The Home 

Always Look at More Than Six Homes

There’s an unspoken rule in homebuying that you should look at six homes, minimum, before ever thinking about submitting an offer. When I submitted my offer, it was probably the sixth home… possibly the fifth or earlier, I can’t remember. They say that you can’t really know what you want until after the sixth home and you won’t get a feel for the market until that point. I wholeheartedly agree. If you buy before six (I think the rule should be extended to least ten homes), you will probably overpay for a home or possibly buy a home that you really only find mediocre. To avoid this, don’t put in an offer even if it looks like your dream home because it might not be.

Check out what I sent my real estate agent about the important aspects of a house the first time she asked:

I’m interested in a townhome in the 230-310k range with ideally 3br, 2+ baths and built after 1985ish in Howard County, though not limited to that county. I was thinking of like Columbia, Elkridge, Laurel in Howard County…
Parking – Garage is not important, though it’d be nice. Two spaces is all we’ll need.
Basement – No preference on finish/unfinished; walk-in living room, etc; are no preferences for me.
I prefer brick over siding; end unit over middle, cathedral over attic.

That was before looking at a single house. It does look quite informative and many of the things did carry over, but look at what I recently sent her in an email:

I want a master bedroom greater than 130 sq ft. 10×10 sucks. 🙂
A basement is nice, finished.
3bedroom, 2bath minimum

  • if the house is greater than 280k, one of the bedrooms has to be at least 10×10
    0.04 acres minimum, greater than 1600 sq. ft
    1980 or newer home
    A decent backyard and deck.
    Basement doesn’t need to be walkout – though it’s a plus
  • Which do you think is more informative for her and a huge timesaver for the both of us? That’s right…

    Also, when looking at homes, look at those that are under your price window and over your price window. That way you know what you can get with that amount of money and adjust your strategy accordingly. I saw a lot of homes I’d love to live in outside my price range. Conversely, I saw a $245k built in 1969 that hadn’t been updated and looked ahead of its time (the walls had technicolor wallpaper).

    Visiting lots of places also gives you a sense of the market. I know that in Columbia, under $300k means I’ll have to go to the older area west of the mall for a good deal. It’s this constant learning that helps you make an informed decision you simply cannot make before visiting six homes. If nothing else, you can get ideas for renovations (I saw this sick deck setup) when you do get a home.

     The Home 

    First Home Offer Verdict – DENIED!

    Yep. First contract offering was a bust. The original offering of $290k with an escalation up to $300k was rejected but the details of the winner won’t be available until things are settled and posted to MRIS. The total contract value had to have been over $300k, which I anticipated considering there were three other offers all of which knew there were three other offers. At over $300k, my psychological barrier, it would’ve been too much. $299,999.99 would’ve been juuuust fine though. Go figure. But here are the gory details of the property…

    This was the house I put a bid on:
    List Price $290,000 – 8566 BLACK STAR CIR, COLUMBIA MD 21045
    Nice little three bedroom, two full and a half bath joint with a nice basement. In looking back at it, and this may just be sour grapes, I’m kind of glad I didn’t win it… one problem I had was that it sat very close to Snowden River Parkway (map), which is a relatively busy two/three lane road. The noise was still audible from the master bedroom, a downer when you are trying to sleep, so like I said, losing it wasn’t a big deal.

    I also wasn’t too keen on paying the Columbia Parks and Recreation Assessment “tax” (CPRA) of around $500 a year (plus the $30/month Home Owner’s Association), a fee that’s tied to the value of the house. Though, what the CPRA pays for is great — parks, pools, and nice libraries.

    So, the search continues…

    Update: According to public record, the house was purchased for $312,000, or 7.6% over the listing price.

     The Home 

    Online Real Estate Listings are Stale

    I mentioned yesterday I put in an offer and then upped the escalation clause after learning of three other offers. Well, the hammer will come tonight when the seller’s agent and the seller get together and ratify one of the contracts. My agent’s excited because it’s my friend and I’ll be her first sale. One of my other friends said I should be owed a couple steak dinners or a phatty house-warming gift, so I’ll be looking in the mail for some soggy envelopes filled with steaks.

    Anyway, in the waiting, I’ve come to discover the various free services showing home listings just aren’t real-time enough for me (or anyone really). My girlfriend looked up some homes via and by the time I emailed my agent-friend, all but one (of perhaps 8 or 9) were already sold. That means I was looking at stale data. Does that mean the real estate market is sizzling hot here or are all of these Realtor sites or sites just slow?

    It then occurred to me… if these sites were super-real-time, what advantages would there be for a realtor? They still need to keep a chip in their back pocket in terms of information otherwise I could just go the route of “For Sale By Owners” once I knew the pitfalls to look for (i.e. how to structure the contract, how now to get hosed in terms of inspections, etc).

    Also, I suppose a realtor would be necessary to actually look at the home if the owners weren’t there. They have this neat little add-on to a PDA (mine had a ancient looking Zire) that transferred a code to the key-box. After a few seconds, some technology mumbo-jumbo, there’d be a click and a key case would drop out. Whoever came up with that system is probably ridiculously filthy rich.

    Finally, one thing I think my agent didn’t really do totally correct so far was point out bad things in a house. My other friend who just bought one mentioned something about how homes in the early nineties used a certain type of piping (not PVC, something burethane [sp?]) that would need to be replaced after ten years because of leakage. A home inspection would find that out but by then you’ve made an offer and now you’re just backing out of it, so you’re in pretty deep at that point. The replacement cost is $5,000 – $10,000. (holy crap!) Pointing out what’s bad about a house is something I need to know because I’m pretty functional – four walls, a roof, and I’m happy. That place to the left looks pretty sweet to me. 🙂

     The Home 

    Closing Costs and Annoying Fees (and I made an offer on a house)

    On Sunday, after coming back from my school’s Spring Carnival (which was a weekend of drinking, revelry, and catching up with old friends) four hours away, I went on my second house-hunting trip. This time though, we saw two (three, but one of them was identical to the other one) places that we liked out of five total. One (and it’s twin) was $312k ($315k) and one was $290k. The $290 was in Columbia near a Safeway, nice area, very convenient access to major roads and the home’s layout was great. It had three bedrooms, two full and two half baths, a partially finished basement (finished except for the storage room where the boiler was), and a nice deck and lawn outside.

    In writing out the contract, I began to get a little taste of the “other” fees I could expect if these things go through. There are a whole bunch of fees but only one specific to Century 21, who my agent works for, so far. A $195 administrative fee surprised me but with respect to the overall price of the house, it’s just a minor footnote. But still… unexpected is still unexpected. 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, but I suppose we’ll soon find out.

    “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 home buyer, would get a credit in the range of $725ish. As a first time buyer, I would be exempt from half of 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. Nothing dealing with the loan and its fees has been considered yet.

    It doesn’t appear that any of those fees are related to the mortgage itself. All the mortgage products LendingTree have listed the following fees:

    Fee Amount
    Tax Service Fee $45
    Underwriting Fee $375
    Processing Fee $375
    Document Preparation Fee $175
    Credit Report $25
    Total $995

    In talking with Diane, my “Home Buying Specialist,” those charges are all the ones the lender will charge me. Everything else is out of their hands and some of the fees they do list (so you know about them) are title insurance and recording fees (detailed above).

    I gave Diane a call to ask her about setting up an 80/10/10. That would be 80% first mortgage, 10% second mortgage, and 10% down. The reason for this would be for me to avoid paying private mortgage insurance (PMI) which would cost $67/month ($804 yearly) and because originally I hadn’t considered closing costs when asking for the loan.

    Going on Friday’s rate (4/15) and with a lock-in of under 30 days, we’re talking rates of 5.875% on the 1st mortgage and 7.25% on the 2nd mortgage. A 5/1 ARM rates would be around 5.25% on the 1st, so we’re talking 0.6% difference to take the risk of living there only 5 years (or bracing for judgment day). Bankrate’s homepage rate was listed at 5.56%, a couple ticks lower than LendingTree’s rates, which means a visit to my credit union today around lunch is probably in order.

     The Home 

    Buddying Up with my Credit Union

    The theory behind a credit union is that it’s working for you (and every other member) whenever it operates. That means that as an account holder you get favorable returns on your savings, checking, and money market accounts as well as good interest rates on your loans. The company I work for has a credit union and I opened an account within the first week of working because I knew somewhere down the road I might turn to them for a mortgage. Well, I poked around with LendingTree and two other mortgage-finding services (still only one response!) and it’s about time I talked to my credit union.

    This was brought on by the this article, written by Gerri Willis, where she says that becoming buddy buddy with a small bank now may pay off later, when the housing price growth cools down. Basically, when the market slows down and a bank begins to foreclose on homes, the relationship you develop now will put you ahead of the game when the slowdown occurs. The bank won’t want to keep the properties, they’ll want to sell them to you.

    Her tip is to first target the right bank, one that holds at least 55% of the mortgage loans it sets up. A bank can sell the loan whenever, it’s in the fine print if you read carefully, and they can’t foreclose on a loan if they don’t own it. After you target the bank, move your finances there to build a level of trust. They can trust you if they see your money! Then, the short article moves into discussing how to target areas and stuff like that which isn’t important to me at the moment.

    So my plan of attack now is to talk to some local small banks and seeing if they can give me a favorable mortgage. Right now, the best seems like a 30 Year Fixed with monthly payments of around $1500 on a $250k loan (via LendingTree). If they can give me a pretty good offer and fit some of the other criteria Gerri mentions, I’ll consider giving them my business. But first things first, the credit union deserves a visit.

     The Home 

    LendingTree Is Ridiculously Fast

    As I mentioned earlier, I submitted a request to LendingTree at about lunch time today and around 1:30pm, Diane from LendingTree’s “Incubation Department” gave me a call to introduce herself and give me an idea of how LendingTree’s process works. Essentially, she will be the interface/middlewoman between myself and twenty-seven lenders (her number). I don’t know if there will be a premium put on the interest rate for this great service, but that’s what the competing offers from LoanWeb and MonsterMoving (where they don’t get involved, they just give out information) are for.

    In talking to Diane, I told her I would want a $250k mortgage for a $300k house with the $50k down payment funded by my own savings and help from my parents. It turns out, when you put down less than 20% and part of it is a gift, you have to show at least 5% of that down payment comes from your own savings. Luckily, I’ll be able to contribute at least $15k of my own funds so I will be in the clear with regards to that.

    Diane said a pre-approval letter, which is not binding, would be processed in 24-48 hours once I provided the following pieces of information (which would be used for a credit check):

    • 2 Year’s W2’s
    • 2 month’s bank statements (or other verification of down payment)
    • 1 months pay stubs

    I could send it in an email or fax, two very convenient options, but I question the security of the transmission medium. I will definitely not send it across email because it’s not going to be encrypted. At least with the fax, I don’t know enough to know it’s not safe. 🙂

    I asked her if I could nix out specifics, like bank account numbers and social security numbers (they already have that anyway), and she went into her talk about how the security at LendingTree is good and my information will be kept confidential, etc. I could black it out but eventually, when I really locked in a loan, I’d have to provide it. I think I will black out the account numbers this time around because I don’t want them to have it in the event I go with another lender or if I decide to rent for another year.

    Then I thought to check online, there were 9 offers waiting for me. The first on the list was a 7/1 ARM (the product I want) for an APR of 5.91% with HSBC Mortgage Corp. Clicking on Offer Details, I found that estimated fees (Tax Service, Underwriting, Processing, Document Prep, and Credit Report) would be $995 but the fine print indicated this didn’t include:

    pre-paid interest (depends on the day of the month you close your loan), real estate taxes & escrows, settlement or closing service fees, title insurance, recording fees, hazard insurance fees and pest inspection. (sheesh!)

    I looked at a few of the other offers (A 30 Yr. Fixed from National City had a monthly payment only $60 higher) and one thing I realized was that none of them talked about PMI. I know for a fact that I’d have to get a PMI because $50k/$300k is only 16.7%, under the 20%. I’ll have to call up Diane and ask about getting a second loan to avoid PMI…

    As a comparison, I’ve only received one other email with regards to a mortgage from a loan officer from Annapolis First Mortgage. Granted, it’s not LoanWeb or Monster’s fault, they probably just disseminate information to the companies in their network so the chain is longer; but the direct communication with LendingTree gives them a significant leg up. LendingTree seems like a very professional outfit and I’ve been very impressed with them so far. The turnaround time is very important to me because I hate having to wait to get things done.

     The Home 

    Getting Pre-Approved For A First-Home Mortgage

    I’m going out with Realtor today (it’s a friend of mine who is testing for it and a fully licensed Century 21 agent) to look at a few more houses; I’ll report back my findings. One thing I’ve already learned so far is the types of homes I’m interested in are snatched up usually within a week of listing. What that means is that I should get myself pre-approved for a mortgage as soon as possible. If I find my dream house at the dream price and I need to go out and find a loan, it’ll be gone faster than a fat kid going after free cake. So I began my search online for a solid rate and some help on what kind of loan I’ll need.

    The first step to getting a mortgage is finding out the prevailing rates and just filling out some online forms. I know I could go to the bank or whatever, but for me, the easiest thing is to go to (off, (when banks compete, you win!), and and get bombarded by mortgage lenders. I’m alright with a few dozen calls, 75% of which I expect to be noise, from these folks just to see the various pitches. I want to hear some pitches so I can identify what the “keywords” in the language are and how to sniff out the BS.

    (Click to continue reading…)

     The Home 

    That Damned Rent vs. Buy Question

    I’m looking for a townhouse and prices are downright ridiculous. I’ve narrowed down what I’m looking for in a house to a 3 bedroom, 2+ bathroom townhouse in the $260k – $320k range in a relatively nice area south of Baltimore, MD. I can rent an apartment for approximately $1,000 (most likely less than that because of promotions and the like) and so after reading a whole bunch of gibberish online, I’ve resorted to using a couple freely available calculators to see what the best option for me is.

    If you haven’t heard of (it’s one helluva name), then let me introduce you to the best collection of free financial calculators ever. Pop your head over to this link and you’ll find the little app I used to make these calculations.

    Here are the results:
    Rent versus Buy Comparison Chart

    The numbers used in the analysis are up for debate but I thought a ballpark figure was enough for me to get a good idea of what I’d be getting into. According to the figures I supplied, the breakeven point is 8.2 years. Over eight years until owning the house would have been better than renting! That doesn’t sound like a long time but for someone in their twenties, it’s about a third of their life so far… that puts owning a house in that gray area where I won’t know my plans in 8.2 years.

    So why are all these twenty-something’s snatching up houses? The key is in the appreciation rate of the house. I put 3% in the analysis above but if I were to increase it to 6%, the breakeven point is 2.3 years. 2.3 years is a great time frame because I probably plan on living in that home at least five years. Is 6% reasonable? That depends on whether you think we’re in a housing bubble.

    I think a bubble exists in areas of Baltimore where homes that were around $10k-$50k two years ago now command north of $350k after being gutted and redone. A lot of those prices are based on buyers who believe the “area will get better,” something I hope, for their sake, happens. If it doesn’t, then you now own a very home in a very rough area… making it difficult to sell. Now, in the suburban areas south and west of the city, where I’m looking, we’re talking about homes that commanded $200k last year now commanding around $300k. I would say a bubble also exists in the areas I’m looking but a significantly smaller bubble. I feel as though the risk is far less in these suburban areas because as a buyer I’m not buying into an area that’s bad but will get better, I’m buying into an area that’s already decent.

    Regardless, a 6% appreciate rate seems somewhat reasonable for a home so I think a 2.3 years break-even point is something I can make a decision on. I played with a few of the other numbers, like term of the loan (going to 30 years hardly affects break-even point but drops the monthly payment by $700ish), and none of the other factors seemed to make a big difference. So, now I just need to find a townhouse that I like and I can afford.

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