The Home 

The Good Faith Estimate and Meeting My Lender

One of the requirements in the contract for my home is that I secure a loan within two weeks – this is doable when you are working with a local lender who also works fast, hard, and well. Last night, I met with a “Mortgage Consultant” by the name of Nicholas Elko with Equitable Trust Mortgage Corporation, a local lender here in Baltimore. Nick is a solid guy who is very personable, knowledgeable, and gave me confidence he could get me the loan in two weeks. Now, the real meat of the story when you talk about mortgages is the rate and the fees. Nick could be the smartest, hardest working, and friendliest guy ever but if the rates suck, I would still feel like I was being taken advantage of (I did not and would wholeheartedly recommend Equitable and Nick to anyone in Maryland looking for a loan). In a 80/10/10, I’ll be getting 5.875% on my first and 7.5% on my second… both rates seem competitive with the market averages.

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 The Home 

Real Estate Markets Still Blazing

Les Christie, a CNNMoney staff writer, reported today that the U.S. residential real estate markets remained hot in the first quarter of 2005. The National Association of Realtors, which recently came under fire because of commission policies, reported that of 136 metro areas, 66 experienced double digit jumps, including where I live – the Washington (DC/MD/VA) region. The full list is here and Baltimore, MD notched a 6.9% increase in Q1.

What does that mean to me? Well it means the possibility that I bought at the peak of the bubble still exists (this data is for Q1 and we’re smack in the middle of Q2) but I’m not terribly concerned. Part of that is because someone was willing to pay far more for the house and the home is in an area with good schools. Either way, hopefully these percentage increase keep coming…

I’ll be meeting with a local lender at 5:30 to go over some paperwork and check out the mortgage loan rates. I’m under the gun because I need to get a mortgage loan approved within two weeks. The credit check/score has already been pulled and this guy hasn’t made any indication it’s going to be a problem so I feel as if I’m in good shape. The ballpark rates he’s quoted sound reasonable. The home inspection will be Saturday morning, within the limits of the counteroffer, and the appraisal should be done within the next few days.

 The Home 

I Own a $295,000 House – Buyer’s Remorse and 8 Contract Counters

Ever run a marathon and think you can’t make it but suddenly the finish line comes into view? Me neither, why would I run almost 27 miles for nothing? Those folks are crazy (but deserve a ton of respect for doing it). Anyway, my one month house hunting trek is coming to a close. As I mentioned in a previous post, I came in with the second best offer to a “slightly” higher offer on a great home that’s “the nicest in the development.” (quote from a neighbor, taken with a grain of salt) I was asked if I wanted to increase my offer and declined for reasons I outlined in the previous post. It turns out that was 100% the correct decision as the highest bidder backed out, they didn’t agree with the contingencies and I’m next in line!

There are 8 contract changes and they all point towards a speedy settlement, within three weeks, which is going to be a challenge but doable. The main points of the changes are that the sale price will be $295,000 (justification to be explained later, home inspection to be completed in three days, loan approved within two weeks, a $5,000 deposit (versus the $2k I initially put down), and everything closed before Memorial Day. There are other minors points not worth mentioning.

I met my agent last night to sign the paperwork changes to the contract and leave a $3,000 check, to be held in escrow and put towards closing costs whenever everything settles. I also found out some interesting facts that made me feel like a freaking genius (if I do say so myself). The “slightly” higher off was for $296,000 by the highest bidder with a totally cash purchase. The agent obviously went back to them and said we need the rent back until July 31st, that’s our counter-offer. The highest bidder then offered $315,000! They also probably weren’t willing to do the rent back otherwise I wouldn’t have stood a chance, their offer was $20,000 higher than mine! My hope of only winning because of the rent back succeeded and my decision to not increase the offer another $5,000 or $10,000 was wise because I would’ve just thrown that money away. A higher contract offer wouldn’t have resulted in my winning the house outright and they would’ve told me my second offer is what was necessary if I really wanted to keep the house. I’m stunned we won based on that $20,000 difference, sounds like the rent back (it could’ve been anything but it’s probably the rent back) is worth a lot to the seller (it’s their market).

Any buyer’s remorse? Not yet… I’m paying $121.41 per square foot on this property, which is within the $120 to $130 guidelines someone who had spent six months looking for a home had told me their agent said. At $75,000 a bedroom, the price comes in under the $300,000 wire. Finally, it’s in a great area. The only “bad” thing is that neighboring homes sold, within the last three months, in the $250’s so I may have a low appraisal problem. Either way, someone else believed it was worth $315,000 and I got it for a $20,000 discount.

Finally, since I’ll need to rent back until potentially 8/1, I’ll be renting a basement from my friend for a month. Check it out, I think it’ll work out great in the Rent Back Shack.

 The Home 

A Counter-Offer: Offer More or Wait It Out?

My agent notified me that I put in the second highest offer (the other one was “slightly” higher) for the property I talked about in my previous post about full financial disclosures. I am still in the running though because there is a sticking point with the top offer, though the seller agent didn’t identify it to us. It was never listed that the seller wanted to rent back until the end of July and we believe that’s the sticking point. The highest offer also disclosed that they have $350,000 in the bank, so the low appraisal and the lending issues aren’t a problem for them. Did we want to offer more? No, and here’s why.

My agent and her advisor both agreed that I would be in stronger shape if I put in an offer of $305,000 compared to my initial high point of $295,000. Both my girlfriend and I agreed that we weren’t going to break the $300,000 barrier because we didn’t like it that much but we needed to be reasonable – $10,000 when you’re already at $295,000 isn’t that much money.

1. The sticking point was in the rent-back. It’s very important to the sellers.
2. Slight means no more than $5,000 or so.

Reasons for Not Offering More:
The first thing I thought about was where did the $350,000 come from? If it came from a prior home sale, the other bidder may not have the convenience of waiting an additional month. They probably don’t want to stick around in a hotel for an additional month. If so, they withdraw their offer and we get the house for $295k.

Let’s say the $350,000 isn’t from the result of a home sale, they can still raise their offer above ours. We would be playing into the selling agent’s plot of getting into a bidding war we can’t possibly win. In this case, offering more wouldn’t help us.

So right now the only bargaining chip I have is the rent-back, which is something I can’t control. We’re going to stick to our guns and the $295,000 offer and we’ll let you all know what happens when 5PM rolls around.

Update: (8:42pm 5/10) I was at a work league softball game when my agent called, apparently the high bidder needed until 8pm (42 minutes ago) to talk to his wife. The fact that their married puts more credence on the “just sold a home” theory, hopefully one of them be tired and cranky by now and the thought of living in a hotel for a month with their stuff in storage is a miserable one for them. Still could go their way, who knows, but it at least makes our “strategy” appear to be the right one regardless of the outcome. It also turns out they want us to secure financing by May 24th. Yikes.

 The Home 

Full Financial Disclosures and Gift Letters

My realtor faxed in my offer Monday morning on a home that seemed like an incredibly good deal. It’s a 2,400+ sq ft. place in Columbia, MD with four reasonably sized bedrooms (not counting the basement), three and a half baths, and a great deck. The offer I made was competitive enough to warrant the seller’s agent to request what is termed “full financial disclosure,” which meant I was to detail my job, salary, assets, and liabilities in a stock form provided by Century 21. The form was a little funny considering how it asked for the information but the Century 21 logo meant I could trust this was all the information they needed. What struck me as a little strange was that I didn’t need to provide any proof of any of this, though the pre-approval letter (where I did provide proof to LendingTree) did provide secondary proof.

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 The Home 

Understanding Seller Psychology – They Are Greedy

I’m batting 0 for 2 now, the offer on a second home (this one I wanted more than the last one) wasn’t accepted. The list price of the home was $275,000 and I offered $275,000 with an escalation clause up to $290,000 including a deposit of $2,000 (up from $1,000). One thing this home did teach me was the psychology of the seller and working harder to understand their motivations. I’ll explain what I mean…

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 The Home 

The Oracle says there’s a Housing Bubble!

If it looks like a duck, sounds like a duck, and CNNMoney quotes Warren Buffett warning of a housing bubble, there’s probably a housing bubble. Have you ever heard of the Business Week cover curse? It basically says that by the time mainstream media catches onto an idea, it’s already too late to capitalize. I take that theory one step further and apply it here. By the time mainstream media is warning you about something you don’t already know, you’re already too late to save yourself.

This doesn’t bode well for me because I’m currently looking for a house, so using my own wisdom, buying into a housing bubble would be a terrible idea right? Wrong. What would be a terrible idea is if I overpaid for a house just so I could own one and get in on the real estate craze. A house differs from a stock in that it has a value other than what the market dictates. I can’t eat a share of stock but I can live inside a house regardless of how much it is worth to someone else.

Who I am fearful for are my friends and colleages who are overpaying just so they can own something. They don’t evaluate a home solely on its merits (location, # bedrooms, square feet, age, etc.) but include their potential earnings for when they sell. It’s comparable to the tulip bulb craze, the Florida real estate bubble, the tech boom, and countless other periods of irrational exuberance. (by the way, a great book to read about stock market bubbles is Wall Street: A History by Charles Geisst)

Don’t fall in that trap. When you are looking at a home, buy it because you want to live there. Don’t buy it because you think you’ll be able to sell it for more later. It’s more than a house, it’s a home. And by the way, if the Oracle of Omaha says something – it’s usually a good idea to listen. 🙂

 The Home 

Timeline and Costs of a Home Purchase (or, House Hunting Trip 4)

Today, I went on my fourth house hunting trip and it went very well… it also resulted in my putting out a second offer on a home. Since it was the second offer, I thought I might outline the “timeline” of a home purchase – for folks who haven’t yet made the plunge and didn’t really know what to expect. It might be a little inaccurate since I haven’t actually gone through the process, but you actually set the timeline in your contract offer.

Anyway, on this trip, one of the homes I saw on my third trip dropped in price. It was originally listed at $269,900 and it fell to a mere $264,900! Count my lucky stars! This time I went back with my girlfriend and I didn’t think the place was all that – partly because I saw another place listed at $275,000 and it was far and away superior…

Onward to the little fees and the “timeline” I spoke about before. The first step in putting out an offering on a house is to simply write out a contract (it’s boilerplate with addendums for house specifics), put in a price and possible escalation clause, and then fax it off to the seller’s agent. Once you go through all the contingencies (essentially escape clauses that let you break the contract, i.e. failed home inspections), the timeline looks a little something like this.

Brief Timeline:
Ratification: This is the term for when the seller accepts your offer and it is “ratified.” The clock starts ticking the day this happens and the following timeline (which you write into the contract, but I chose what I think are standard time frames) kicks in:
Ratification+5 days – Apply for Home Loan: Within 5 days I have to show that I’ve applied for a home loan, sent in the financial documents that I’ve already done to Lending Tree.
Ratification+10 days – Home Inspection: Within 10 days I have to get a home inspection and report anything bad with the house. If it’s not done within 10 days, I’m screwed with respect to the home inspection. The Century 21 agent said they have home inspectors and that they can do it usually within 3-4 days.
Ratification+15 days – Home Appraisal: As part of the loan process, the bank will have the house appraised; this must be done within 15 days.
Ratification+30 days – Home Loan Approved: This just means I have to get the loan itself within 30 days, usually banks can do a loan within 15 days after application.

Fees? Well, there are a whole bunch of fees but only one specific to Century 21, the buyer’s agent. Apparently, there is a $195 administrative fee I didn’t know about before. It doesn’t bother me, $195 isn’t much with respect to the size of the purchase, but I didn’t know about it before so I obviously wasn’t happy to learn about it. I don’t know if that fee is considered part of “closing costs,” the nebulous “everything else fees” no one really knows how to quantify for me.

“Closing Costs”:
One part of closing costs that is quantifiable is a Maryland transfer tax, which is about 1.5% of the value of the home. In the contract, we stated that the buyer and seller would split the costs and I, as a first time Maryland homebuyer, would get a credit in the range of $725ish. As a first time buyer, I would be exempt from the State Transfer Tax (0.25%, or $725 on a $290k). With the home in Howard County, the Recordation Tax is calculated at 0.5%, the County Transfer tax is 0.5%, and I’d be subject to a lien certificate, which has a fee of $25-$55. So let’s ring of the cash register and we’ll come up with total Transfer and Recordation taxes of $2,955. And that’s not even all the closing costs… just the transfer and recording costs.

In doing a search online for closing costs, I found a site with Maryland specific numbers for various “other fees.” Here is a list of what I should probably expect (if I know what was good for me):

  • Settlement Fee
  • Title Search/Abstract
  • Title Insurance
  • Power of Attorney
  • Simultaneous 2nd Trust Settlement Fee
  • Now, I don’t know if all those will apply or even if that’s an exhaustive list, but at least now I can start research that kind of stuff. Ultimately, it’s a fee I will have to pay regardless of what I do, so I should brace myself for it.

    As for the loan related fees, Lending Tree has assured me that all the fees are all spelled out and sum up to $995:

    Tax Service Fee $45.00
    Underwriting Fee $375.00
    Processing Fee $375.00
    Document Preparation Fee $175.00
    Credit Report $25.00

    Think I missed anything big?

    Anyway, as for house hunting trip 4, we saw a nice end-unit townhouse with a garage, over 2100 sq ft. of space, a nice backyard and all new applicances listed at $275,000. Offers are going to presented Monday night so I’ll find out what the verdict is probably Monday night or Tuesday morning. Wish me luck!

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