Tag Archives: Buyer-Information

Not all Home Loans are Created Equal

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[photopress:14dust.jpg,thumb,alignright]If you read no futher, here are two key things you should do when getting a mortgage:

1) Get a “Good Faith Estimate” in writing!
2) Get a “Good Faith Estimate” from at least one mortgage broker and one bank.

Now, for those of you who want some more information…

When looking to finance a home, there are two general places you can look for a loan:

  • Broker
  • Bank

Also, you always have the option of paying for your home with cash. Sellers love all-cash deals. However, if you are planning on buying a home with all cash, quit reading now and call me up directly! I do backflips to keep my “all cash” clients happy!

If you can find a top-notch mortgage broker, hold onto him/her and don’t let go. A good broker has access to hundreds of loan opportunities and can find deals that just won’t be offered by your local bank. However, the downside of using a broker is that you’ve added one more person to the food chain that expects to make some money off your home purchase, so make sure that you comparison shop and that your broker earns their commission. If you are wondering where to start looking for a broker, I’d be happy to offer you some advice based on people I’ve worked with. Or, try the following acrobat (*.pdf) file that lists the members of the Seattle Mortgage Bankers Association. Some of the brokers I’ve worked with (and like) include:

  • Alla Strok, potential bonus: she’s fluent in Russian

Just about every major bank (and smaller ones too) offers mortgage loans. In addition, the competition has spread to on-line banks with eTrade and Schwab now offing very competitive loans. I see no downsides to getting a “good faith estimate” from Schwab. They claim they will even give you $500 back if someone can beat their good faith estimate. Some banks to consider include:

Or, if you prefer, here is a full list from the google directory of banks that operate in Washington: banks and institutions

Some Mortgage Terminology
We might as well clear up some mortgage terminology so that we are all talking about the same language.

  • Good Faith Estimate: The law requires that each broker or bank give a “good faith estimate” regarding the details of their loan. In practice this means that each broker or bank will give you a quote (based on an analysis of your finances including credit history) in a very similar format that makes cross comparisons quite simple. These good faith estimates are shockingly easy to read, so demand one from anyone that tries to give you a mortgage loan. Are you having trouble reading the good faith estimate? Have your broker explain any questions to you. If he doesn’t take the time to explain the details, go with another broker.
  • Points: Fees paid up-front on your mortgage loan in order to lower the interest rate. Paying points make the most sense if you are planning to keep your loan for an extended amount of time. If you are planning to refinance or sell in the near future (less than a five years), points probably don’t make a lot of sense.

Loan types

  • 15- or 30-year fixed loans lock in an interest rate for an extended amount of time. The beauty of these loans is that the interest rate you paying will not go up for the life of the loan. For buyers looking to stay put for a while, these can be a take the guess work out of the future.
  • 3/1, 5/1 or 7/1 ARM loans lock in an interest rate for a short time frame (typically 3, 5 or 7 years depending on the type) and then change to an adjustable rate that changes based on the Federal Interest Rate. The loans are best for people who want some short-term security regarding their rate, but are willing to accept potentially higher rates in the long-term to save some money now. These loans tend to work well for people who are planning to move in a few years or whose income is still on the rise. If your income is likely to rise in the future, you can probably accept higher interest payments later in order to lower your payments in the near future.
  • 1-Year Adjustable loans are just an extreme version of an ARM. These lock in interest rates for a year, and then change to an adjustable rate that changes based on the Federal Interest Rate. Again, these loans are best for people who want some short-term security regarding their rate, but are willing to accept potentially higher rates in the long-term to save some money now. These loans tend to work well for people who are planning to move in a few years or whose income is still on the rise. If your income is likely to rise in the future, you can probably accept higher interest payments later in order to lower your payments today.
  • Jumbo loans are loans for over a specific amount (I believe the amount is tied to the area that the loan is being given in). According to the Seattle Times, the current amount is $322,700. They charge more because the bank’s investment has more to lose with larger investments.
  • Interest-Only loans are for a select few individuals and investors that are willing to add some risk to the situation. The idea is that you pay only the interest payments on the loan so that the principal balance does not go down. If you are in a neighborhood where prices have gone up considerably over the last few years, then an interest-only loan might have been a good option. Some times investors use these interest-only loans so that they can invest more but keep their monthly payments at an acceptable level. Interest-only loans are too risky for me, but that doesn’t mean they won’t work well for your situation. UPDATE: I was shocked to read that interest-only loans represented 1/3 of all home loans (nationally) last year. I knew that they were popular, but I hadn’t realized the extent. Politics in the Zeros. LA Times

Where do you start your search for a loan?
The process is really quite simple. Assuming you live in Seattle, check out the Seattle Times Mortgage Rate chart. (every major newspaper publishes something similar if you live elsewhere). This will give you a general feel for the rates that you can expect to find. However, note that this list is not comprehensive, and the banks are always finding ways to attach strings to these loans they advertise, so be skeptical of the data as presented. The next step is to demand that a Good Faith Estimate from at least one broker and one bank. Compare the results. Continue to ask for Good Faith Estimates until you are comfortable with the results.

The Power of Competition
There is so much competition in the home mortgage business, you could easily be lulled into believing that all the loans are nearly the same. However, my experience has shown that brokers and banks can often dig a little deeper and find a better rate if prodded. For example, when I went to get a mortgage for my home in Ballard, I had both a broker and Schwab bank give me a Good Faith Estimate. Schwab Bank clearly had the lowest rate, and when I showed the rate to the broker, he reevaluated the loan portfolio he had developed and found a much better deal. I showed his new loan proposal to Schwab and they beat his estimate by over 0.1%. I returned to the broker with Schwab’s new rate, and he admitted that he simply couldn’t beat it. Over the life of my loan, adding a little competition to the process saved me hundreds, if not thousands, of dollars.

General Tip
Be realistic about your credit rating. If you have excellent credit then you can expect better options. With bad credit you may have to search harder to find a deal. With that said, a good broker can find a loan to finance just about anyone. If you go straight to a bank, the loan officer’s there are not always so forgiving.

March Sunset Hill Real Estate Newsletter

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For people interested in the Sunset Hill market, I’ve just posted the March edition of my newsletter here:

March 2005 Newsletter. Note that this file is quite large (about 1 Mb), so if you have a dial-up connection, it will work best if you “right-click” on the link and use the “save link as” feature to save it directly to your hard-drive.

In addition to listing the sale prices for various homes within the neighborhood, I always try to give some good tips and/or advice on the local real estate market. If you would like to receive a hard-copy of my monthly newsletter (or simply an email notification when a new version is available for downloading), just let me know by emailing me.

Sunset Hill 2004 Year-in-Review

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Are you interested in selling your Sunset Hill home?
Are you interseted in buying a home in Sunset Hill?

I put together a report that documents the the sale price of every home that sold in Sunset Hill in 2004. Not only does the report highlight trends, but it also lists the average sale price of homes based on a variety of factors, such as number of bedrooms, home size, year built, etc.

The document can be found here:

Sunset Hill 2004 Year-in-Review. Note that this file is quite large (about 1 Mb), so if you have a dail-up connection, it will work best if you “right-click” on the link and use the “save link as” feature to save it directly to your hard-drive.

If you would like a hard-copy of this document, just let me know by emailing me.

10 Questions for Home Buyers to ask a Real Estate Agent

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I pulled these ten questions from a handout that the national Realtor organization published. There are good questions and, if used by a buyer, they should definitely give you a feel for the quality of the agent. So as not to be above the fray, I’m planning on adding my response to each of these questions as time permits.

1. Are you a full-time professional Realtor? How long have you worked full time in real estate? How long have you been representing buyers? What professional designations do you have?

  • Knowing whether or not your Realtor practices real estate on a full-time basis can give you a piece of the puzzle in foreseeing scheduling conflicts and, overall, his or her commitment to your transaction. As with any profession, the number of years a person has been in the business does not necessarily reflect the level of service you can expect, but it is a good starting point for your discussion. The same issue can apply to professional designations.

2. Do you have a personal assistant, team, or staff to handle different parts of the purchase transaction? What are their names and how will each of them help me in my transaction? How do I communicate with them?

  • It is not uncommon for high real estate sales producers to hire people to work for them or with them. They typically work on a referral basis, and, as their businesses grow, they must be able to deliver the same or higher quality service to more clients.
  • You may want to be clear about who on the team will take part in your transaction, and what role each person will play. You may even want to meet the other team members before you decide to work with the team overall. If you needed help with a certain part of your home purchase, who should you talk to and how would you communicate? If you have a question about fees on your closing statement, who would handle that? Who will show up to your closing? These are just a few of the many important considerations in working with a team.

3. Do you and/or your company each have a website that will provide me with useful information for research, services, and how you work with buyers? Can I have those Web addresses now? And who does the emails? Can I have the email address now?

  • Many homebuyers prefer to search online for homes and home buying information. There are certain privacy and comfort levels that you might appreciate in starting a preliminary search this way, and often it is just a matter of convenience, having 24-hour access to information. By searching the Realtor’s and the company’s Web sites, you will get a clear picture of how much work you would be able to accomplish online, and whether or not that suits your preferences. When I have a question, how quickly do you respond to emails?

4. Will you show me properties from other companies’ listings?

  • Some real estate companies do offer their buyers’ agents a higher commission if they are able to sell “in-house” listings. In such circumstances, there can be added incentive to show you a more limited range of homes than you might consider. If this is the case with your Realtor, you should be very clear on how this will impact your home search, if at all. You also should determine it this affects how much your buyer agents fee will be.

5. Will you represent me or will you represent the seller? May I have that in writing? How will you represent me, and what is the direct benefit of having you represent me?

  • The goal here is to ascertain to whom the Realtor has legal fiduciary obligation, which may vary from state to state or even locale to locale. In the past, Realtors always worked for sellers. Then the listing broker was responsible for paying the agent or sub-agent that brought a suitable buyer for the home. And even though the buyer worked ‘with’ an agent, the agent still represented and owed their fiduciary duty to the seller.
  • An additional situation in some states is dual agency. This is where the buyer decides to have the listing agent prepare the offer for him. A knowledgeable buyer may elect this situation which should be fully disclosed to all parties. In some states it also affects the broker’s/agent’s fiduciary responsibilities to the seller.
  • Although Realtors today almost always have a sense of moral obligation to buyers, this original type of seller agency still exists in certain areas. In other areas, a formal method of buyer representation called Buyer Agency exists to protect buyers. Find out what is available in your area and make yourself comfortable with the extent to which you will be represented.

6. How will you get paid? How are your fees structured? May I have that in writing?

  • This is an issue that can also be related to agency. In many areas, the seller still customarily pays all Realtor commissions through the listing broker. Sometimes, Realtors will have other small fees, such as administrative or special service fees, that are charged to clients, regardless of whether they are buying or selling. Be aware of the big picture before you sign any agreements. Ask for an estimate of buyer costs from any agent you contemplate employing.

7. What distinguishes you from other Realtors? What is your negotiating style and how does it differ from those of other Realtors? What geographic areas to you specialize in?

  • It should be important to know that your Realtor has unique methods of overcoming obstacles and is an effective negotiator on your behalf, but most importantly that your Realtor can advocate for you in the most effective ways.

8. Will you give me names of past clients who will give references for you?

  • Interviewing a Realtor to help you buy a home can be very similar to interviewing someone to work in your office. Contacting a Realtor’s references can be a reliable way for you to understand how he or she works, and whether or not this style is compatible with your own.

9. Do you have a performance guarantee? If I am not satisfied with your performance, can I terminate our Buyer Agency Agreement?

  • Understand that, especially in the heavily regulated world of real estate, it can be increasingly difficult for a Realtor to offer a performance guarantee. Sometimes you may find a Realtor who is willing to guarantee that if you are dissatisfied in any way with their service they will terminate your Buyer Agency Agreement. If your Realtor does not have a performance guarantee available in writing, it is not an indication that he or she is not committed to perform, but rather that he or she is willing to verbally promise some kind of performance standard. In fact, Realtors at Keller Williams Realty understand the importance of win-win business relationships, and that the Realtor does not benefit if the client does not also benefit.

10. How will you keep in contact with me during the buying process, and how often?

  • It’s a good idea for you to set your expectations reasonably in accordance with how your Realtor conducts business. You may be looking for an agent to call, fax, or email you every evening to tell you about properties that meet your criteria which are new on the market. On the other hand, your Realtor may have access to systems that will notify clients of new properties as they come on the market (which could happen several times a day or several times a week). Asking this extra question can help you to reconcile your needs with your Realtor’s systems, which makes for a far more satisfying relationship.