartment for 15 more days, we could threaten to delay or threaten to walk away if they don't settle
  • Every time an important date changes, make sure you know how that affects all the closing costs
  • Ask the seller or the municipality about taxation policies and due dates


I had never really watched HGTV until a few months ago.  My Realtor said that would change, and he was right in a big way.

The programming is a mix of shows for homeowners and home shoppers.  I assume it is an evolution - you watch the shows relating to house hunting, then once you've made a purchase, you are more interested in how to decorate and renovate.

House Hunters
You can probably guess what the show House Hunters is about.  It tracks a couple who go see three different houses and discuss the pros and cons of each.  At the end, there's a forced sit-down review where the couple makes their decision.  Pamela and I guess which home they pick.  It's amusing. 

There's also House Hunters International which is the exact same, but you get a mix of US and non-US couples looking for homes / vacation homes around the world.

Be a TV Star!
Had I been watching HGTV before we began our own house hunt, I would have certainly applied to be on the show.  You can find out about applying to be on one of the shows here.

We're definitely going to apply for one of the programs once we are in our house.  Several are looking for NYC area volunteers.  Wish us luck!  Home buyers to bloggers to emmy winning TV stars!

Thursday, September 29, 2011

Tips to Avoid Real Estate Scams

While we hopefully all know to avoid e-mails asking for money to release funds held in Nigerian, scam artists are trying new routes, both on and offline.

Avoid Anything Overseas
I ran into this one myself and actually followed along for an e-mail or two.  We were looking for a new rental; both apartments and houses for rent.  A seemingly normal Craigslist posting offered to rent a nice house for a low rate, but not astonishingly low rate.

I thought to myself, "well, this is possible, perhaps someone is downsizing or moving and looking for help with the mortgage payment for a few months".  I looked up the address on Zillow and saw that the house was also for sale.

I e-mailed the poster and got a response asking for more information about myself including when I'd like to move in and other basic questions.  To this point, the only red flag in my mind was that the asking rental price was low.

The next e-mail I received was a dead give-away.  Poorly written, several woe is me stories about the missionary work this person was currently doing overseas in Africa, and then a request to submit a full application.  The e-mail also said that upon receipt of my deposit, we'd be sent the keys.  I didn't respond.

Flash forward to a few months ago.  I mentioned this to our Realtor.  He said this was a growing scam.  Anyone can see which houses are for sale and possibly vacant.  They can copy the pictures from the listing to make it seem like they do live there.

Another Realtor in his office had driven past a home he was selling and saw moving trucks.  He stopped the people and asked what was going on.  They explained how they were renting the house and so forth.  He had the unfortunate task of informing these people they had been scammed and that the house was not for rent.  They had to put their belongings back in the moving truck.

Go Straight to the Source
This might not apply to many people, but this was a frustration I ran into when I was renting in NYC.  I found a post about an apartment on Craigslist.  It sounded nice and the broker said there would be no fees.  I actually knew the housing complex.

While it wasn't really a "scam", I met the broker on the street corner and he walked 25 yards with me to the leasing office.  The leasing agent for the complex handled the rest of the process.  I found out at the end that new renters either got $500 off, or $250 off and $250 to whomever referred them.  Apparently this broker (and others) were making $250 a pop for the 25 yard walk.

Blog Update - 1,000 pageviews!

Wow!  Thanks to everyone who has been clicking and reading.

I wasn't sure if this blog would have 2 pageviews per day for a year, but I'm really pleased that people have taken the time to give a look.  It's been a really fun project so far.

Please feel free to +1 this on Google+ or spread the word socially if you think this blog would be helpful to someone.

Leave me any comments if you have any problems, thoughts, or suggestions.

Anyone home shopping and want to guest blog?

Tips for Checking Out New Neighborhoods Online

If you are moving from out of town or out of state, it can be a challenge to get a feel for a place you may be moving to.  While nothing compares to visiting and talking to locals to get a feel, there are some good online resources you can use if that is not an option.

Virtual Stroll
Pamela and I used Google Maps and its StreetView functionality to actually see what "Main Street" looked like and whether it was inviting.  You can do this by zooming all the way in on a map.  Once you hit the final zoom, the map converts to a view of the street, which Google takes by driving cars equipped with cameras and GPS devices around town.

I found that the forums on City-Data were very useful.  A lot of the questions you would like to ask have probably already been asked - "how are the schools?  what is the nightlife like?  what is there to do?  pros/cons?".  There is also a vibrant community of forum users who provide helpful responses very quickly.

Local News
Finding the local newspaper isn't always the easiest, but with a few good Google searches, you can probably be successful.  Through the local news, I found out about local events and attractions and you can also learn about the key local issues such as upcoming tax hikes, crime, new developments, etc.

"Where to live in ____".

Wednesday, September 28, 2011

A Break in the Clouds

Our landlord is allowing us to stay in our apartment until Sunday night!

We had requested an extension when we first found out the seller wouldn't close before our lease was up.  Our landlord said that they had already rented our unit to the next tenant, although they wouldn't be moving in that weekend.  We were told that if the preliminary inspection of our apartment went well (no damage that would take time to repair), then we could potentially stay.

Hence, the drywall project (w/Montage!)

Today we were told we could stay until Sunday night.  Now we only need to store our belongings and crash somewhere for one night.

So, here's a big Thank You to the Avalon White Plains - Time Well Spent!

Buyer's Market; Best Deals in a Generation?

Bloomberg has an interesting article today arguing that the current property market may be the best opportunity in a generation:

People like the Matthewses who are able to survive the scrutiny of mortgage lenders are getting the best deals of the five-year U.S. housing bust, and perhaps the best deals of a generation, after a 31 percent decline in home prices since 2006. It’s the bright side of an otherwise bleak real estate market: Good houses at cheap prices are plentiful, while loan rates are hovering at record lows.

How about this bold prediction:

“It’s hard to see the possibility of losing on a home purchase right now, with these mortgage rates,” said Dean Baker, an economist who in 2005 predicted a decline in the government’s home-price index that now is within two percentage points of his forecast. “Prices may go lower, but not by much. Even if they do, you’re still getting a good deal.”

Great time to buy - sure, but a no-lose situation?
There certainly are a lot of reasons why buying might be a sound decision right now, including rates and depressed prices.  But let's not get going down the path of five years ago where everyday people were buying several homes with the expectation that they would flip them in a few years.

The economy is in the tank, and I predict it will get worse before it gets better.  If your employer has been laying off workers, is it a good time for you to take on hundreds of thousands of dollars in debt?  

The weak economy and layoffs also reinforce the foreclosure cycle.  Layoffs lead to missed mortgage payments which lead to a foreclosure.  That foreclosure can lower the value of other homes in the neighborhood and multiple foreclosures in the neighborhood can cause real problems.  Mortgage holders who are current start to ask themselves if it is worth it to continue to pay a $500,000 mortgage when their house is only worth $350,000.  This can lead to "strategic defaults" wherein a homeowner can afford to pay his/her mortgage, but chooses not to.

Where are we in the cycle?
Mike Shedlock at Global Economic Analysis updated the pictorial below in late August.  The graph compares the US housing market's bubble and bust cycle to the cycle Japan experienced a decade ago.  His most recent commentary was in response to a reader's question on when to buy and how far are we from the bottom:

As you can see, the housing bubble in the US (red text) follows a similar trend to the bubble experienced in Japan (blue text matching the prices on the left and dates at the bottom).

In his opinion, there are still many sellers who are at the edge.  A slight push and they'll "Sell Before It's Too Late" which will compound the housing bust.  I don't completely agree with this, although I am fearful that if we do enter a full-fledged recession soon, we may see this.  My current expectation is for government support to keep the economy and housing market from collapsing, although I would not be surprised if we do technically re-enter a recession.  My caveat is that if the Super Committee gets bogged down by political ideologies, the markets will tumble and uncertainty will abound.  This will quickly reach the economy and the housing market.

Please note that in the above pictorial, the blue text highlights the psychology of home buyers and sellers.  When the market is at its worst, participants believe "It's Better to Rent", while on the upswing, they believe buying is the best option.  As I discussed previously, excluding potential appreciation of a home's value, I think the renting versus buying markets are priced quite similarly.

Tuesday, September 27, 2011

Will Assaulting the Seller Help Closing?

More than two weeks ago, the seller (through his attorney) asked us if we'd be ready to close on Friday, September 23rd as scheduled.  We said "Yes".

We got the "clear to close" on Monday, September 19th, but then the seller said he needs at least 7 days notice to close.  So we said, "Fine, let's do Monday, September 26th".

We next were told the earliest the seller could close would be Monday, October 3rd.  Our rental lease ends on Sept 30th, so this is a problem.  Could we move our belongings into the garage ahead of close, we asked.

Well, we've waited five days and finally were told by the seller's attorney "Well, there might be space in the house for your belongings, but I will advise my client against allowing you to do so because of the liability".

Should we physically assault the seller and his attorney?  (Just a joke!  I bet a lawyer could make a big deal out of this).

Because the seller apparently doesn't care about screwing us over (by the way, he is moving in with his mother 15 miles away, so it isn't like he's waiting on his next home to be ready) we will be moving our belongings into a U-Haul truck on Friday night.  We'll then need to find a place to park it.  Pamela, Akina, and I will then find a dog friendly hotel or stay with a friend until Monday.  We'll go to closing on Monday, and depending on when we get the keys, move in Monday night or Tuesday morning.

Lessons Learned

  • If you are up against a deadline (lease ending) leave yourself PLENTY of time.  Besides delays in getting the "clear to close" you could run into a slow moving seller.  Or, perhaps the seller is waiting on their own new house to be ready.
  • Put strong penalties into your contract if closing gets delayed due to laziness.  Once you have received "clear to close' make sure there are monetary penalties in place if either side fails to move at a reasonable pace.
  • Communicate often.  I would've thought when the seller asked if we'd be ready to close in 2 weeks, that'd be the signal to start the clean up and move out process.  Apparently not.
I have a sneaking suspicion that the seller's attorney is behind all of this.  We'll get to closing and the seller will have no idea how much trouble he has caused us.  "Oh, I thought you wanted to close on October 4th.  I was ready to go a week ago!".  That's my hypothesis at the moment at least.

Monday, September 26, 2011

New Home Sales at Six Month Low

August government data showed new home sales at a six month low, led by buyer focus on distressed properties and increasing foreclosures which keep housing prices low.  According to a Bloomberg report:

Purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties.

Sales, tabulated when contracts are signed, dropped 2.3 percent to a 295,000 annual pace, figures from the Commerce Department showed today in Washington. The median estimate of 73 economists in a Bloomberg News survey called for a decline to 293,000. The median price slumped 7.7 percent from August 2010, the steepest 12-month drop since July 2009.

Foreclosure-driven price decreases for previously owned homes may keep attracting investors away from new properties, hurting builders like Lennar Corp. Limited access to credit, rising unemployment and waning consumer confidence also signal the industry that helped precipitate the recession will take time to find its footing.
Looking forward, September and October data could show improvement with mortgage rates moving much lower as compared to August.

Saturday, September 24, 2011

How to Repair Drywall Damage (w/Montage!)

As you are getting ready to move into your new home, you probably have a few things to take care of at your old apartment.  All landlords are different, but besides leaving your apartment "broom clean" you might be asked to repair any marks or damage on the walls.  Your landlord will be more than happy to use your deposit money to make these repairs, but with a little help from the video below, you should be able to make these repairs yourself and do it without spending much money.

Supplies and cost:
  • DAP spackling paste or ReadyPatch - $4
  • Putty knife - $1
  • Hand sander - $9
  • Sand paper - $3
  • Primer (recommended, or use Primer+Paint) - $15
  • Paint - $10
  • Paint brush - $3
  • Flat head screw driver - $2
  • Hammer or mallet - $5

Friday, September 23, 2011

Furniture Shopping

Pamela and I haven't owned much in terms of furniture over the years.  Dorm rooms and then NYC apartments aren't particularly spacious.

My parents, who live in the tri-state area, have offered to let us take our pick of furniture they have in storage or sitting in a garage.

We'll still be in need of a lot of items, but at the same time, we aren't in any rush.  We don't need to have a bed in every bedroom and for the most part, we'll only use two chairs at the dining table (Akina's bowl sits on the ground).

A Few Tips
While you probably don't need help selecting furniture, let me just add a few comments from our searches:

  • Make a priority list - you can go without a tea cozy for longer than you can go without a place to sit while you eat.  This also goes back to proper budgeting.
  • Find furniture you like even at stores you can't afford - lower priced retailers will likely carry something similar.  You can also use key words from a high end retailer's description of its product to help you search online.  This seems particularly true about lighting fixtures.
  • Measure - "Measure twice, (purchase) once"
  • Move in, then purchase.  There isn't much of a point in loading up on bulky items that you or movers will have to haul.  Also, once you are in your home, you can better understand the space you have to work with.  
  • Buy on sale - A couch is not a phone or an iPad - technology hasn't evolved making last year's products obsolete.
  • Sign up for the store's credit card - you could spend thousands of dollars on just a few items.  Store credit cards will often offer a discount or some sort of rewards currency for future purchases.  These cards often have very high interest rates, so I would advise you to purchase, get the rewards, then pay off in full.  *Warning* Don't sign up for new credit cards while your mortgage process is ongoing - lenders really really don't like that.
Pamela and I bought a sectional sofa several months ago from West Elm.  We weren't yet house hunting, but Pamela felt it would fit in our apartment.
Akina likes the couch!
This sofa design was being discontinued.  The store had it out on the floor but didn't have any others to sell, so it was doing little more than taking up space.  We didn't necessarily want all the pieces, but the store manager gave us a huge discount if we'd take all of it out of the store that day.  Soon we'll have a full living room and it'll fit a bit better.
Where to Shop
Below is a rough ranking of stores in terms of the pricing of items they sell (cheapest to most expensive):
IKEA - everything you'd want in one location with low prices
Brooklyn Flea - we haven't had a chance to go, but friends have come home with great pieces at great prices
Bob's Discount Furniture - the ads might be a bit on the cheesy side and you might be reluctant to shop here.  Pamela didn't even want to stop the car but I convinced her to check it out with me.  What a great store!  Big selection and very low prices.  The store we visited near Paramus, NJ has a complementary cafe. Pamela fell in love with a recliner with massage controller... maybe next time.
West Elm - a personal favorite of ours
Crate & Barrel - speak to a sales rep about a "Homebuyer Coupon".  You fill out a form which needs to be approved, but you are then granted a one time coupon for 10% off.
Restoration Hardware - most of the items here are a bit above our range.
Ethan Allen - a high end store with quality products and prices that reflect
Drexel Heritage - high end, lots of customization options
Stickley, Audi & Co. - high end, lots of customization options

There are a lot more options out there including other chain stores and Mom & Pop type stores.  Heck, you can even make your own furniture.  Have fun, but don't break your budget!

At Least Some Good News

We are still trying to resolve this whole issue about not having a place to move our stuff or stay, we did get some good news.

Our mortgage broker called to let us know we would be getting a lower rate!

We had locked in a 4.5% rate early in our process, although we decided to "sell" 0.25% to the broker who would then fund a large portion of our closing costs.

Our rate now moves down to 4.25% (and that includes the 0.25% we are still selling).

This is great news!  Using the Mortgage Rate Comparison tab, we will now be saving more than $100 per month for the next 30 years.

Preparing Your Financial Docs

Getting your financial documentation in order for a mortgage is quite an undertaking.  I can't imagine what it must have been like before we could all pull our statements off the internet.

This post is designed to fill you in on what your banker or broker will be looking for in order to get your mortgage approved then cleared to close.

You can be assured that they'll request two months of statements from your checking, saving, investment, retirement, credit card, and student loan accounts.  If you already own a home, they'll want a copy of your original promissory note and recent statements.

Our process got a little gummed up due to a few things that could have been avoided:
  • Cash deposits - if you deposit a large check (depends on your situation, but we got flagged for amounts >$500), they will ask for a letter of explanation and for you to paper trail the source (copy of check or deposit slip).  In our case, we got flagged because Pamela wrote me checks to be the holder of the funds for the down payment.  These were easy to paper trail.  We ran into trouble with a cash gift that Pamela's parents deposited into her account.  The broker requested Pamela's parents checking account statement along with a signed gift letter stating that we didn't have to repay it.
    • A note on gifts - our broker told us that you can have your application denied if you receive a substantial gift.  The thinking is that the banks don't want to loan people money who can't make a down payment on their own.  So keep this in mind if you might need help on your down payment - if the gift is made far enough in advance, it won't show up on recent bank statements.  Otherwise, gift givers should wait until after you close.
  • I also received regular monthly checks from our renters in PA (see rental property).  When my Brother and I came into possession of the house, we were never put on the mortgage so it didn't come up in my credit report.  Needless to say, we should have discussed this more up front.  As we were hoping to close, they asked for the original promissory note - from 1986.  I had my mother mail me a book of documents that she had on the house, but the note wasn't among them.  I was able to get a copy from the mortgage holding bank, but this took time.
  • Loans from retirement accounts - this was probably the first situation where online statements caused problems.  Pamela's pension fund is not the most technologically savvy, so when a large direct deposit showed up in her checking account (the pension loan) we were unable to provide a statement.  She called the administrator only to be told that statements are printed quarterly.  They offered to write a letter confirming the loan, but this would require time to process.  In the end, she printed a screen shot of the website and wrote a letter explaining the situation.
Your broker will process through all of these documents and then provide you with a Commitment Letter.  This essentially says that the lender thinks you are worthy of the mortgage you are asking for and will outline the rate and the terms.  The Commitment Letter will come with conditions.  This is the lender saying "we'll give you your loan based on what you gave us, but we see a few things that we want more information on.  If we don't like what we see, we aren't obligated to give you the loan."  Once you complete those conditions, you may be "cleared to close" or the lender may provide you with more conditions.

Besides being mindful of the issues we ran into listed above, I would suggest you stay on top of whoever is processing your loan.  In fact, being proactive is the best option.  If you have received a gift, get the documents in advance.  You don't want your broker to be doing one final run through and come across something he/she missed that will take days to complete.

Thursday, September 22, 2011

Eye on the Prize

Almost There!

Mortgage Rates and Calculations

If you follow the financial markets, you may have heard that the Federal Reserve took action to help the economy recently.  One part of the plan is to help keep mortgage rates low.  In fact, mortgage rates have hit lows not seen since 2009.

So Where Are Rates and Where Have They Been (and Where Are They Going)
I've mentioned on several posts where you can go to check mortgage rates.  These include Bankrate, Mortgage News Daily, or even the website of you local bank.

To get a sense of where rates have been recently, Mortgage News Daily puts together a chart here.

Rates are low and it is a great time to take out a mortgage, but I don't think you need to rush.  In order to spur the economy, and also to allow the government to refinance its own debt (a significant portion of which come due in the next few years), I believe rates will stay low for quite some time.

So now that you've got a sense of where rates are, how can you use that to figure out how much you'll pay each month?

Spreadsheets You Can Play With
I've created a spreadsheet with an Comparison tab and an Amortization tab.  Click here and you can make a copy of this spreadsheet for yourself.

The highlighted and bolded cells are the ones you should look to change.

The Comparison tab is built for just that purpose - you can play around with different purchase prices, down payments, interest rates, and mortgage terms.  This can be very helpful in your budgeting.  Once Pamela and I had made an offer, we used this spreadsheet to see how much our monthly payment would go up if we raised our offer by $5,000.

Once you have an offer accepted and you know the purchase price, you can change the interest rate cells to see how your monthly payment will changed based on the rate you get.

The Amortization tab shows you how your monthly payment will be split over the life of the loan.  You'll notice that early in the loan, you'll be paying a lot more interest.  As the balance of the loan goes down, those interest rates shrink and more of your payment goes towards paying down the loan balance.

The Additional Payment column is really insightful.  How quickly can you reach 20% equity or pay down your loan completely if you can add $100 to your monthly bill.

Disaster Strikes

My first blog post noted that by starting a blog I was jinxing our process.

Today it hit - even though we have been talking about late September as a closing date for some time, today the seller informed us that he wouldn't be ready to move out / close until Monday, October 3rd.

As renters, this creates quite a problem.  Our options at this point:

  • Asked our current landlord if we could stay longer - while they have rented our apartment out, that person isn't planning to occupy the apartment until October 10th
  • Move our furniture into "our" garage - this may be possible with the seller's permission, although we'll have to then move it out of the garage after we close.  2 moves < 1 move.  We'd also have to find a place to stay for Friday night through Tuesday
  • Move our furniture into a moving truck and rent it out until we can move in.  We'd also need to find a place to stay.
Since we can't stay in our apartment, there isn't much point in renting out another unit in our building for a month and pushing back closing.

Lessons learned:
  • Communicate early and often with the seller and his lawyer / Realtor - make sure they understand the need to close "on time"
  • Perhaps have your lawyer add a "late closing" penalty into the contract
  • Try to schedule your closing date for the middle of the month / expect delays.  
On the last point, I was walking our dog this morning and I ran into a woman I know from our building.  She asked how the process was going and I gave her the update.  She said that they once had a similar issue - there were three houses involved and they all needed to close at about the same time.  Owner A was selling and moving into House X, Owner B was selling and moving into A's home, while Owner C was selling and moving into B's home.  Closing needed to be coordinated for the same day.  Needless to say, there were problems and the whole thing was a mess.

So, anyone have a place for Pamela, Akina, and I to live in for a few days?

Conflicts of Interest

There are a few inherent conflicts of interest that you will likely run into during your home buying process.  I think it is useful for you to be aware, although hopefully you won't run into any bad situations.  You should interview as many real estate professionals as possible and rely on the advice of your friends to find someone who is trustworthy.

Your Realtor (Buyer's Agent)
The Realtor only gets paid a commission if you purchase a house.  So, like any other salesperson, you should have some skepticism if you aren't finding anything you like, but the Realtor is pushing you to reconsider.  A good Realtor will help you to understand if your expectations aren't realistic.  A bad Realtor will pressure you to move forward on a house that you are only luke-warm about.

This conflict can also come up after you've had your offer accepted - perhaps you discover something during the inspection that makes you consider walking away.  If you walk away from the deal, the Realtor's time to that point could be considered "wasted".  A good Realtor, of course, will be happy to help you look for a new house.

The buyer's agent also gets paid a percentage of the sale price.  It is in your best interest to pay the lowest price possible, but this does not help your Realtor.  Consider this when you are placing an offer on a house.  If you are a first time home buyer like I am, you'll probably rely heavily on your Realtor's advice.  If you feel strongly about what you want to bid, but your Realtor thinks you should go higher, take this advice with a grain of salt.  Consider the extensive budgeting and spreadsheet work you have done and don't let anyone push you into a house you cannot afford.

Your Banker / Mortgage Broker
Your banker / mortgage broker's job (I'll just refer to this person as a broker) is to generate business for his/her firm.  He is trying to make the most profit off of you as possible, without scaring you away.  Your best defense here is to shop around.  You can speak to multiple brokers and you can compare what they are offering on

Now, just because Bankrate says you should get a 5.00% mortgage but your broker is offering 5.15% doesn't mean he is trying to take advantage of you.  Rates on Bankrate are quoted using the most basic parameters (zip code, purchase price, % down, range of credit score).  Some lenders on the site will also show a rate such as 5%, but they will charge substantial fees.

Brokers earn money in two ways - fees and selling your loan.  Fees are pretty straight-forward - they'll charge you an application fees, processing fees, bank appraisal fees, etc.  If your broker doesn't work for a major bank, there is a good chance that they will not hold your loan.  In this situation, their goal is to charge you as high of an interest rate as possible (without you going elsewhere).  They are then able to sell that loan to a major bank which, for example, is happy to buy a 5.15% 30 year loan if you have a 800 credit score, when they know that would usually be priced at 4.75%.

It might not be a "conflict" but I think it is also important to make clear that once you've started down a process with a broker, it is difficult to change.  Over the past few years, new legislation has been introduced that requires brokers to provide a "Good Faith Estimate" or GFE which should detail all the costs of your mortgage.  Pay close attention to this, ask lots of questions about what each item means, and ask what numbers could change.  As you get closer or reach closing, make sure these numbers don't change.

Your Lawyer
You should actually feel pretty safe here.  Your lawyer gets paid whether you complete a deal or not.  The only conflict that could arise might be if your lawyer and your Realtor or broker have a close relationship.  If you are being charged hourly, of course they have incentive to bill you for more hours.

Your Inspector
Again, not much to worry about here.  He/she gets paid either way.

The good news is that Realtors, brokers, lawyers, and inspectors find a lot of business through referrals so it is most definitely not in their interest to treat you unfairly.  They also could face serious consequences for treating you unfairly.  It is up to you though to seek out real estate professionals you can trust.

Bad Home Buyers and the Real Estate Professionals Who Hate Them
From their point of view, there are a few bad behaviors that will leave them frustrated and less willing to help you:
  • Home buyers who are unwilling to sign paperwork saying they are represented by a specific Realtor
  • Home buyers who think house hunting is a fun way to spend their weekends but have no real intention of buying (and don't say so)
  • Home buyers who get too excited, make offers, but then realize they can't afford the house
  • Home buyers who get cold feet and try to create ways to get out of a deal
  • Home buyers who try to negotiate with a seller on the side to reduce the purchase price on paper - this can lower the loan amount you need or could allow you to pay with income you haven't declared, but a lower purchase price means less commission for the Realtor and can raise red flags with your broker and lawyer
  • Home buyers who drag their feet in getting paperwork to their broker, but then dump a pile of documents on them and get frustrated at the turnaround time

Wednesday, September 21, 2011

Guest Mobile Blog by Akina

Our dog Akina just wanted to check in to say how excited she is to be moving soon.  She's most excited to have a yard of her own and for her daddy to build a five-star dog house.


Our Timeline

Many people ask: "How long does it take to buy a house?" to which the answer is always "well, it depends".  Below is a quick outline of the process Pamela and I went through to give you at least one real-life example.

I would say that for us, the time it took to find a house was extremely short.  We certainly were looking online a lot, but we really only did two days of actual house viewings before we put in an offer.

Our Timeline
Spring and Summer 2011 - Thinking about rent vs. buy
Summer 2011 - Start casually visiting Zillow, Bankrate, and other sites to look at houses and learn more about the process
July 2011 - Really looking in earnest at what is out there and ask friends for referals
July 21st - Filled out a pre-qualification application on a major bank's website
July 21st - Called a Realtor who was referred to us and subsequently called a mortgage broker
July 24th - Looked at houses online, visited a few houses with our Realtor, then did drive-bys of houses for sale and their respective neighborhoods
July 25th -  Viewed more houses and visited more open houses - found the home of our dreams
July 26th - Put in an offer on the home of our dreams
July 27th - received counter offer, countered the seller's new offer, our offer was accepted!
July 28th - went to house and performed the inspection
July 29th - received memorandum of sale; contacted and hired lawyer
August 1st - received first draft of sales contract
Early August - sending financial lives to mortgage broker for mortgage application
August 9th - received executed contract of sale
August 24th - received mortgage commitment with conditions
Late August - sending financial docs to mortgage broker to answer remaining questions / fulfill conditions; called around for home insurance quotes
Mid September - more document requests; purchased home owner's insurance
September 20th - received "clear to close" from mortgage broker; scheduled closing for one week

Financial Budgeting Tips

The following blog is a more detailed view into financial budgeting.  Whether you are making a large purchase (a house!) or taking a deeper look at your savings, these tips could be helpful for you.

Becoming "House Poor"
A classic piece of advice when buying a home is to avoid being "house poor".  This is the situation where you spend all your money to get the house, but then end up with an empty home because you can't afford to buy anything.

I am a bit torn on this concept - the advice is sound, but I think it really depends where you are in life.  Buying a home is a long term commitment andI think you need to think about both sides of the coin.

You didn't spend enough
You bought a house that you can somewhat easily afford.  You are paying off your mortgage and saving a substantial amount each month or maybe paying down the mortgage at an accelerated rate.  You also have plenty of money for surprise repairs and you get to go on vacations.  You aren't stressed about your monthly budget.  Sounds great, right?

The downside is if you bought a smaller home in order to save money.  Your family might be growing and you don't know where they will all fit.  What if you bought in a less desireable neigjborhood?  Are you concerned about crime or maybe don't get along with your neighbors?  Are the local schools decent or will that become a problem?  A lower priced house might prove to be more difficult when it comes time to sell.

You stretched your budget
You bought a great home in a great area.  You love your neighborhood and are proid to show off your home.  You also think you won't have trouble selling down the line.

The downside - you are embarassed to have an expensive home but have cheap furniture.  You have extra rooms in your house that you don't need and they remain as empty as the day you moved in.  You aren't able to save much money, much less go on vacation.  You are concerned that if the car breaks down or some surprise pops up, you may have difficulty paying for it.  This kind of stress can really weigh on your family life.

There isn't an answer to which one is better, but I would recommend that if you are younger and think your income and family may grow, you should probably stretch a bit.  If you aren't in that camp, do you really want to spend your next 30 years stressing month to month about the effect a flat tire might have on your finances?

Great Resources for Budgeting
I would highly recommend that you sign up for a free account with  By entering your credit card, banking, and other information and passwords, Mint will automatically pull your monthly statements and help you categorize.  And don't worry, Mint uses the same encryption technology that your banks use so it is just as safe.

The real value here is that you can track your spending in as little or as much detail as you like.  The site also provides charts to show the breakdown or how your spending has changed from month to month.

I've always been a bit fanatical about tracking my spending as well as my assets and liabilities.  I have an excel spreadsheet that I've updated every paycheck for years with this information.  While this has become more of a habit now than a valuable resource, I would recommend putting this information on paper and calculating your net worth.

Broadly, your net worth is the value of your assets minus your liabilities.

Monthly Budgeting Tips
The most important part about budgeting is putting together an actual monthly budget.  I've accomplished this using Google Docs.  I recommend Google Docs because it is a simple interface that is accessible anywhere, even on your phone, and it's free.

The key to good budgeting is making fair estimates.  This is where a site like Mint can come in handy and you might be surprised.  I thought, for example, that I probably spent $15 a month at pharmacies.  These trips were often because I needed something specific or was sick, but it was hard to remember how frequently I would make these mundane trips.  I would buy some contact lens fluid, toilet paper, Nyquil, etc., and be way over my budget every month.

Budgeting Walk-through
I put together a spreadsheet which you can access here.  It's a little bit rudimentary but hopefully it can help you get going on a budget of your own.  If you are signed into your Google Docs account, you should be able to click File then save a copy to your own directory which you can then edit.

I'm going to run you through some of the categories and inputs into my spreadsheet to help you through a real life example.

  • Income - obvious, but I would suggest putting your income and your spouse's income on separate lines (we'll get to that later)
  • Individual Expenses - I split individual expenses into separate sets just as I did with incomes.  I think this is a smart, fair, and open way to budget with your spouse, as you don't want to be in a situation where you can't support your bills with your income and are instead borrowing from their income.  Our expense line items include: shopping, golf (yes, I have a real weakness), trips, credit cards, and work-related.  Credit cards are a tough one - if you pay minimums, you end up suffering the most.  You'll probably be better off using monthly savings to pay down this type of debt first.
  • General / Household Expenses - these are a set of expenses that can generally be viewed as "shared".  These items include groceries, restaurants, gasoline, car payments, insurance and other cash expenses.  Some of these are set amounts each month while others can be harder to estimate.  One month you'll do a lot of cooking, the next will have more restaurant trips, the next might include a special (expensive) dinner.  Again, this is where Mint can help you come to reasonable estimates.
So how does it look?  Are you surprised by how much your budget tells you that you are spending or saving each month?  Do both partners contribute and spend fairly?  

If you've really sharpened your pencil to come to your savings amount, I would take that monthly amount and multiply it by 12.  I think that yearly amount is a fair representation, while the monthly amount tends to be very volatile.  I would also note that you should keep in mind whether you tend to have a tax bill or receive a tax refund after you file.  Owning a house does provide additional tax benefits, but I've always thought of this, in terms of budgeting, as a happy surprise I'll hope to see come May or June.

The second tab in the spreadsheet "Cash Flow" is something I used a lot as we were approaching the date our down payment was due.  Even if you know you are saving money each month, it may be important to know how much cash you'll actually have on the 13th of the month.  To use this, I entered a long list of expenses on the dates that they are due.

Keep in mind that your monthly budget will be volatile when thinking about how much you can afford to spend on a house.  A volatile month of spending can't lead to you missing your mortgage payment.

Lastly, it's a very good idea to pull your credit report in this process.  You can do it once per year for free through the government - be careful of ads you see on TV as these companies are simply providing you what the government is offering you, but they will try and upsell you on monthly monitoring services.

Low Mortgage Rates, but Weak Housing Market

The mortgage and housing markets are back in the news at levels that seem reminiscent of 2009.

Bloomberg discusses low rates but a poor housing market:
U.S. mortgage rates are the lowest in at least four decades, with a 30-year fixed loan available at 4.09 percent. That didn’t help Alexis Wolf buy a townhome in Beaverton, Oregon.

“Unless you have family help, you’re stuck renting,” said Wolf, 26, a real estate broker who turned to relatives for a loan because she didn’t have the credit and employment history needed to qualify for a mortgage.

Wolf’s experience illustrates the predicament for Federal Reserve policy makers as they end a two-day meeting today to consider ways to boost economic growth. Low interest rates, the traditional medicine for a flagging economy, aren’t helping housing, which since 1982 has aided every recovery except the current one.

Sales of existing homes rose more than forecast in August to a 5.03 million annual pace as investors used cash to buy distressed properties, a report today from the National Association of Realtors showed. The sales pace has fallen from a peak of 7.08 million in 2005, before the housing boom turned into a subprime-mortgage bust that helped drag the U.S. into an 18-month recession.

Rising foreclosures, tighter lending standards and unemployment stuck near 9 percent for more than two years are all weighing on the market. Lower borrowing costs aren’t likely to make a difference, said housing economist Brad Hunter.

Unfortunately, mortgage defaults are picking up again:
Default notices sent to delinquent U.S. homeowners surged 33 percent in August from the previous month, a sign that lenders are speeding up the foreclosure process after almost a year of delays, RealtyTrac Inc. said.

First-time default notices were filed on 78,880 properties, the most in nine months, the Irvine, California-based data seller said today in a report. Total foreclosure filings, which also include auction and home-seizure notices, increased 7 percent from a four-year low in July to 228,098. One in 570 homes received a notice during August.

Tuesday, September 20, 2011

First Seller's Post

You've probably noticed the vast majority of the blog to this point is related to our purchase of a home in Westchester, NY.

I recently began the process of selling a rental home my brother and I own in Pennsylvania.  This property was passed down to the two of us from our parents.

For the past several years, this property has been occupied by renters.  While some extra cash from the sale of this rental property would have been great for our home purchase, I wasn't in any hurry and didn't really consider it. 

In the midst of the home buying process, I received an e-mail from our renters.  They were expecting a baby and were beginning to look at purchasing a home of their own.  They asked if we would be interested in selling the Rental Property to them.

The timing was advantageous and we didn't have any long-term plans for the home so we thought we'd investigate.  I also found that there are some strong tax advantages to selling a home then rolling over the proceeds into the purchase of a new home.

We engaged a local Realtor, the same one who had sold our father's home, who put together a report on comparable homes for sale or recently sold.  This framework helped us to estimate the current market value of the rental property.  We then hired an inspector to take a look at the home - we haven't been inside the house for years and we knew some aspects of the house would need repair.

The inspection, fortunately or unfortunately, turned up many items that would need to be fixed in order to sell or by a buyer who was willing to put in the money.  The inspector also let us know that we'd need to find a cash deal or a conventional mortgage - any type of government loan wouldn't work, as the house wasn't in good enough shape.

We've used this information to come to our listing price and we conveyed that to our current renters.  We are now awaiting the listing of the house to go live and hopefully get some interest.

I look forward to updating you on the progress of the sale!

Buyer's Guide - Step #7 - Offer Accepted, Now the Real Work Begins

You've come a long way and you should be full of energy at this point - and you are going to need it.

Once a seller accepts your offer, Realtors refer to this as "having an AO on the house".  This means an offer has been accepted and no further showings or bids should come in or be accepted.  This, like a buyer's down payment, is to show that the seller is serious about getting this deal done and that a buyer shouldn't worry about having to deal with competing bids.

The next few steps all are done in parallel.  You need to have an inspection of the house done, have a lawyer draft or edit a contract for you, and have your mortgage broker / banker work towards getting you a mortgage commitment which will include a home appraisal.

Home Inspection
Your Realtor should be able to refer you to someone who can do an inspection for you.  You'll schedule a time for the inspection with the seller - it's an added bonus if the seller is at the house so that you can ask any questions.

The purpose of the home inspection is to make sure you are getting a house that is worth your offer.  To this point, you've probably only walked through the house, but you don't know if there are termites or if the roof is leaking into the attic, etc.  The home inspector's job is not to tell you if you are getting a good deal or not.  He'll instead point out any safety concerns or items that need fixing or replacing, and help you understand the overall condition of the house.

The inspection is also your last real chance to make adjustments to your offer.  If you find out that the roof needs replacing, you can go back to the seller and ask them for $15,000 to fix the roof or ask them to fix it before closing.

Drafting of a Contract
Your lawyer will receive a draft contract from the seller's attorney outlining the deal.  There are some key points to look for or have added to the contract if they aren't in there already.  I'm not a legal expert, but you'll find that the horror stories you'll hear often relate to details left out of the contract.
  • Inclusions / Exclusions - the contract should clearly let you know what you are buying.  The seller must list any exclusions and you should check this list to make sure that new washer/dryer you were excited about aren't on the list.  Make sure that if there is anything out of the ordinary that you think should be included is listed.
  • Down payment - make sure the draft of the contract has this correct.
  • Types of mortgages accepted - our original draft said "no VA, FHA mortgages" which was clearly not acceptable to us
  • Contingencies - this is the area to focus on.  Contingencies are ways in which you can legally back out of the deal.  If you back out of the deal for reasons outside of the contingencies, the seller can keep your down payment.  You'll read that often a seller won't choose to do this because it usually leads to lawsuits.
    • Mortgage Commitment - this says that if your bank won't commit to a mortgage, you can get out of the deal.  Even though you've been pre-qualified and pre-approved, banks can change their minds and you could be in a terrible bind.
    • Satisfactory Appraisal - this is becoming more and more important.  Without this contingency, if the bank's appraisal came in below the agreed on sale price, the buyer would have to fund the difference in the purchase price in cash.  Therefore, it is important to have this contingency and have it give the buyer an exit if the appraisal comes in more than 1% or 5% below the sales price.  Here is a story about how low appraisals are blowing up deals more frequently.
    • Good faith - there will usually be a paragraph that will say the buyer must pursue a loan in good faith.  In other words, if you decide you want to back out, this would prevent you from dragging your feet or not being cooperative with the bank in the hope that the seller gets frustrated and cancels the contract.
  • Condition of Property - this is a paragraph that says the Buyer has done a full inspection and is fully aware of the condition of all the elements of the property.  It'll be too late after this point to say "oh, I didn't realize the house had a radon problem".  There will also be language that will say "plumbing, heating, appliances" etc., will be in "working order".  This means that if the neighborhood experiences flooding and the basement is full of water, the seller doesn't have to buy a new washer/dryer if they are still in working order.
  • Defaults and Remedies - read this one carefully.  It usually will say something like "if the buyer willfully defaults, the seller keeps the down payment and no one can argue that they are owed more or less".
  • Closing Date - this is generally described as an on or about date.  It is understood that things may turn up that delay the process slightly.  Some contracts though include penalties such as $100 per day for each day of delay.  Keep an eye out for something like this - you can put forth your best efforts, but delays can often occur because of things that are out of your control.
Working Towards "Clear to Close"
Your mortgage broker will give you the final word that your loan will be funded with a "clear to close".  To get to this point will take some work.  Everyone that I have spoken to recommends you call your broker regularly to check in and to push them on your loan documents.   

Pamela and I became frustrated when we were asked for piles of documents about our financial lives, only to find they hadn't even been looked at for weeks.  Your mortgage broker will likely be working on several mortgages at the same time as well as trying to drum up new business.  It is important to keep an eye on this part of the process.  We ended up missing our scheduled and ideal closing date because we received requests at the last minute for documents that we didn't have.  We had to have her parents mail documents to us and I had to reach out to another bank and have them send me the original mortgage note on a different house before we could close.

You should be working with your mortgage broker and not against him/her.  Some people share stories about how they didn't disclose an asset or liability and got away with it - the last thing you need is to have the entire process come to a halt because you've been hiding something.  This could lead to your loan being denied and would then likely lead to you losing your down payment.

Onto Closing
Once these different processes all come together, you are now ready to close. 
* To be updated once we have closed *

Buyer's Guide - Step #6 - Make an Offer

If you've found a home that you really want, it's time to make your offer.

At this point, it's very important that you are already pre-approved for the purchase price or that you can get it done quickly.  You should also take some time to really sharpen your pencil on your budgeting.  You'll be entering a negotiation and you won't necessarily have all the time you'd like to sit back and think about it.

* Warning * When we found the home and felt "this is it!" you really do feel this internal pressure to put in a bid immediately.  I remember being afraid that the next person to see the house would make a bid at the asking price and the seller would accept on the spot - we'd have missed out on our dream home!

In reality, this kind of a quick acceptance of an offer doesn't happen.  The seller's agent may tell you or your agent that he's had a lot of interest in the property and try to persuade you to put in an offer, but I emphasize this enough - go home and sleep on it.

The most important thing you can do is go home and really take a look at your budget.  Figure out what the highest amount is you could pay for the house.  I think it is then also very useful to compare this house to the listing prices of the other houses you saw.  If this is the best one in your eyes, is it also the highest priced?  Is it somewhere in between?  I think this is a better way to decide what the real value of a house is.

You will need all this information in order to put in a good offer.  Unless your Realtor knows that the house is unlikely to sell otherwise, you need to put in an offer that is high enough for the seller to respond to.  You have to expect the seller will then counter.  And don't think that if you offer 20% below the listing price, the seller will then move down to 10% below his original ask.  He might move down 5% or only 1%.

I can't stress enough here how important it is to know your limits.  You'll soon be asked to provide your down payment, and while there are valid ways to get out and get your money back, if not handled correctly, your money could be lost.

Pamela and I didn't heed all of the above advice, particularly around taking time to step back before making an offer.  We had a great sense of what we could afford before we made an offer, but we felt we had to put in an offer.  We left the open house and went out to dinner with our Realtor who suggested we take our time to think about the offer.  We'd seen so many houses and felt that this was the perfect house and it wasn't as expensive as some of the others we had seen.  We felt that would make the house sell quickly and that the open house seemed busy enough that another bid might come quickly.

Given these feelings, we told our Realtor that we wanted to put an offer in that night.  Our Realtor advised us that in more normal situations, a 10% or even 15% discount to the asking price would probably be a good opening bid.  Since we were telling him that we really really wanted this house, we decided to put in an offer about 7% below the asking price.

After a day or so of waiting on pins and needles, the seller's agent told our agent that the seller was making a counter-offer at about 2% below his original asking price.

By not moving down much, we felt it was more likely that the seller felt he had a good chance of getting another offer in around the asking price.  Or he could have been bluffing.  So, you've got the house of your dreams somewhat within reach and there's a 5% difference between you and the seller reaching a deal.  What do you do?

Here's where it's good to again think about all the houses you have seen and remind yourself of your budget.  You could accept the counter, you could hold firm, or you could counter his counter.  Holding firm essentially guarantees that the seller will wait at least a few more days to see who else might step up.  He certainly won't jump at your original offer after just rejecting it.  Do you want the seller to sit around and stew on it and perhaps get a competing offer?

Your second option is the most straight forward - accept the counter.  You can feel good that you are getting some discount to the asking price.  And in the grand scheme of things, whether you are paying 100% of the ask or 98% shouldn't make that big of a difference.

Your last option is to counter his counter offer.  You could move up a little or a lot and hope that the seller will just accept.  You risk a situation where the seller might counter your counter of his counter offer, at which point you'll probably be very close on price, but maybe in a staring contest.

What did we do?  We countered.  Our new offer was to "split the difference" with the seller at a 2% discount, and us at a 7% discount.  Our final offer of a 4.5% discount was accepted.  We were thrilled!

A funny thing seems to happen as soon as your offer was accepted - doubt creeps into your mind.  It's not quite buyer's remorse, because you should still be very excited to be on your way to owning the home.  It's more of a feeling that you may have overpaid... maybe even overpaid significantly.  We were very fortunate to find out later that a competing and "competitive" offer did come in.  Now, that could have just been the seller's agent trying to light a fire under us and make sure we were moving forward swiftly. 

As we'll discuss in the next post, having your offer accepted is a huge step, but you aren't even close to the finish line.

Cleared to Close!

Those are the three words I've been waiting to hear for the past few weeks.

This means that the mortgage will get funded, and that in about seven days we should be signing a ton of paperwork then getting the keys to move in to our first home!

Buyer's Guide - Step #5 - See Some Houses (Part 2)

The Walk-through
Through your online searches, you have already eliminated the "No Interest" houses.  Now you want to narrow the remaining "Maybes" into a manageable pile of houses that really interest you.  Through this process, you'll also begin to get a sense of what is really out there - are there a lot of houses on the market that could potentially be yours, or are few good houses up for sale now?  You'll also begin to see the volume of new listings that meet your criteria.  If the volume is low, it may be safe to assume your purchasing options are in front of you.  If the volume is higher, there's always that chance that the perfect house at the perfect price might come on the market tomorrow.

Pre-Walk-through Preparation
I would recommend printing out the one-pager for the listing you are going to see before you go.  This will serve as a good sheet for taking notes and will later help you get organized.  You should also consider writing down some questions on this sheet before your visit - we would make notes such as "can't tell if back yard is big or not" or "how far from the street is the house / is it noisy?".

You should also feel free to bring a camera.  This is a good way to make note of parts of the house that may need more work - again, the pictures in the listing are taken to present the house in its best light.  Also feel free to bring a measuring tape.  Understanding the dimensions of a living room or bedroom might help you decide if your sectional sofa or your queen-sized bed will fit and whether there will be much room left over.

What to Look For
Pamela and I found that as we visited houses, we pretty quickly got a sense of whether "this could be the one" or not.  I would make the recommendation to you, that if you step into a house and you start to think that this could be a candidate, feel free to start the house tour over again with that mindset.  Sometimes you'll be headed out the door thinking, "wow, I really liked that house... but what did the second bedroom look like again... was the basement finished... will our bed and nightstands fit in the bedroom?".  During our house touring sessions we did end up asking our Realtor "can we go back to 123 Elm Street and see it again?" on a few occasions (including the house we ended up purchasing).  Sometimes, this will not be possible - the Open House is over, or maybe the seller is now back home and doesn't want more viewings that day.  It's clearly better to do the walk-through once and do it right.

If you end up putting an offer in on the house and it is accepted, you'll come back with an inspector to do a real top-to bottom poking and prodding of the house.  I mention this here, because for your walk-through you should be trying to decide if the house "makes the cut".

Below is my non-comprehensive checklist of things to look for.  Your Realtor will be able to help you pay attention to the interesting things about the house you are seeing, as he/she has ample experience in seeing houses and knows what other houses in the area have to offer.

  • Outside
    • Is the yard in good shape?  Does it look like it gets damaged by heavy rain?  Are there patches of shade where grass won't grow?
    • Is there a front and back yard?  Are they big enough or too big?
    • Is the exterior of the house attractive?  Will I want to re-paint as soon as I move in?
    • Is the roof clean or is there moss (this can shorten the life of a roof)?  Does it look new?
    • Do the windows look new?  Will I want to replace with newer windows to save energy?
    • How close are the neighbors' homes? 
    • Will we have enough privacy?
    • Do we have a garage?  Will our car fit?  Will having two cars in the driveway be a problem?
  • First Floor
    • Are there ample closets?  A coat closet by the front door?
    • Do I like the flow of the house?
    • Do I like the floor materials?  Do they need re-finishing, re-carpeting?
    • Can I set up the living room in a way that I like it or is there some feature (i.e. fireplace) that will dictate how it will be arranged?
    • Is the kitchen large enough for our normal cooking adventures?  Is there ample counter-top space?
    • Does the oven have an overhead vent that goes outside?
    • Do I like the size, style, and newness of the appliances?
    • Is there a full / half bathroom?
    • Are there enough electrical, cable, internet plugs for our needs?
  • Second Floor
    • Will I be happy with the size of the master bedroom?
    • Where do your windows face?
    • How many bathrooms are there?  How are they shared between the rooms? Will that be sufficient for our size of family?
    • How large are the other bedrooms?  Will they all be used for sleeping or perhaps an office?
    • Are there enough electrical, cable, internet plugs for our needs?
  • Basement
    • Is the basement well lit?  Will I be able to do things down here or is it simply for some storage?
    • Is the basement dry?
    • What kind of electrical service is coming into the house? (Older houses may not have enough amps running into the house to suit a modern family with lots of electronics)
    • How is the house heated - oil? gas?  Where is the oil tank? 
    • Does the house have central air?
    • Are the washer and dryer in the basement? (A typical location, but will you get annoyed carrying loads of dirty laundry down from the second floor to the basement, then up from the basement once clean?)
If you like what you've seen, perhaps it is time to make an offer!

Buyer's Guide - Step #5 - See Some Houses (Part 1)

Now that you've got a Realtor lined up, be sure to fill them in on your process so far and what you've seen and liked versus what you've seen and didn't like.  Without a good sense of what you are looking for, you and your Realtor are likely to waste time looking at houses that aren't interesting.

Your Realtor - Access to Information
Your Realtor has access to more information on the houses you might be interested in.  This includes the listing history of a home and the history of the asking prices.  This type of information is very valuable, particularly when it comes to putting in an offer.  Houses that have sat on the market for some time may still be over-priced.  The seller may be asking too much, but may also be willing to accept an offer that is much lower than their ask.  Seeing the history of asking prices can also clue you in to how serious the seller is about getting the house sold.  Consider a house where the seller has reduced the asking price by 1% every three months for the past year.  That likely indicates that they aren't willing to move much lower, perhaps because they owe a significant amount on the home, or they aren't in a rush to move, or maybe they just feel very strongly about the true value of their home.

Now consider the same house where the seller has reduced their asking price by 10% each of the past three months.  That's a pretty clear indication that the seller "needs" to get a deal done and might entertain a low-ball offer.

You also may find that a home you are interested in was taken off the market after an offer was accepted but is now back on the market because the deal fell apart.  Did the potential buyer find something wrong with the house?  Does the seller feel pressured to get a deal done quickly?  These are the types of questions your Realtor may be able to answer for you by calling the seller's agent.

Seeing a House with Your Realtor
Your Realtor can schedule a time for you to see a house that you are interested in.  Sometimes, you'll go to see an Open House, which is when the Listing Agent looks to host many potential buyers and other agents at the house to generate some interest.  Other times, the Realtor will contact the seller's agent and schedule a time for you to walk through the house on your own.

* Warning * I would advise against going to an open house on your own if you have begun working with your own Realtor.  The Listing Agent running the open house is not on your side and could potentially put some pressure on you to make an offer - you can already hear the agent saying "I've got another interested couple coming here in an hour and I think they are going to be putting in a offer", right?  While some undo sales pressure is the last thing you need, the other issue has to do with your relationship with your Realtor.

As we discussed in an earlier post, your Realtor ends up splitting the commission on the house you buy with the seller's agent.  Well, if you've gone to an open house without your Realtor, the seller's agent may not be required to split the commission with your agent if that is in fact the house you end up buying.  This is because at the time you weren't exactly represented by your agent.  So if you then tell your Realtor "hey, I went to this open house on Sunday and I really loved the house and want to make an offer" they may then be unwilling to help you along as their is no commission for them at the end.  You can then be stuck without a Realtor on your side, or you may have to make a separate arrangement to pay your Realtor to compensate them for their efforts.

The other purpose of an Open House is for the seller's agent to generate more business for him/herself.  The seller's agent will want to get your information knowing that you are in the market to buy.  Maybe he/she can help you with that?  Or maybe you are looking to buy a new home and will also need to sell your existing home - again, the seller's agent will be happy to give you his/her card.  This again gets back to the relationship you have with your Realtor.

Next, we'll continue our discussion on viewing houses in Part 2.

Monday, September 19, 2011

Buyer's Guide - Step #4 - Getting Pre-Qualified and Finding a Realtor

Up until this point in the process, it's been your time and energy spent on this endeavor and you will feel no shame if you wake up one day and decide you don't want to pursue this any further.  In this next step, you'll start to involve some others so it's probably a good idea to be past the point of just casually browsing.

I will pretty much guarantee that if you get pre-qualified or find a Realtor earlier in your process, they will be absolutely supportive if you all put forth some effort but decide to bail on your plan to buy a home.  They will tell you "I understand, you've got my card, please think of me if you start looking again" and they will mean it.  So I will also say, if you want to get others involved earlier in your process, go for it.  It might make more sense too - maybe you've got more debt than you'd like to admit to and you'd rather have a professional run some numbers to see if you can really get as big of a mortgage as you think.

I think the key message here in the intro is to recognize that these professionals are spending time with you when they could be with another potential client, so be respectful of their time.

Getting Pre-Qualified
Getting pre-qualified helps you find out (again, in rough terms) how much money a bank would be willing to loan you.  Once you have been pre-qualified, it's also a good signal to a Realtor that you are serious.

You can feel free to get pre-qualified online through a big bank like Bank of America, or go to your local bank to do so.  You might want to consider calling a Realtor first, if you have a reference, and tell them "I want you to help me look for a home, but I'd first like to get pre-qualified so that I have a better sense of what I can afford.  Could you recommend someone to me?".

Real Estate is a local business, and you'll find that many Realtors and mortgage brokers work together frequently and have a good sense of who gets deals done, whose deals tend to be hectic, and who shouldn't be dealt with at all.

The process of getting pre-qualified is simple.  A website or banker will ask for some basic information about your income, checking / savings levels, and your social security number so that they can pull your credit report.
* Warning *  I was told by one banker that I should be concerned about having my credit report pulled by multiple bankers / brokers because it can negatively affect my credit score.  I was later told and have more or less confirmed through research that this is not true.  Yes, having your credit pulled multiple times can affect your score, but the systems are actually more sophisticated - if your credit is pulled for a real estate related transaction, it doesn't matter if another mortgage broker pulls it.  I think the erroneous statement stems from the generalization that having your credit pulled means you are opening a line of credit, which isn't always the case, and it also might come from those who don't want you to shop around / go elsewhere.  There isn't a real purpose to shopping around for a pre-qualification, but don't feel like getting pre-qualified by Bank of America somehow obligates you to choose them for your mortgage.  They will, however, call you and follow up to try and get your business.

After the bank has your information, credit report, and credit score, they will give you a piece of paper saying you are pre-qualified for a $xxx,xxx mortgage.  It by no means says they are ready to write you a loan, but more says "based on our initial impression, we'd guess we could give you a mortgage of this amount if everything checks out".

Finding a Realtor
If you're reading my blog then you are likely new to the home purchasing process.  So the answer to the basic question of "do I need a realtor" is YES.  If a realtor is representing you, they are known as a Buyer's Agent.  When you and your Buyer's Agent go to an open house that you are interested in, the agent running the open house is known as the Listing Agent or Seller's Agent.  One more complicated situation can arise if your Buyer's Agent is the Seller's Agent for a home you want to purchase.  In this case, his allegiance is to the Seller, so you should be aware.

First things first - in the most simple terms, the Buyer's Agent works for free.  You will never receive a bill from a Buyer's Agent for anything.  He or she gets paid when you buy a house.  The Seller's Agent might get a 5% commission on the value of a house that he/she sells.  If you come make an offer with your Buyer's Agent, and you are the winning bid, the seller of the home will have to pay 6% in commission, which is split 3% and 3% between the Buyer's and Seller's agents.

You can also make the argument that this commission is baked into the sale price, and therefore you, as the buyer are paying both agents.  I agree this is a more accurate statement, but as a buyer, you are likely working through the math of what your mortgage payment will be and are worried about receiving a bill from a Realtor for his/her commission - it won't come, so don't worry.

Finding a Realtor seems to most often come via reference.  If you know anyone in the area who has bought or sold a home, ask them about their experience with their broker and for a referral.  Sites like have lots of Realtor listings and advertisements.

Finding a Realtor who has completed lots of transactions goes back to my earlier point about being connected.  A good Realtor will know the other Realtors and be able to help you in your negotiations if and when you put in an offer.  He/she will also know lots of mortgage brokers, lawyers, and inspectors and they will all owe him/her a favor which could come in handy for you.

In our case, our Realtor helped us find our mortgage broker, lawyer, home inspector, and was also able to push them a bit since we were trying to get a deal done on a shorter time frame.  He also was able to speak with the Seller's Agent and work with him to get the seller comfortable with the idea that we would be buying using an FHA loan and that we would not be putting much down.  I could easily see us having lost our home without this kind of help.

Now you are pre-qualified and you've found a Realtor.  You know about how much you can afford, and you have someone on your team ready to answer you question (simple, complex, or in between).  You are almost ready to Get Out There - See Some Houses

When to Get Pre-Approved?
Getting pre-qualified is simple.  Getting pre-approved is more involved.  A letter of pre-approval will be necessary if you are putting in a bid on a house.  So if you are going to go out and see houses with the hope of finding the right one, it would make sense to be pre-approved so that you can put in a bid if you are ready.

To get pre-approved, you must first choose your bank or mortgage broker.  This is a serious decision and will have profound implications on your home buying process.  I will probably write a completely separate post on whether to get a mortgage broker or not, but I will try to quickly distill the concepts here.

A mortgage broker is someone who will hold your hand through the process and make sure you are moving along at a fast enough pace.  They have access to many ultimate lenders, and therefore can likely get you very good rates.  Your Realtor should have some recommendations as to which mortgage broker to use.  You want someone that is local and someone that will be available, not someone at a 1-800 number that you can only get on the phone on rare occasions.

So why not use a mortgage broker?  They will charge you origination and/or processing fees, and they also might be earning a spread between what the lender is willing to quote and what you will ultimately have to pay.  This can increase your costs.  There are also plenty of horror stories out there where an unscrupulous  mortgage broker can provide you with false information and end up blowing up your whole deal.

On the other hand, you can use a site like to see what kinds of mortgage rates you might be able to get.  You can then work directly with a bank of your choosing, which will assign you to a loan officer.  This may be someone at your local branch or it could be someone from the loan division which is located hundreds of miles away.

In either case, the person you work with has plenty of incentive to make sure you get a mortgage.

Onto the Pre-Approval
Now that you've got your broker / banker lined up (we selected a mortgage broker), they'll start requesting every financial document you have and you'll have to put together a mortgage application.

After they've reviewed your documentation, a pre-approval letter is issued.  This letter enables you to make an offer on a house, but really doesn't mean much.  No one has committed to loaning you the money you need and a lot can change.

Whether you've gone ahead with pre-approval or decided to wait, it's time to get out there and start searching.

Buyer's Guide - Step #3 - Searching Online and Offline

So now that you've got a rough dollar figure in mind of what you can afford, have some fun searching online and looking at houses.  Sites like can be a great resource to look at houses for sale or see the price of houses sold in your area.  I've been told though that the houses for sale data can be stale.  Your best option is likely to find the website of a regional realtor.  You can find these through simple searches, or the next time you are out driving around, look at those "For Sale" signs in front yards.  They will always give an agent's name and his/her firm.

While we'll discuss serious budgeting a bit later, don't feel afraid to look 10% or 25% above your budget.  While you may not be actually able to afford houses in these price ranges, i think they can add some real benefits.  Firstly, it helps to understand what you can afford, and what you could potentially afford with a bit more saving.  Good house now or great house in a year?  Secondly, more expensive houses generally have better locations and better features.  You will start to get a better sense of what types of houses you might like, how important your acreage is, what features you'd like in a house, and whether there are some locations deserve premium prices (or not).  For this latter point, think about two identical houses across the street from each other that have a significant price difference.  One could be in a much better school district, or one could have a much more significant assessment which leads to higher annual taxes.  Maybe one is located on an exclusive street or subdivision.  This kind of searching should help you flesh out what is most important to you.

You've heard it before and I'll give my support to it as well - location, location, location.  When Pamela and I started our online searches, we were immediately attracted to houses that looked newer and had more features, regardless of their location.  We were advised to think differently and I'm glad we did.  There's a lot to be said for being in a good neighborhood - your neighbors will become your friends and the value of the surrounding homes will in part dictate the value of yours down the line.  If you move into a less desireable neighborhood, maybe your loud neighbors become a nuisane and maybe if you do eventually sell, you'll find fewer buyers that want to move into that neighborhood.  At the same time, we also looked at houses with the best location but dismissed them.  We weren't interested in paying up to be part of a neighborhood or school district where you were paying for a name / address (think 5th Avenue in NYC).  We also found that these locations attracted more affluent people but also charged significantly higher taxes.  Your property taxes are much like your rent - it's money that is "thrown away" and in some areas, it can be significant.

So you've searched online and found some listings of homes that look nice and are within or near your budget.  I would next suggest taking your search offline.  Pamela and I printed out the one-pagers for dozens of homes, grouped them geographically, then did drive-bys.  Each house for sale has a sign in the yard saying "For Sale" which makes them easy to find.  We found this to be some of the best research work we did.  You can likely see a lot of houses without spending a ton of time because they are often in similar neighborhoods.

While you won't be able to go into the houses, you can really learn a lot about the neighborhoods and even the outside appearance of the home.  Don't forget, sellers upload pictures of their homes that frame them in the best light.  They'll try to avoid a picture that shows their gem of a home is surrounded by slums or the photo that shows the front yard floods an is often a mud pit.  All the pictures, both indoors and out, try to use perspective to make rooms and features larger than they are.  Driving by the houses can help you put this all in your own perspective.

Now that you've perhaps figured out a few neighborhoods where you'd like to live and maybe even have a shorter list of houses you are really interested in, my next post will discuss the next steps you can take to Get Serious - Getting Pre-Qualified and Finding a Realtor.