Count all the money you wasted this year

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This is post #2 in the First Hundred Days series designed to answer the question “Should I Buy a House Now?”.  We often go to professionals to help us make decisions, but whether or not you should buy a house now, isn’t one of them.

By the time you walk into a real estate office or speak with a lender, you should already know whether or not you should buy a house now.  A lender tells you whether or not you CAN buy a house, not whether or not you SHOULD buy a house.  An agent helps you select which house, and guides you through the process of buying a house.  Only YOU can answer the question of whether or not you SHOULD buy a house, and this series is designed to assist you and give you confidence in your decision.

Step 1 – Calculating Your Gross Income for Home Buying Purposes was addressed yesterday. 

Step 2 – Account for how you have spent that Gross Income, using hindsight.

It’s pencil and paper time…yes, you have to move away from the computer for this step 🙂  Take out all of your bills from the last 12 months.  You are not making a budget in this step.  You are accounting for every dime of your gross income for the last 12 months.  Get three different notebooks and mark one of them WANTS, one of them NEEDS and the other one WASTED.  Everyone has that dream where they go to sleep, and every dime they’ve ever wasted shows up in their bank balance the next day.  So let’s not pretend we haven’t wasted any money over the last 12 months.

You are not finished until the total dollars in the three notebooks equal your total gross income from Step 1.

You, and no one else, can determine your needs.  I NEED a cell phone…it’s not optional for me, for others it may be optional.  I don’t NEED a landline (though I have two) so I guess that goes in my WASTED notebook.  Don’t Google sample budgets for this.  Make your own choices.  Picture yourself without that item when determining which notebook it should go in.  I WANT to see my children and grandchild X times a year (anyone who thinks seeing their children isn’t a big expense is a lot younger than I am, LOL)

Everyone’s wants and needs are different, and what you view as a need could appear to be wasted money from someone else’s perspective.  That is why this is a very personal part of the decision process that no one else can answer for you.  You may have children with expensive sports activities.  You may feel getting that Starbucks Coffee everyday is not optional.  It is your right and obligation to determine your own personal wants and needs.  No real estate agent or lender can tell you what you have “left over” from your gross income to spend on a housing payment.

I know this step is a lot of work, but it’s almost year end and a very good time to pull those receipts anyway.  If you don’t have receipts, you’ll have to fudge a bit, BUT starting today keep more receipts than you have in the past.  Put a big envelope in your car for this purpose.  If you use three envelopes marked NEED, WANT and WASTED, all the better.  You may find you waste less money if you force yourself to put the receipt in the money WASTED envelope on a daily basis.

Even if you decide not to buy a house at the end of these First Hundred Days, the process should be of value to you, by forcing you to account for every dime of your Gross Monthly Income.   Better to START the process with accountability, then to be forced into facing a hard reality AFTER you buy a house.

Does every buyer or seller need an agent? Does every distressed homeowner need an attorney?

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In the comment thread to a recent post, Ardell wrote:

You can’t just tell people they should or should not have an attorney the same way that you can’t tell them they should or should not have a real estate agent LOL! Either can be a waste of money if you have the wrong agent or attorney. If the agent is not going to help you value the property you are buying…if the lawyer is not going to advise you regarding release from the deficiency…either is a waste of time if they are just shuffling papers around. Every buyer and seller should have an agent the same as everyone facing default should have an attorney.

This raises an interesting question: Are agents and attorneys comparable in terms of the services they provide? And more to the point: Are they equally important in protecting a person’s interests?

I think not. Now some may quickly accuse me of being a “typical” ego-driven attorney with an overinflated sense of self worth. But rather than attacking me personally, the more discerning reader will respond to the merits of my argument.

Similarly, I suspect there is a lot of common ground between agents and attorneys — more than a reader might realize. For example, everyone agrees that there are poor agents as well as poor attorneys, and hiring either one will either be a waste of money outright or will get you a poor return on your investment (money spent on service when compared to benefits of receiving service). Moreover, there are always exceptions to every generalization, so specific examples are not very useful in addressing general issues. So, for purposes of this post, let’s focus on a “generic” competent agent — i.e. the abstract, non-specific “everyperson” agent — compared to a similar competent attorney.

So why do I think that an attorney is more important? Or, as Ardell framed the issue, why do I think that people should not have an agent when buying or selling a house, but they should have an attorney when facing foreclosure? The analysis begins with recognizing the different skill sets of each professional. Practically speaking, an attorney must have completed both college and law school, a three year graduate degree. The attorney must also have passed the bar exam, which is recognized as quite demanding. In contrast, an agent must have completed a 60 clock-hour course offered at most community colleges and passed the state license examination. Both professionals must undergo continuing education, so presumably once the career is started they grow professionaly at the same rate. But is there really any question that the attorney is better educated (and thus has the prerequisite intelligence and diligence necessary to complete seven years of advanced schooling)? Furthermore, given these vastly disparate educational requirements, can anyone dispute that the practice of law is more complicated and more intellectually demanding than the brokerage of real estate?

Consideration should also be given to the actual work expected of the two professionals. Again, as Ardell framed the issue, an essential task expected of an agent is valuation of the property at issue. A property’s “true” value is unknown until a willing buyer and a willing seller agree on a price, neither being compelled to do so. Until that time, any estimate of a property’s value is just that, an estimate. This estimate is based on many factors, most of which can be obtained and understood by any competent adult — i.e. sales data and current prices for similar homes in similar areas. Everyone will have a different opinion, even between two agents with the same amount of experience. There is simply no way to confirm that any reasonable valuation — from anyone — is “right” or “wrong” until the property sells.

In contrast, when faced with acute (or chronic) financial distress, there are different strategies that may be employed to address the problem. All of these strategies require an understanding of the debtor’s legal rights and obligations. In comparison to valuing a property, it is much more difficult for a person to do the necessary research (federal statutes, state statutes, cases interpreting both) that will allow the person to reach an informed and correct conclusion. Moreover, an error in valuation is likely to be small as there is a range of “right” answers anyway, and if the buyer/seller formulates their own number and then gets that number, the outcome at least in the short term is good. In contrast, there are many different options that may be available to the debtor. The option chosen by the debtor — after researching the issue himself — may be, in fact, a very poor choice in the near and short term.

Finally, I must also note the costs incurred in using the services of either an agent or an attorney. At least in the realm of residential real estate, I would wager a lot of money that agents are actually more expensive than attorneys. In a “typical” transaction, a consumer will pay his agent (including the broker required for the agent’s license) $12,000 (3% of a $400k house). This is a substantial bill for the services provided, particularly in light of the requirements for becoming an agent. In contrast, even if the consumer files for bankruptcy, he is unlikely to incur such a bill with a lawyer. If the debtor is simply consulting the attorney for options, the bill will be much, much less.

In summary: a consumer need not hire an agent in all circumstances. Look at the services you hope to receive and the value of those services in light of the cost incurred, taking into account the licensing requirements of the professional providing those services. By considering the licensing requirements, a consumer addresses the merits of hiring the professional versus performing the work on the consumer’s own behalf. However, a homeowner should always consult a lawyer when faced with default on a mortgage — or when faced with any other legal issue involving hundreds of thousands of dollars of liability. If cost is an issue, then there are free legal services and low cost services available. Regardless, the money will be well spent. The same is not necessarily true of an agent.

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2009 Conforming and Conforming Jumbo Loan Limits for Seattle Metro

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Update April 9, 2009:  On February 23, 2009 FHFA announced that according to the American Recovery and Reinvestment Act, 2009 loan limits will be revised to the 2008 loan limits.  As of this update, we’re anticipating the higher revised limits to take place at any time (1-Unit for this area will return to $567,500).  FHA has all ready implemented the loan limit changes.   This serves as a reminder that any information on the internet regarding mortgages can be out dated in a fairly short amount of time.

This morning, the Federal Housing Finance Agency has announced the 2009 conforming and jumbo conforming loan limits for 2009.  The conforming loan limit will remain at $417,000.  The jumbo conforming was reduced to 115% of median home value from 125%, with the passage of HR 3221.   Based on the new lower estimated home values, the 2009 conforming jumbo limits for King, Snohomish and Pierce Counties are:

  • 1-Unit:  $506,000
  • 2-Unit:  $647,500
  • 3-Unit:  $783,000
  • 4-Unit:  $973,100

Some banks and lenders have all ready began to send notices that they will stop accepting locks for the 2008 conforming jumbo limits ($567,500 for 1-unit) effective later this month.    This is done so that once the loan is sold and closed to Fannie or Freddie, the loan limit is compliant.   (You may not have until the end of the year to take advantage of the $567,500 loan limit).

More to follow…including updated rates this afternoon.

"Should I buy a house now?"

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Q: Should I buy a house now?

A: NO!

Q: Why?

A: Because you should never buy a house when you are not sure that is what you want to do, and you should never let someone else make that decision for you.  Don’t EVER give anyone that much power over your life.

As part of our exuberant expectation of CHANGE, I will be starting a series called “First Hundred Days”.  It’s not enough to vote for change and then sit around waiting for change to come from someone else.  If each of us does something different every day for the next hundred days, that produces a change for the better…then change will happen.

I will tag all posts “First Hundred Days” and I will do my best to include all of the tools and skills you should employ to make your own decision about buying a home. We hear so much about “the stupidity” of people in trouble.  Instead of criticizing, let’s do our best to help the future buyers of homes make better decisions and choices by providing meatier, education oriented, instructional blog posts.

The first step in the home buying process does not start at the lender or the real estate agent.  It starts with you sitting in your own home working through some numbers.

1) Calculate your gross income.  If you are salaried, you have the number.  If you are commission based or hourly, add the last 12 months income to the previous 12 month income and divide by two.  Now double check it by taking the last 3 months income and multiplying it by 4.

Let’s say you are hourly or salary plus commission/bonus.  Note these are not lender guidelines.  These are old-fashioned and proven standards for responsible decision making and so will likely be more conservative  than lender guidelines.

Non-salaried income Last 12 months: $75,000

Non-salaried income previous 12 months $60,000

Current annual income for home buying purposes = $75,000 plus $60,000 divided by two or $67,500.

Now the double check.

Total income for the last 3 months = $14,000 (boss gave you fewer hours)

$14,000 times 4 (12 months) = $56,000.

The double check system suggests that you should not think about buying a home in the near future based on an income of more than $56,000 a year, and you should not buy a home until you are certain that the cut back in hours is not leading to no job at all or even fewer hours.  Stabilize your income situation before buying a home.

If the last 3 months income is $20,000 times 4 or $80,000, you still use $67,500 as your annual income and not $80,000, for homebuying purposes. 

You use the average two year income or 4 x your latest 3 month income, whichever is LOWER.

I’ll stop here and see if people have questions before going to the next post in the “First Hundred Days” series.  When you buy a house…if it is the wrong decision…you can blame lots of people, but you will be left holding the bag.  So let’s work together over the next hundred days to make sure you can answer the question for yourself without heavily relying on the opinion of others.

Treat the series like a workbook, get a notepad, and calculate your numbers.  Questions?  Ask them in the comments section.

It Never Rains in Seattle

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At least it never rains on the Google StreetView car.


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As you virtually walk the neighborhoods of Seattle with StreetView (It’s New! Yesterday!), you’ll see some cloudy days:


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But no rainy days.

When I was growing up, my dad’s favorite description of Seattle came from a “give us a slogan contest” on the radio: Living in Seattle is like being married to a beautiful woman who is always sick.

Thankfully, Google StreetView is only showing us Seattle on her better days. Here is some virtual sight-seeing for ya:

Troll:


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Lenin:


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A disappointingly unfunny Lusty Lady:


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The always-imposing Rainier Cold Storage:


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Metal beasts on the waterfront:


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And finally, the infernal Duck truck (don’t ride the ducks!):


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Follow President-Elect Obama's Journey

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Follow the amazing journey of how this man came to where he is today using Google Maps. This should be every school child’s assignment to day when they go to history class. Then for bonus points they should look up their home in Google Maps Street View, since they added Seattle as of yesterday!

Google Maps – Barak Obama’s Journey

Barack Obamas Journey

Barack Obama's Journey


Interview with Jillayne Schlicke – Part 1: LO's Are You Ready for 2009?

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I recently contacted Jillayne to see if she would be open to an “interview” geared to Loan Originators who plan to sticking around beyond the end of this year…of course, she agreed!  😉   Jillayne offers training and clock hour approved courses to LOs and I thought this would be good timing to touch base with her.  This will be a two part series with the next post addressing the SAFE Act (national licensing). My questions to Jillayne are in italic text.

What should Loan Originators be doing right now to prepare for 2009?

Jillayne:  Well, let’s first define LO’s.  In my mind, we’re talking about LO’s who work for non-depository lenders such as mortgage broker LOs and CLA [correspondent lenders, credit union and consumer loan] LOs.  Loan originators who need to work for an FHA lender have all ready made that move.  Those who have not, will.  LOs who work for a lender or broker that is not FHA approved are all ready finding other sources of money.  Some LOs have already positioned themselves nicely but are experiencing a dramatic drop in income.

Many LOs made six figures income during 2006 and 2007 and subsequently have a six figure lifestyle that they are already trying to pare down to match 2008 income levels.  Income levels will remain volatile in 2009.  Existing client bases will not return the same income level as prior years.  LOs must prepare for the recession and start to research what kinds of industries survive and thrive in a down market and begin to reach out to people in those industries today.

Loan modifications have popped up out of nowhere to become the current “get rich quick” scheme marketed to hungry LOs.  Stories are circulating about LOs wo are closing 60 loan mods a month.  This is a possible untapped revenue source for LOs, however, there are some big liability pitfalls to navigate in the form of state laws, federal laws and contract laws.  Loan mod salesmen have been pitching lots of different programs, charging LOs thousands to buy into a “system”, without knowledge of state and federal laws.   LOs must be cautious and do their homework before jumping in head first.  Massive government intervention in foreclosures may make that “system” investment worthless.  There are ways to do loan modifications without putting your license in danger.

What trends are you seeing in the mortgage industry?

Jillayne:  Mortgage lenders, no matter where they work; banker, broker, consumer lender, credit union, ought to be prepared for more regulations at the state and federal level.  The winds of change are blowing in favor of the consumers.  The industry went through this in the 1970s when we saw a wave of consumer protection legislation such as the Real Estate Settlement and Procedures Act (RESPA), Truth-in-Lending, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act.

We have only seen the beginning of what will likely be more consumer protection.   The consumer must be told in a clear way what fees will be charged and how much the loan originator is making on the deal.  The mortgage broker industry mis-used Yield Spread Premium.  Because of this, the government will now tell mortgage brokers exactly how to explain that fee, and the brokerage industry won’t like it.  Watch for RESPA reform to pass and a new Good Faith Estimate.

I expect that underwriting guidelines will continue to go up as banks and conforming paper sold to Fannie and Freddie will raise minimum credit score requirements to 800 and require 20% down.  Everyone else will be pushed to FHA.

On the broker side, we’ll likely see more of the smaller, non-FHA approved brokers joining larger, branch office brokers with FHA-approval already in place.  Brokers who do not want to join the FHA party could take a look at the hard/private money side of the industry, which will likely grow as more people who always will be subprime return to their broker.  Brokers always have been a source of non-traditional money.  Now more than ever, subprime borrowers need that broker.  FHA is not the world’s subprime lender.  It was never intended for that purpose.

If we continue to push subprime towards FHA, then we will soon be looking at an FHA bailout.  Let’s not act surprised when it happens.

We are likely to see government intervention in the foreclosure crisis on a massive scale. FHA Secure and Hope 4 Homeowners will be deemed colossal failures because the underlying lenders simply cannot write down the principal balance on those non-performing loans without sending their own banks teetering into receivership.  I believe we are inching closer each day toward eventual nationalization of banks.

What are your most popular classes that you’re teaching right now?

Jillayne:  The short sale class, which I’ve taught for over ten years now, is very hot.  Other best sellers:  Foreclosure; Losing the American Dream, Current Issues in Lending, FHA Loans, Fiduciary Duties for Mortgage Brokers, and for Real Estate Agents: How to Survive in a Down Market and How to Become an REO Agent.  I’m starting to teach the fundamentals of a loan modification inside the Short Sales/Short Refis class and my class last week loved it so watch for one on loan mods.

On that note, I really recommend that Washington State LO’s make sure they’re signed up for their 2008 clock hour classes, if they have not all ready met their education requirements for licensing this year.  Be sure to check out Jillayne’s new Professional Education page here at RCG and watch for Part 2 of my interview with Jillayne where we discuss national licensing: The SAFE Act.

It's not how I voted, but….

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I’m very hopeful that Obama will live up to the expectations.  This was actually my first time voting for a Republican candidate.  This was also the first election that I was proud and felt strongly about voting for a President.  

What President Obama had done is amazing and historic.  I’m not going to go into details about what I think was done right or wrong with the campaigns…it doesn’t matter anymore.

This could be what’s needed to pull America together and I do hope it all happens.

The Crackberrys are coming to Real Estate by a Storm!

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Supra Blackberry phonesI’ve been a fan of the Blackberry for years. I LOVE their “push” email technology, and it’s one-hand scroll-wheel functionality. But I had to drop-kick my crackberry for a Palm Treo when Supra came out with the eKey technology in order to access homes for sale with lockboxes. I actually kept both for a while but after I got an iPhone three phones was just too much, even for a geek like me.

Supra only supports a handful of smartphones and most of them are Palm Treos, either Palm OS or Windows Mobile. The reason for this is not because they are lazy or unresponsive to customer requests, even if they are. The real reason is that most devices do not support IRDA technology. That’s the infrared port that communicates with the Supra iBox to unlock or program it. So Blackberrys, iPhones, and a bunch of other popular and cool smartphones were effectively blocked from being used as an eKey. Until now….

Blackberry eKEY-infrared convertorSupra has decided to sell an “infrared-to-bluetooth converter” and offer their Supra eKey services from several Blackberry devices by the end of the year. It’s like a car key fob that you carry on your keychain. According to their press release, Supra will support the Pearl, the Curve, and the 8800 series devices. There will be a couple of different plans offered. The new eData Mobile application will give the listing agent instant notification of showings, even while they are in progress. I’m not sure how this will play out. I’m not excited about getting calls from agents for feedback while I’m still in the house and showing my client. We may end up needing some NWMLS guidelines to keep Realtors from being too aggressive with other agents. (not that there are any pushy agents out there).

So the real question is … (drum roll please) Will Supra support the new Blackberry Storm? This is the closest thing I’ve seen to a true iPhone competitor coming to the market. All the other vendors have been scrambling to come up with a product that can compete with Apple’s evolutionary and wildly popular device. So far, none of them have really even come close, IMO. They may have some of the look and feel down, but the vastly superior software options still puts the iPhone WAY ahead of anyone else. But the one thing almost all iPhone owners agree on is that typing sucks on the iPhone. I can thumb a text message 10 times faster on a Blackberry.

Well, Blackberry may have found a way to solve this dilemma. The new Storm offers an on-screen touch-and-feel keyboard that you have to actually PUSH in a way that gives you a true “keyboard feel”. People tell me you quickly and intuitively learn how this works and your back to speed-thumb-typing in no time.The Engadget Mobile website has a page-by-page copy of the Verizon Sales brochure of the Storm if you want to look it over. I spoke with someone at GE Supra and they would not commit to saying the Supra eKey product would be compatible with the Storm. It uses Verizon’s GSM and Ev-DO networks and not Wi-Fi, which could be a deal killer for some people too.

Blackberry Storm keyboard

At least agents will have a viable alternative to the old and limited Treo. Finally, Change you can believe in! Sounds like the Blackberry’s running for office!