To The Rescue!

This afternoon we’re closing another loan we rescued from previous disaster with not one, but two other mortgage companies. This morning, we’re continuing to process the “rescued” loan from two nights ago.

Last night I spoke with yet another Realtor down and out because he had a purchase transaction dragging on and on into oblivion with no hope of ever closing. The Seller’s attorney advised him yesterday that today, Friday August 29th was the absolute last day to get an approval.

The Realtor said, “I think I’ll just let this one go and lose this deal.”

I pointed my finger at him and admonished him not to every say such a thing while I was around. Told him to get the file ready and show it to me today at 1pm when I return to his office. Turns out I also know the Seller’s attorney and I’m certain that, after reviewing the file and determining if I can get it approved and closed, that one phone call to that attorney will provide us with the time we need to finally get it done right.

Rescue, rescue, rescue. I encounter so many of these situations, whether it’s for folks trying to refinance their homes or families trying to purchase their first homes. Many times I have to say, “No, this is truly not possible. There is no way to make this loan work.” But my “No” comes in a few minutes, or, at the most 24 hours. The losers keep wasting everyone’s time as if some magic wand is going to fall out of the sky, hit them in the head and provide a miracle cure for the loan in question.

Days turn into weeks as everyone waits for the mortgage loser to come up with a solution, approve the loan and close it. And the losers are not just mortgage brokers, they are mortgage bankers and loan officers of regular banks, too.

This is the fallout of the mortgage meltdown of 2007. Too many losers still populate the mortgage industry, wasting the time of hopeful homebuyers, serious sellers, and realistic Realtors.

Message to mortgage losers: GET OUT OF MY BUSINESS!!!

For those of you industrious readers, working honestly every day in your field, let me wish you a peaceful Labor Day weekend!

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Last Night’s Save: Another Buyer Rescued

I did it again last night: I wrote a loan application to save a purchase where the Buyers had gone to two other mortgage companies. Those companies couldn’t find a way to approve their loan request.

The mortgage biz ain’t rocket science. Why is it so difficult for mortgage people to get their act together?

I met a couple last night who are purchasing their first home. They have good credit, they work hard and they are receiving a gift of $40,000 from her Mom to buy the home. Her aunt attended our meeting too because she is cosigning on the loan with them.

When this situation was first presented to me by the Realtor the day before, I kept thinking there must be something I’m missing or something really bad about this loan application that the other companies can’t get it done.

I knew the fundamentals for mortgage prequalification were in place. I had spoken briefly to one of the clients on the phone; the rest of the information had been provided by the Realtor. I saw a potential “save” of this loan application using an FHA Insured mortgage. FHA is known as “the story loan” and, if you know your guidelines, you can help a lot of folks achieve their dreams of homeownership.

I came to our meeting at the real estate office warily and with an exit strategy so I wouldn’t look too foolish. I had told the Realtor the night before that all looked good and that I could find a loan approval. Now my reputation was on the line, and I hadn’t even met the clients yet.

I continued my wary thoughts last night. I grilled the clients with lots of extra underwriting-type questions just to get to the root of the problem. After two hours of this and a call to my Ops Manager (the smartest man I’ve ever worked with in the mortgage biz), I had the clients sign the loan applications and we were on our way to obtaining a loan approval and a closing.

The issue at hand was the husband’s employment history. At first blush it seemed awfully spotty. But, when the time was taken to sit there with a blank sheet of paper and note the dates and the continuity of same, well, then the puzzle was solved. The rest of the qualifications were fairly straightforward.

I’m still scratching my head wondering why the other mortgage “professionals” couldn’t get this done. But, then, a lot of the people remaining in the biz grew up during the fantasy boom when all you had to do was take someone’s pulse to approve a mortgage loan. A loan officer didn’t have to actually “think.”

I must confess, too, that as I wrapped up the paperwork, photocopied the ID’s and asked the clients for referrals, I had a nagging suspicion that I was missing something. In the end, I realized my experience of having sat through thousands of interviews like this had served me well. The “detective work” was rigorous, leading me to solve the problem; the rest was automatic.

I guess experience really does count for something. That and a thorough knowledge of FHA underwriting guidelines got me through to a successful conclusion.

Note to Sellers: CHILL OUT!

Holy Cow! You would think the market was still red hot the way Sellers are (still) behaving! Either they have no patience with the new (difficult) paradigm of mortgage financing or they still think their homes are worth $42Million!!!

Really, of late I’m seeing this ridiculous attitude from Sellers threatening to kill deals and hold the Purchasers’ downpayments all because the process of obtaining financing is more difficult and thus slower than it has been in recent years.

What part of: THE BOOM WAS AN ANOMALY or HELLO? IT WAS A FANTASY don’t these people understand???

I hired a new loan officer this week. He related a story of a Seller who legally threatened to cancel the transaction (serving a “Time Is Of The Essence” letter on the Purchaser) after only 4 weeks. The Purchaser was in the process of obtaining a gift from a relative for the extra $5,000 they needed to close. This can be a rather delicate process of asking your family for help to buy a home, so it can take a couple days.

When the Purchaser got the news about the cancellation threat—the TOE—they were so infuriated, the let the gift go and ultimately were denied for the mortgage because of insufficient assets to close. Stupid Seller lost a qualified Purchaser through lack of patience. I’m sure there are four other Purchasers lurking in the wings ready to step in and pay full price and close in 36 hours, NOT!

I have a loan closing this Friday where the poor Purchaser went to two other mortgage companies before finding his way to us. We got the loan done in a fairly timely manner (six weeks), but not without much travail and anxiety. Meanwhile my telephone blew up everyday as I had Realtors, Attorneys, the Purchaser and the Seller calling me with one question: “When are we closing?”

Fortunately my background is in customer service, so I know how to field such calls. But ultimately, I can’t answer the question, literally, until the closing date is set.

Two and a half weeks ago, the Seller served a TOE (Time is of the Essence) letter on the Purchaser. We got the loan cleared in time and scheduled a closing for the day after the TOE date. Pressure relieved, everyone got into place to attend the closing.

But then we discovered the Seller wasn’t even truly ready to close! Apparently there were documents needed from the condominium association that had never even been requested by the Seller’s attorney! So, even if the Buyer had shown up on the TOE date with cash in hand, there would have been no closing! How did they have the nerve to threaten to cancel and they were not truly ready to close?

Where do these people find the gumption to be so impatient and arrogant? Do they even READ the newspapers?

Then there are the stories I’m still hearing from Buyers about prices.

Granted there are some crazy Buyers out there who think EVERY house is in foreclosure and can be bought up for fire-sale prices; those Buyers are not serious at all.

The serious Buyers, on the other hand, the ones who truly want to own a home, are making offers on homes, and discounting from the asking price by what I would say are reasonable percentages. For example, a list price was $485,000 for a 2 family home, and the Buyer offered $460,000. That’s not ridiculous, nor is it insulting. The Seller wouldn’t even counter-offer!

A Realtor yesterday showed me a listing he just took. We all know the home isn’t worth a penny more than $575,000 and will probably sell for around $550k-560. The Seller insisted at the listing meeting that the Realtor take the listing at $629,000. Absurd. Do you want to sell or not Mr. Homeowner?

These Sellers are still thinking there are fourteen Buyers for every home wandering the streets willing to pay top price and carrying wads of cash in their pockets so they can close in ten days. Wake up call for Mr. and Mrs. Seller: THOSE DAYS ARE OVER!

I want to send a package containing a GIANT CHILL PILL to each of these Sellers with a note that says, “Hey Seller, CHILL OUT!”

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It’s All About the Monthly Payment

I learned early on one fundamental of buying a home: it’s all about the monthly payment. If you can’t afford the payment, you don’t buy the house. Pretty darned simple math, really.

I learned early on one fundamental of buying a home: it’s all about the monthly payment. If you can’t afford the payment, you don’t buy the house. Pretty darned simple math, really.

Truly, the monthly payment is the only guide you should use. Interest rates change, prices of homes go up (and down), economic conditions vary. Focusing on any one or even all of those issues can only obscure the truth of owning a home: every month you have to write a check to pay the mortgage. It doesn’t really matter who is in the White House, what the economic forecast is, where interest rates are or what the value of your home is: ya still have to write that check!

I was reminded of this one fundamental truth of homebuying during this thread over at the Craigslist Housing Forum.

In the many, many, MANY interviews I have had over the years with homebuyers, truly, the monthly payment is what people care about the most.

I’ve developed a method where, once I calculate the payment on my handy-dandy calculator, I recite the total payment (including Principal, Interest, Taxes, and Insurance, or PITI) out loud, then look up for the reaction on people’s faces.

If I see a look of horror, I’m rather concerned about doing the loan for those folks.

This happened a lot during the “fantasy” years of the Sub-Prime boom. Being old-fashioned, I was still quoting 30year fixed rate loans when the entire planet was originating 2/28, I/O ARM loans. Sure, those loans had initial monthly payments that seemed affordable, but, when all was said and done, well, I don’t think I need to describe the consequences—just turn on your news channel, the results are splashed all over it daily.

The Return of PMI: Private Mortgage Insurance

With the mortgage meltdown eradicating piggyback loan programs, and borrowers still needing to finance more than 80% of the purchase price of a home, the need for loans with PMI has become a default issue.

Everything that was “old” is new again, including PMI.

PMI is Private Mortgage Insurance and is required for most mortgage loans when the Buyer’s downpayment is less than 20% of the purchase price.

Back when the now infamous 80/20 or “piggyback” loans were making inroads into the mortgage industry, I was one of the last holdouts at my company (besides my pal and fellow old-timer Barry W.) still originating mortgage loans with PMI. Younger loan officers looked at me as if I were mad for still talking, originating and closing PMI loans. Eventually I made the leap and included the “piggyback” mortgages on the product menu I recommended to clients. Those 80/20 or 80/15 piggybacks I originated all had fixed rates—I just don’t do ARM loans—and, even though the interest rates on the second mortgage was high (usually 9-11%), often the total mortgage payment was cheaper than a mortgage loan with PMI.

The added benefit of mortgage interest tax-deductibility didn’t hurt the situation, either. PMI is not tax deductible.

With the mortgage meltdown mess eradicating most all of those piggyback loan programs, and borrowers still needing to finance more than 80% of the purchase price of a home, the need for loans with PMI has become a default issue.

I’ve noticed also that some Lenders are offering “Affordable” mortgage financing products with reasonably priced PMI payments in order to assist First Time Homebuyers obtain financing during the mortgage meltdown days of 2007. This is a really good thing because too often the PMI premiums—and thus the monthly payment included with a Borrower’s mortgage payment of “PITI”—are so high as to prevent Buyers from moving forward on a home purchase.

Once again I say, “What once was OLD is NEW again!” Welcome back, PMI.

[tags]PMI, PITI, piggyback, mortgage meltdown, homebuyers, Private Mortgage Insurance[/tags]

“Asking Price” Doesn’t Matter to Realistic Buyers

A Buyer who worries about asking price is missing the bigger picture of how to negotiate the purchase of a home.

The methods used to determine asking price on any given property are so wildly varied as to defy clear definition. Especially as emotion plays such a large part in the ultimate decision.

In this market, in my opinion, the Buyer should set their own price.

A Buyer who worries while shopping about asking price and list price is missing the bigger picture of how to negotiate the [tag]purchase of a home[/tag].

The [tag]Realtor[/tag] doesn’t control you—and you should never let them, either!

1. Create your wish list for the home you want.
2. Identify the neighborhood(s) you like.
3. Get out there and shop, shop, shop (that means: do NOT sit at home looking at internet listings; all you’re seeing are ADVERTISEMENTS, not homes).
4. Being out there you gather personal data to compare/contrast against your wish list.
5. Being out there you develop your own personal “gut-feeling” of [tag]market price[/tag].
6. Make offers. That’s how you, the Buyer, determine the market price. (btw: I gave the SAME advice during the boom).

If a Seller is truly interested in selling, you and the Seller will work out your differences on price (in other words: your opening bid is almost NEVER your maximum price, nor is it the Seller’s bottom price) and find that equilibrium wherein both parties are happy and there occurs a “meeting of the minds.”

If a Seller is unrealistic, you will walk away from the [tag]house[/tag] because no amount of patient negotiating is going to convince that Seller of the “true” market price.

This isn’t rocket science: it’s just patience and a realistic appraisal of the market for [tag]home buying[/tag].

[tags]Word Press, Technorati, appraisal, SimpleTags[/tags]

Your personal market value “divining rod”

Go out there as a “dowser” to learn about homes in your chosen neighborhood. You will determine market value better than any Realtor or appraiser or homeowner because you will have been comparing homes, checking features against price, and meeting Sellers.

There is long-standing folklore about those interesting people who walk around with a divining rod searching for water and the best place to dig for a well. Those folks call themselves “dowsers.”

“Dowsing is as strictly defined the claimed ability to discover underground sources of water or metals by means of a ‘dowsing rod.’ Another term used is ‘divining.'”

While that may be myth, there’s something to be said for developing your own ability as a “dowser” when shopping for a home. Especially in these crazy times when Sellers stand firm on prices from 2005 and refuse to price the house to sell. The fact is, without Buyers driving the market prices down, those prices won’t change on their own. And there are not many Buyers walking the streets these days.

If you have decided that you must own a home now—regardless of market craziness—then you’re obviously going to be out there on the streets looking for a home to buy.

With reluctant Sellers and a dearth of Buyers, what’s a person to do?

I say, “DOWSE!” (is that actually a verb?)

Your “divining rod” as it were, is your own personal market value indicator. You create this divining rod by researching property values in your chosen neighborhood.

1. Research the values using internet tools. The ‘net resources available for this are many and varied:,,, and are good starters. But the internet is not the be all and end all for information about the home you wish to buy. Don’t fall into the trap of relying solely on the ‘net for your research.

2. Get out there and look at [tag]houses[/tag]. There is no substitute for visiting houses in person. Whether you do this on appointments with [tag]Realtors[/tag] or just by visiting open houses on the weekends (I recommend BOTH methods), you must undertake this important facet of your research for a home.

When you are looking at lots of homes—both online and in person—you will soon develop your “divining rod” and you’ll be a home-buying-dowser!

You will get a sense of the features of different homes at different price points.

You will learn the quirks of the people selling homes and how it is possible for someone to have a ridiculous expectation of what their home is worth.

You will get to see yourself more clearly—in your mind’s eye—in the [tag]home of your dreams[/tag].

Most of all, you will develop a personal perspective on prices and thus market value in your desired neighborhood.

With that experience, you will be a better negotiator on price. Because you will have developed a “gut instinct” (or divining rod!), you can better set a maximum price you’re willing to pay for any given home. You can see past ugly wallpaper and ancient carpeting; you can better understand when a Seller is being completely unreasonable.

Get ready to go out there as a “dowser” to learn about homes in your chosen neighborhood. You will determine market value better than any Realtor or appraiser or homeowner because you will have been comparing homes, compiling features versus price, and meeting Sellers.

Dowse away!
[tags]WordPress, WordPress Plugin[/tags]

When is the best time of year to buy a home?

If you know that buying a home is the right thing to do for your own personal reasons, then YOU make the time. YOU determine the “when.”

Is there a “best” time of year to buy a home?

Is there a time of year when Sellers are more willing to negotiate because they are more desperate?

When is that time? When?

If you trust your fundamentals, if you know that buying a home is the right thing to do for your own personal reasons, then YOU make the time. YOU determine the “when.”

Maybe it’s because I teach my clients how to negotiate like piranhas.

Maybe it’s because I’ve been looking at (and dreaming of) real estate since I was in my twenties living in an apartment in Astoria.

Maybe it’s because of my eighteen years in the mortgage business working all year ’round through all kinds of markets.

Whatever my reasons, I will say to you this: YOU make the time because YOU get out there and find, force and MAKE the deal that you’re happy with.

The “when” is not based on the market; rather YOU determine the when by shopping and finding and making your deal.

I believe in negotiating hard and tough and forcing a price. I believe in getting up and walking away from the table.

I believe the “dream house” exists in our minds, therefore you can never truly “fall in love” with a house.

I believe you, as a Buyer, truly control your own destiny and I believed that even when the market was overheated and Sellers were insane. (In my long experience, Sellers are ALWAYS insane! You just have to search until you find one who’s willing to be a bit more reasonable than the rest!)

Maybe it’s because I believe it’s all up to YOU.

Make your own Supply to meet your Demand

Toss economic theory out the window. If you are ready to buy a home—for your own reasons—then it’s time to make your own economic theories and make ’em stick.

So you know you definitely want to buy your own home. No matter the market conditions, interest rates, or status of A-Rod’s quest to hit Home Run #500, you have your reasons.

If that’s the case, how then to find a house at a price you’re willing to pay?

There is a glut of homes available for sale, but you can be pretty sure there is also a glut of Sellers out there with unrealistic expectations as to the price they’ll accept. And those expectations might very likely be out of line with your personal viewpoint on market value.
Back in Economics 101 we were taught about Supply and Demand, and how one affects the other, especially regards price.

I say, chuck the economic theory out the window. If you are ready to buy a home—for your own reasons—then it’s time to make your own economic theories and make ’em stick.

Here’s how, then, to find the Supply of houses you’d be willing to buy and thus meet your own personal Demand.

1. Determine a monthly payment you’re comfortable with.

When you are prequalified, your mortgage professional will calcluate for you the monthly payments on a maximum loan based on your income. If the maximum loan you’re qualified for has a payment beyond your comfort level, then ask your mortgage pro to “step it down.” You’ll have a payment you’re comfortable with and you’ll know, based on the new calculations, your maximum price.

2. Shop, shop, shop.

Create your own “gut-sense” of market value. You do this by looking at homes—in person—in your chosen neighborhood and learning the price points of different houses with different amenities and sizes. Look at a lot of houses.

When you are out shopping for a home on a Saturday and a Sunday, make offers. In New York you can make as many offers as you like; until you sign a contract of sale with your attorney, you’re not committed to anything. This is a good way to get at the essence of a Seller’s mindset: are they serious about selling, and what price do they really have in mind? At worst you’ll find out just how unrealistic a Seller is with price expectations. When you meet those kinds of Sellers, it’s time to move on, and you haven’t lost much time “falling in love” with that house!
While negotiating offers, determine the maximum price for any given house. You set that price by trusting your “gut sense” of market values because you’ve been out looking at lots and lots and lots of houses.

When you negotiate offers, first with your opening price and then up to your maximum price you create your own opportunities for “corrected prices” by seeking out the Homeowners who will sell to you at YOUR price.

3. Trust your “stuff.”

In baseball, when a pitcher is a bit flummoxed, the catcher or coach will come out to the mound and say, “Trust your stuff.”

When you’re shopping for your home, the “stuff” is all that homework you’ve done by looking at homes in your chosen market, developing an instinct as to true market price.

The second ingredient in your “stuff” is the knowledge of your personal “fundamentals.” These fundamentals exist with you, not out in the ether expressed on some internet site somewhere as an unfathomable variable in a real property valuation equation. YOU are the equation: your instinct, and your fundamentals. Taken together, it’s your “stuff,” and you should trust it!

The fundamentals are very simply:

-Do you want to rent or own?
-Can you locate a house at a price you’re comfortable with?
-Will you own that house for a long enough period of time to make sense considering how much money you’ll invest to make the purchase?
-Are there intangible benefits to owning that you want to realize, and that you absolutely cannot obtain by renting?

Those are the fundamentals.

A lot of people think there should be some baseline, some pre-defined “bottom” of the market and a condition of economic equilibrium at which point it makes sense to buy a home. They think there is some fixed equation like the Pythagorean Theorem when it comes to real estate market prices and timing.

Umm, no. There’s no such thing. Take it from someone with 18 years professional and 21 years personal experience with real estate.

Homeownership is what you make of it, quite literally. It starts with a dream, continues with your comfort level with the numbers, and finishes with your decision as to your own personal fundamentals.

Closing Costs in NY: Arrrgghh!!!

Closing costs, expensive as they are, are a “fact of life” when financing a home in New York.

Yes, it’s a teeth-grinding, heartburn-inducing, stomach-churning experience buying a house in NY with closing costs being so high.

I am not going to go into the long winded and detailed explanation of the breakdown of closing costs. That’s for another time. I really want to express for you the reality of what the closing costs are: HIGH.

(NOTE: I am referring here to the purchase of houses and condominiums, NOT Co-OPs)

First, the average closing costs total out to about 4.5%-6% of the mortgage amount. On a $400,000 loan, that’s $18,000 to $24,000. WHOA! That’s an awful lot of money. I came to realize a long time ago how difficult it must be for the average New Yorker to save up the money for a downpayment on a house, only to later learn they would need all this extra money for the closing costs. That’s why I have always helped my clients obtain financing high enough to allow the minimum down payment (or recently NO downpayment). In this way, the money they’ve saved up is used for the closing costs.

In New Jersey and Connecticut, closing costs are half of the norm here in New York.

I don’t know why that is, or why the costs are so danged high here in NY. I just know that’s the way it is. If you are getting ready to get out there and shop for a house: get used to this idea. It’s painful, I know, but it is what it is.

Next, let’s talk about disclosure. Federal regulations require disclosure of closing costs to the borrower. We Lenders have to send you an estimate of your closing costs as soon as you make your loan application. The problem is these estimates, being estimates, are subject to the discretion of the party preparing them.

Without complicating the issue, let’s just say that it is entirely possible you could receive an estimate of closing costs that is woefully short. Even if the costs disclosed to you are substantially short of what you actually pay, it’s perfectly fine.

At my office, the company prepares the most accurate estimate possible.

For my part, I have ALWAYS given my clients the ugly numbers right from the get-go. I hate surprises and I want my clients to know well in advance how much money they’ll need. My estimates include things that aren’t even listed on the standard Good Faith Estimate: Purchaser’s attorney; adjustments to the Seller for taxes, water, fuel; the “tip” to the title closer, even!

My estimates are usually within less than $1000 of the final cost to my clients.

Finally, beware of “NO CLOSING COST” advertising come-ons. Unless the loan is a Home Equity second mortgage, the borrower has to pay closing costs. This cute advertising gimmick could be perfectly truthful and mean any number of things. Without breaking them down, understand that you will pay closing costs one way or another.

Closing costs, expensive as they are, are a “fact of life” when financing a home in New York.