Looking for a Mortgage Means finding a Lender, not a Loan

As a first time homebuyer specialist, many of my clients are shopping for a new mortgage. It can be a little confusing for people the first time around. Here are some tips on how to find the right loan and more importantly, a good lender. (This is part 1 of a 2 part post).

Don’t fall into “The Interest Rate Trap”
Many mortgage shoppers make the mistake of only comparing interest rates. It is very important to call 2 or 3 (or more) lenders and get a good faith estimate. Some consumers only ask about the interest rate, and they don’t ask anything else. Certainly interest rates are important, but there are many equally important factors to consider that will impact the cost of the loan. Here are a few factors you need to know about.

1. What are the costs and fees associated with the loan.
Sometimes these fees include “points” to pay now for a lower interest rate later.  Other fees will pay the mortgage broker, pay for physically mailing your signatures around, and cover filing costs.

Buying A Home: A Denver Real Estate Transaction Timeline

Every time I help a home buyer find the home of their dreams, I warn them:  The next 45 – 60 days are going to be really emotional.  Then I walk them through each and every step before we even submit their offer.  I know that not everyone loves the ups and downs that a real estate transaction will bring.  So here is the little pep talk I give my buying clients.

There are 5 major hurdles to get through in the average real estate transaction after a contract has been signed.  Inspection, Title, Appraisal, Loan Conditions and Closing.  When you find the home you love and are ready to write your offer, it’s helpful if you have a general understanding of what happens next so that you can keep your emotions in check, plan accordingly, and know when to start packing.

Hurdle 1:  Inspection
Presuming you are not in a Short Sale transaction or a HUD transaction, the buyer’s agent will likely write the contract to close in 45 days, give or take 15 days.  

Decoding the Lingo: What is a HUD (owned) home?

HUD stands for Housing and Urban Development which is a part of the United States Federal government (currently overseen by Alphonso Jackson (and to transition to Shaun Donovan in January, 2009), who sits on the President’s Cabinet).  HUD homes are government owned properties that are for sale by the government using a bidding system outside of the standard buyer/seller multiple listing service (or MLS).

The government acquires many of these properties through foreclosures on loans that they guaranteed through the Federal Housing Authority (FHA).  In times when foreclosures continue at reasonable levels, these properties tend to have significant wear and tear, and many times, significant damage.  In our current market, foreclosures levels are unusually high, and the condition of some foreclosures can be much better than typical.  In the bidding process for HUD homes, your licensed Real Estate Agent submits a price bid to HUD for a property.  After the bid-acceptance deadline (varies by property) your agent will be notified via email if your bid was accepted.  If your bid is accepted, you will close on your new HUD home 45 days later.

One major difference between buying HUD vs. buying on the “open market” or bank-owned home is that HUD requires you to already have funding prior to submitting a bid.  This means you need more than a pre-qualification letter from a lender, you need an approved loan from a lender and documation of available funds.  Also, if you have to extend your closing date for any reason, you will be fined a significant amount of money (currently $375 for each 15 day increment).  Another difference is the way closing fees are typically split between buyer and seller in a normal transaction. When buying a HUD home, who pays the closing fees is not negotiated, and of course, the buyer pays for all of them.  It may seem obvious, but just to be clear, all HUD purchases are bought “as is.” While you can inspect to heart’s content, the government orders (and pays for) an appraisal and an inspection, and discloses those to you through your agent. They don’t make repairs for you.

For more information, check out the HUD website.  The HUD website has a pretty good FAQ on buying HUD homes here.

Denver Specifics: Farmers Markets Around Denver

What a busy summer.  Not too busy to check out a farmers’ market.  I went looking for times and found Nina Davidson’s About.com guide a good starting place: Top Five Farmers’ Markets in Denver. Of course we like number 3 (as it’s short bike ride away from our home), although number 2 isn’t a long drive either and is close to Tattered Cover for a little book time.

Denver Market Specifics: Still Bullish on Home Ownership in the City

I offically declare 2008 the year of the first time home buyer in Denver. Is this too bold?  Perhaps, but maybe it’s not that contraversial of a statement anyway. I was watching a Real Estate broadcast about depreciation risk, and reflecting on who it most impacted.  I looked up the three month old article to remind myself the details from the original report. I think this year (and probably next year) will be a great buyer’s market for new home buyers as well as rental property investors.  For many lenders, first time home buyers are defined as someone who has not owned a home for the last three years (aka: one can be a “first time” buyer more than once).  The advantages afforded first timers typically come from government insured programs (FHA) and attractive lender mortgage products (material for a future post I suspect).  Of course the few people who need to move from a strong market to a weaker market will also benefit from the buyer’s market, but that is always true by definition.  All that to say, I think right now Denver is a great place to own a home, and renters who can make the leap into home ownership should seriously consider this year a the time to jump. For a national perspective (which says “it depends on local factors”) see the Wall Street Journal’s recent article.

Decoding the Lingo: Buyer’s Market, Seller’s Market

A “buyer’s market” favors individuals and companies that are buying real estate. This is caused by an excess of supply over demand. The “market” refers to a local real estate environment (a city, town, neighborhood).  This is not to say that state-wide and national factors don’t impact local markets, but it does mean that local factors (job markets, local economies, crime rates, education oportunities, etc) will almost always trump national factors.  So a “buyer’s market” implies that it is a good time to have access to money in order to purchase real estate.  The implications of a “buyer’s market” on buying and selling are foder for many future posts, but some signs would look familar to us right now.  Signs of a buyer’s market include higher than average for-sale inventory (homes actively for sale), a list-to-sell average dipping well below 100% (homes are consistantly being sold for less than the sellers are initially asking), and days-on-market averages (time a home has been for sale) rise beyond the three month mark (my own line in the sand). 

A “seller’s market” would be the oposite.  When inventories are low and demand is high.  When it is uncommon for property to be sold without a bidding war between multiple possible buyers, it is a strong seller market.  More commonly, a seller market looks like flat or decreasing inventory levels, prices increase, and appropriately-priced houses moving off the market quickly.

Earth Day: Green Real Estate Podcast that Challenges

NPR had an All Things Considered episode that was really good today.  What happens when you buy a really old house and decide to make it the picture of the environmental movement?  Major renovation becomes a massive understatement.  Can synthetic materials suppport “green ends”?  When is plastic your friend?  Stay tunned for these an more riddles, same bat time, same bat channel. 

What is going up in Denver. New construction in the beloved city.

I have been enjoying www.denverinfill.com and its blog.  Talking to some comercial real estate friends, they tell me the author has really made a name for himself, and it’s clear why.  It’s fascinating to see all the plans for buildings that might fill in our skyline.   I have to admit, I find this post particularly humorous.

Green Real Estate: First things first from ligherfootstep.com

I enjoyed reading the post on Lighter Footstep on ten ways to lighten your impact on the planet.  It’s kind of a first things first approach that puts personal ecological improvement within reach.  I confess, I was pointed to the article by the Organized Home blog which I frequently enjoy.  Surprisingly, of the ten first ways to lessen your eco-load, only one duplicated my article on five ways to start green in your new home (the CFL light bulbs).  It seems quite possible a Spring cleaning list of twenty five or thirty ecologically savvy once a year things could be a great resource.  Anyone seen a good one of these? Let us know.

Denver Real Estate Specifics: Carbon Monoxide Detectors Could Become Required By Law

State Senate Bill 187 would require Carbon Monoxide Detectors in all homes sold after July 1st!  Not just new homes, but any home sold.  Apartently from the 9news article I read, the bill has just been brought out of committee, which means it has several steps before becoming state law. As far as I can tell, the biggest impact of the bill is found in this clause (skip ahead if you want my “transalation”):

 NOT WITHSTANDING ANY OTHER PROVISION OF LAW, EVERY EXISTING SINGLE-FAMILY DWELLING OFFERED FOR SALE OR TRANSFER ON OR AFTER JULY 1, 2008, THAT HAS A FUEL-BURNING HEATER OR APPLIANCE, A FIREPLACE, OR AN ATTACHED GARAGE SHALL HAVE AN OPERATIONAL CARBON MONOXIDE ALARM INSTALLED WITHIN TEN FEET OFTHE ENTRANCE TO EACH ROOM LAWFULLY USED FOR SLEEPING PURPOSES.

My translation (remember, I’m not a lawyer or legislator): Assuming there is not a more stingent law, this law would require all future homes sold in Denver (since all homes in Denver have some method for heating), to include Carbon Monoxide Alarms to be installed properly (within 10 feet) of all bedrooms.