While it never bit me, I wish I had checked my house’s CLUE record which is like a credit history for your house, except for insurance claims. CLUE stands for Claims Loss Underwriting Exchange and it’s a database of insurance claims run by ChoicePoint (yeah, that same ChoicePoint). As it turns out, only the owner of the home can request it (so if you make it a contingency, they have to look it up and send it to you) and it’s pretty painless. If you go to their website, you can get your report absolutely free and the only two bits of sensitive information you need to provide is your social security number and date of birth (and address of course). It’s very much like a credit history report request in that they pull four bits of information from your history to verify your identity (such as what streets did you live on, what’s your mortgage, etc.)

The CLUE record, superficially, will give you an idea of how insurable the house is but it also gives you greater insight on what sort of problems may exist in the house or the neighborhood. For example, I discovered two water damage claims in 2001 and 2003 - should I be getting myself some flood insurance? What was the nature of the water damage? (The claims were both for around $2,800) My girlfriend reminds me that Hurricane Isabel was in 2003 and dropped a lot of water on Baltimore (parts were severely flooded) so the claims may not be systemic of an unknown home problem.

In fact, it seems as this is a fairly common contingency in buying contracts when the market isn’t blazing white hot. Unfortunately I probably wouldn’t have received consideration if I requested the home sale be contingent on my acceptance of the CLUE report but it didn’t hurt so no big deal. It would’ve been terrible to buy the house and then find out insurance premiums would be off the charts for some unknown reason.

Back in May when I was reviewing the closing documents in my home purchase, the $1200 I would need to pay for title insurance really irked me (especially since it was originally estimated at $900) but it appeared, and still appears since those sort of things only become problematic at inopportune times twenty years down the road, to be one of those “you’re only a fool if you don’t get it” type of deals. Of course, I wish I could’ve lived in a state like Iowa where the state runs the Title Guaranty Program and I could’ve had coverage for $110!

If you went to sell your home and someone shows up with a legit claim that they never sold the house, title insurance protects you against that. If you went to sell and someone says they have a legit lien on the house for some work they did, title insurance protects you against that as well. It will essentially protect you from title related issues relating to the transfer of it (like on a sale) and let’s you “trade property with confidence,” says Nelson Lishutz, a spokesman for the American Land Title Association.

The only problem is that this stuff can get pretty expensive depending on where you live. Like I mentioned before, in Iowa the program is run by the state and would’ve cost me $110. Here in Maryland, it’s all privately operated and I paid more than ten times that amount. What’s scary is that according to ALTA, the industry paid out $662M on $15.7B in premiums, or a paltry 4%. Typical auto insurers pay out nearly 75% according to the American Insurance Association.

The difference, claim title insurers, is that the money you pay is to prevent loss as opposed to protect against loss. The title insurance underwriter, in providing insurance, will do the legwork to research your title to make sure everything’s clean and clear. The unfortunate downside of this is that they might exaggerate how much they’re doing and how much goes to their marketing machine.

I have to agree with Birny Birnbaum, a former chief economist of the Texas Department of Insurance, and say that I was an anxious homebuyer and went with the company my mortgage agent recommended. I called the company that provided the insurance and saw that the rates were competitive with what was there, my mortgage agent did say that the insurance wasn’t required, and I did see that the insurance was 0.4% of my purchase price and saw it as not being “that much” and thought it was best if I bought it.

Could I have done something differently?

Referenced title article via CNNMoney.

MusingMoney keyed me in on this little story about how two different home selling strategies yielded two different results and is the topic of the third chapter of my Home Buying Autopsy. When you go to buy a house, keep your eye on the prize and your hand on your wallet. This is the same as when you’re buying your next trinket on Ebay, always avoid a bidding war - the seller’s best friend.

In the story, one seller listed a $400k home at $450k while their neighbors listed it at $395k. The $395k yielded more foot traffic and eventually created a bidding war with the sale price resting at $425k. The $400k languished and eventually sold for $410k. Moral? Bidding wars only benefit the seller.

I almost fell prey to this twice in my home buying process. At the time, and even now, the housing market in the Baltimore-Washington area is piping hot as supply has yet to catch up with demand. I had always planned to spend between $250k and $300k for a home, that’s all my wallet could bear. When the time came to put down an offer on a home listed at $290k, I submitted an offer for $290k with an escalation up to $300k, my limit. The seller countered and I escalated up to $310k, a full ten thousand bucks over my limit! I was in a bidding war! The seller came back and said that the other offer was for more but by then my girlfriend had talked some sense into me and I backed out.

The second time was in the house I ultimately purchased. Listed at $270k, (a lowball listing to generate foot traffic into the house, comparables were selling for $300+ in the area) we offered $280k with an escalation up to $295k. The seller’s agent told us the competition had $350k in cash and she wanted to know if we wanted to increase our offer. The key point we used was the knowledge that the seller’s wanted to stay another two months, something competition wasn’t willing to agree to (and probably why the price was lower). I was tempted (briefly) to jack up our offer but thought better of it… turns out that the other buyer offered $330k! The biggest mistake their agent made was telling me I had no chance.

Therefore, the next time you’re buying something, including a house, remember not to go beyond your preset limits for the sake of winning. There is an infinite supply of homes and with time and diligence; you will find the right one in the right price range. There is no such thing as a perfect house if it will cost you more than you want to spend.

In this second installment of my home buying autopsy series, I’ll take a look back at my dealings with my lender, Equitable Trust Mortgage. I knew that I could negotiate some of the fees with my lender but I felt pressure from the sellers to close the sale within two weeks, which by all accounts is very difficult to do. Since my only benchmark at the time were the closing costs associated with a loan from LendingTree and Equitable Trust’s closing costs were significantly lower ($500 vs. $995), I had no reason to think about shopping around.

Everything in life is negotiable, including the closing costs related to a mortgage. All the 800-level fees are negotiable because the lender gets to set them at whatever they believe the market will bear. The following is a list of the 800-level items:
800. Items Payable In Connection with Loan
801. Loan Origination Fee
802. Loan Discount
803. Appraisal Fee
804. Credit Report
805. Tax Service Fee
806. Document Preparation Fee
807. Flood Certification Fee to FDSI
808. Doc Prep to Equitable Trust Mortgage Corp

On both my first and second mortgages, the document prep fee to Equitable Trust was in the $250 range. In hindsight, I bet I could have negotiated this downward because there’s no reason why the preparation for the second mortgage would take as much time as the first one. It’s sort of like a quantity discount. None of the first six 800-level fees appeared on the second HUD, I would’ve immediately contested those because there’s no reason why you would need to appraise the house twice or get two credit reports.

As for the rates themselves, 5.75% and 7.5%, could’ve been negotiated downward I bet. I think I was hamstrung by the demands of the sellers (two week closing) and so I didn’t feel I had much to negotiate with especially when the lender knew that I only had two weeks. Even so, perhaps I could have negotiated a quarter point lower on both and saved a few bucks that way.

Ultimately the moral is you should always ask and you should never feel as though you have to go with any particular lender. The money they give you is just as green as the next guy; it’s simply a matter of how much they’ll want to charge you for it. It’s easy to overlook these nickel and dime charges when you’re dropping a few hundred thousand on a home, but these fees come straight out of your pocket. All the saving in the world in anticipation of a home can be wiped out by not paying careful attention to these fees and not contesting or negotiating when you can.

This is the first installment of the Home Buying Autopsy, which I introduced in this introductory post.

On the whole, the home inspection turned out great. The inspector was knowledgeable, the inspection was thorough, and the documents were professional, complete, and accurate. The problem was entirely on my end. I believe I was not picky enough in requesting repairs be completed. I also believe that I wasn’t as precise in my inspection (of cosmetic issues) as the home inspector. He looked for structural and physical problems; I should’ve looked harder at the cosmetic issues and perhaps requested more be repaired before closing (I was spending a ton of money!). In reading Shaun’s Real Estate Blog and the requests he’s had for the property he’s bought, renovated, and sold (almost) recently - I believe there are a few things I should’ve requested (couldn’t have hurt), I simply didn’t because I thought it were a little extraordinary.

(read full article…)

For a month and a half, I blogged about my journey through the home buying process in painstaking detail. For those of you who read along, you may have cringed at some of my decisions and bitten your tongue if you saw my mistakes. Some of you didn’t and for that I am extremely grateful because it helped me avoid some costly errors. But now, over a month after I’ve moved into the home, I will analyze my decisions outside the “heat of the battle” and write brief “autopsies” that may prove useful to those who still need to make the plunge.

On a personal level, this is important for me to admit my mistakes and to learn from them. From a completeness and correctness standpoint, it’s important to spotlight the mistakes because someone who knows as much as I did when I started may read something here they believe is the “correct” way - when it is in fact not the correct way.

As we do this, I invite all of you to write comments (anonymous comments are acceptable!) and I want you to be as nitpicky as possible and point out every last detail.