Archives for January 2008

I mentioned before that we plan to have just my wife apply for our new home mortgage loan, and not have my name on the mortgage at all. I had been playing around with this idea for months, but it looks like we will be going through with it. Here are some of my supporting reasons:

Helps Prevent Overspending On A House
One of our primary life goals is to be able to live on the equivalent of one income so that we can both work less and enjoy our lives. In order to do so, obviously we will need to maintain a reasonable housing payment. Although it’s clear now that lenders aren’t always the best judges of what is “affordable”, if we couldn’t qualify using only one of us, that would surely be a bad sign. While going through the pre-qualification process, we found banks willing to lend us over 5 times our income!

Although this is usually one of the main drawbacks of only having one spouse on the loan, but we actually saw it as a positive way to help us make sure we weren’t spending too much on a house.

Saves Time and Hassle
We want the best mortgage rate possible, so we are doing a full-documentation loan to prove our financial worthiness. Not only did I only recently finish school again, but a chunk of my income is self-employment income. Doing a full-doc loan with self-employment income involves a ton of scrutiny and at least 2 years of detailed profit/loss records. They also only take the average income over the last two years into consideration. It was simply easier and faster to submit my wife’s more stable and salaried job information.

Projecting A Better Credit Score
Sometimes one spouse has bad credit, so you want to keep their name off the mortgage in order to get a better rate. In our case, it wouldn’t have really mattered since we already got both our scores checked while getting pre-qualified. But my wife’s score is still slightly better than mine – since she doesn’t play silly credit card games – so we figured it wouldn’t hurt.

Leaves Room For Future Mortgage
After we buy the house, I still won’t have a mortgage on my credit report. Supposedly having a mortgage helps your score, but I’ve been doing just fine for over a decade without one, so it doesn’t matter to me. However, if later on I apply for a mortgage myself (investment property?), then I’ll be able to use my full income to qualify since I’ll have no other visible liabilities. Hopefully this will result in a better rate later on down the road as well.

Worst-Case Scenario
Although we never plan on taking advantage of this, if our home does get foreclosed upon, ideally only my wife’s credit score would be hurt as she is the only one responsible for the loan. Of course, I’d also lose my interest in the house.

Both Spouses Can Still Own The House
In our case, we plan on putting both our names on the title of the house with rights of survivorship. From what I’ve read, in many states both spouses have equal interests in any purchased house no matter who is on the mortgage, so it may not even matter.

So no mortgage for me! 🙂 Let me know if I missed something, positive or negative.

This my second post on our experience in Finding A Buyer’s Agent. In Part 1, we tried our best to figure out what we wanted from an agent. Again, we are first-timers and are not real estate gurus. This is a long post, but it definitely shows a real story of how we found our agent – and how she helped us find our house!

Screening Tips

Given the hundreds if not thousands of real estate agents in our area, it was going to be a daunting task to find the “perfect” agent. We had to filter them down somehow. After reading up at a couple of books and websites about how to select a buyer’s agent, here’s what we were told:

• Ask trusted friends for recommendations. Ask about the reputation of both the agent and the brokerage house he/she works for.
• Ask potential agents for testimonials and references. A long list of references is good, but it’s unlikely you’ll hear from the unsatisfied folks.
• Check the local real estate board if your agent has any complaints against them. This is pretty unlikely in my experience, they aren’t exactly regulated that closely.

Our First Experience

First, we asked our friends and family for experiences. One of our family members actually used to be an agent, but she retired a while ago. Another family friend volunteered to be our agent, so we decided to try him out. It didn’t work out as he seemed to only want to show us certain houses in certain areas, and wasn’t very responsive to our specific requests. I guess we weren’t the ideal “let’s see 3 houses you recommend and we’ll just buy one of them” couple. Not wanting to mix friendship and business anymore, we decided to find our own agents from then on.

Interviewing Agents

After browsing some newspaper ads, I decided to visit HomeGain.com and used their free “Find a Realtor” feature to compare some agents. You provide your information like neighborhood, price range, etc. and then a bunch of agents try to create a custom “proposal” for you. However, it’s all done online through their interface, and none of your contact info is shared without your permission. I liked the idea of not keeping my name and phone number private. You also get client testimonials and their experience level. Here is a sample (click for full size):

Most of the proposals sounded the same… “I know all about your neighborhood, let me help you etc. etc.” We picked our favorite five, and asked them the same interview questions online:

[Read more…]

It’s official! We have an signed offer contract on a house, our earnest check is sent, and we are in escrow. Apparently our timing couldn’t be worse as the world is apparently about to implode, but ah well. Here are some quick bits of information:

• The seller needed a quick sale, and we are buying as-is. We will have to hire a home inspector to make sure everything is acceptable.
• We believe our offer price to be a good deal. It was below asking, and significantly below comparable houses. We literally bid the 1st day on the market.
• The home price is more than we originally wanted to pay, but is still such that either one of us could qualify for the loan individually. Mortgage rates are also really low right now.
• It’s a fixer-upper, but the “bones” are great. It hasn’t been updated much since the late 80s, so it’s pretty ugly to a lot of buyers. We already have lots of remodeling plans.
• It’s a house that fit all of our criteria and more: good neighborhood, excellent schools, acceptable lot size, great square footage. If anything, the commute will be longer but we expected that.
• I’m acutely aware that the housing outlook is bleak right now, but that’s how it is – You’ll see how my decisions work out, good or bad. In any case, there is still a long ways to go until closing. Props to my wife for checking the MLS diligently every single day and making this happen!

Up until a few years ago, the status quo was that the real estate agent who helps you buy your home get half of the 6% commission, so 3% of the sale price of your home. On an average (again, around here) $600,000 home, that’s $18,000. That may be split between the principal broker and the agent (unless you have an independent agent), but that’s still quite a pay day. Nowadays, there are several websites and agents who will offer you a cut of this 3% commission – often for a reduction in features. Here are a few of the more prominent ones:

• HungryAgents.com*
• Redfin.com
• Iggy’s House
• RebateReps
• BuySideRealty.com
• Ziprealty.com

(*Our eventual agent was found using this service.)

However, the National Association of Realtors is actively lobbying against this practice. Currently, these states ban buyer rebates: Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, Montana, New Jersey, New York, Oklahoma, Oregon, Tennessee, and Wyoming.

But should this practice be illegal? Many people – most real estate agents – sure think so. I disagree, and find this stance very anti-consumer. Hey, I can understand not wanting to lower my income. But that’s capitalism. If an agent can operate well without rebates, then they should do so and refuse to offer any such rebates. But if someone else is willing to negotiate their fee, what’s wrong with that? I feel that like for any service provided, both the price and the features should be negotiable. Imagine every car costing $20,000 no matter what, every computer costing $1,000, every haircut costing $50. Yes, a discount agent might offer discount service. But a full-price agent can also offer poor service. In the end, each home buyer should be able to make their own value judgments.

Even our current arrangement is primarily a result of legacy and tradition, not logic. Until the 1990s, in many states there were no “buyer’s agents” at all. All agents represented the seller, which means they had a fiduciary responsibility to the seller – and only the seller. Only within the last decade or so have agents who solely represent the buyer become widely accepted. I believe commission rebates are simply the next evolution in real estate practices.

In the end, not everyone has the same needs. If someone wants a full-service agent who works for a big company like REMAX or Century 21, who will interview the client and figure out the best neighborhood for them, call them with updates every day, and drive them to each house in their nice car (why do they all drive either a Benz or a Lexus?), then they should have the right to do so. On the other hand, my agent has almost 20 years of experience, and is her own principal broker. She drives a Honda Accord, and I’ve never been inside it. We get full MLS access and we e-mail her what houses we want to see. We already have a lawyer who reads real estate contracts all day long in the family.

In addition, if price is such a key ingredient to agent quality – why can’t I offer $5,000 plus the 3% commission to my buyer’s agent? By that logic, that should get me a sweet agent who’ll bargain the pants off the seller and get me a house 20% below market… right?