My loan funded on the ninth. It began to feel still more real. I contacted the post office with my address change, and started getting quotes on housecleaning. I had a feeling that I might need it once the tenant vacated.
For a while I'd been planning on joining up with Angie's List for at least a month or two. If you're an NPR junkie like me, you've heard endless ads (er, "underwritings") from them. It's basically a more elite, homeowner-oriented version of Yelp... the philosophy seems to be that, if you charge people to enter, you keep out the riff-raff and are left with more "real" reviewers.
I found myself cross-referencing both Yelp and Angie's List for some providers, namely cleaners and movers. Others were almost totally absent from Yelp and more visible on Angie's List, like plumbers and electricians. I was a little bummed to see that Angie's List didn't list many handymen, at least not in the very local area that I was hoping to draw from.
I started to work through the logistics of my transition. I had been planning a trip to Yosemite for nearly half a year, and, through sheer coincidence, my departure date was September 11, the day after closing on the 10th. I had given notice to my landlord at the end of the previous month, and so had the whole month to play around with. I decided that I would bring a basic kit of essentials on the tenth, spend the night there, then head out for Yosemite the next morning. After a week of hiking, I would return back to San Jose, spend the weekend cleaning up and finishing packing, then move up to Millbrae.
I was scheduled to get my keys at the end of the day on the 10th. Redfin sent another field agent, a nice woman who I hadn't met before. Again, their model is fascinating... I dig the depersonalization aspect of it, where they would send a stranger in at the end.
The tenant had cleared out all of her stuff, which was pretty impressive, as it was quite packed; she had also spent time cleaning up, and the place looked decent. I picked up the keys, and she pointed out to me the laundry area nearby. It was only at this point that I learned that my unit came with an external storage unit - score! It wasn't anything fancy, but was fairly sizable, and I was happy to realize that I could keep my old school papers and other stuff in there without taking up space in my main area.
I had brought up a sleeping bag, a little food, a flashlight, and a pillow. I spent some time just walking around the unit, giggling to myself, thinking "Mine... all mine!" I called my parents and chatted a bit about how I was feeling. The sun went down, I laid down, and drifted off to sleep.
Since that night, I've spent many more months in my California condo, and I hope to spent many years more. I've gotten to know it better, started to make it more and more my own. I've been pleased to see how many of the fantasies I'd had about the move - strolling to the train station, shopping at Dean's Produce, taking random walks up into the hills - have become a part of my life. I'm living the dream. It was a long, hard, often stressful process, but I think that by keeping somewhat disengaged from the craziness and deliberately taking my time, I ended up enjoying myself and ending up with something great.
Friday, December 31, 2010
Friday, December 17, 2010
Kicking & Screaming
The last thing I had to do before getting my keys was conduct the final walkthrough. It's generally a formality. The idea is to check and make sure that the property is still in the same condition as when you agreed to buy it: you can check and make sure that the owner didn't tear out the stove, or knock a hole in the closet, or whatever.
In my case, because the loan was funding on the 9th, I had to do the walkthrough before then, even though the tenant wouldn't be moved out yet. This isn't ideal, but is better than the alternative of finding out too late about something bad which had happened. We eventually scheduled it for the Tuesday after Labor Day.
I showed up at 9AM to find Matt in an animated conversation with the tenant. Apparently, the listing agent or someone had failed to notify her about the walkthrough, and she was kind of freaking out. She didn't want to let us in, because she was in the middle of moving, and had so many boxes out that you couldn't even walk around.
Matt and I huddled; he said he'd contact Regina, who would get in touch with the listing agent and work it out. We were running short on time, and while the walkthrough shouldn't be a big deal, I still wanted to check on the property.
Before heading in to work, I swung by Provident's Millbrae branch. It's tiny, but pleasant. The teller gave me another wire form, which I filled out with Kathy's instructions. Her information didn't completely line up with all of the boxes on the form, so I filled it out the best I could, repeating some information in multiple places. I felt just a little nervous - after all, I was moving a LOT of money, and hated the idea of it disappearing into someone else's bank account by mistake.
Later in the day, I got an email from Kathy, who said that the sellers had indicated while signing that they would be doing a 1031 tax exchange. I was already very familiar with this - several properties I'd been interested in earlier on had been 1031-ing properties, so I had already done all my research on what that meant - but it was still amusing and pretty unsurprising that they hadn't mentioned it before now. I signed the form, sent it back, and asked Kathy if she could check on my fund deposit. She confirmed that the monies (I love that word!) had arrived safe and sound, and I breathed a deep sigh of relief.
The walkthrough got squared away, and we rescheduled for the next day at 11:30AM. The tenant was present, and this time was all smiles and friendly. The condo was almost exactly the same as before, just very obviously in the middle of moving; I did see some scratched paint in the bathroom, but it didn't seem worth making a fuss over. The tenant talked a bit about how nice the unit was, how she wanted me to like it, and asked if I wouldn't mind holding on to a package that she would be receiving in a few weeks.
We walked out, I signed the walkthrough form, and Matt and I shook hands. He mentioned that it hadn't taken too long for me to find what I wanted. I agreed, and pointed out that Redfin really shines in that regard - their awesome website had done a lot to help me narrow down what I was interested in, and combined with my own side research (walking tours of neighborhoods, demographic research, etc.), I had an excellent idea of what I wanted before I even started touring. All in all, a pleasant experience, bumps in the road notwithstanding.
In my case, because the loan was funding on the 9th, I had to do the walkthrough before then, even though the tenant wouldn't be moved out yet. This isn't ideal, but is better than the alternative of finding out too late about something bad which had happened. We eventually scheduled it for the Tuesday after Labor Day.
I showed up at 9AM to find Matt in an animated conversation with the tenant. Apparently, the listing agent or someone had failed to notify her about the walkthrough, and she was kind of freaking out. She didn't want to let us in, because she was in the middle of moving, and had so many boxes out that you couldn't even walk around.
Matt and I huddled; he said he'd contact Regina, who would get in touch with the listing agent and work it out. We were running short on time, and while the walkthrough shouldn't be a big deal, I still wanted to check on the property.
Before heading in to work, I swung by Provident's Millbrae branch. It's tiny, but pleasant. The teller gave me another wire form, which I filled out with Kathy's instructions. Her information didn't completely line up with all of the boxes on the form, so I filled it out the best I could, repeating some information in multiple places. I felt just a little nervous - after all, I was moving a LOT of money, and hated the idea of it disappearing into someone else's bank account by mistake.
Later in the day, I got an email from Kathy, who said that the sellers had indicated while signing that they would be doing a 1031 tax exchange. I was already very familiar with this - several properties I'd been interested in earlier on had been 1031-ing properties, so I had already done all my research on what that meant - but it was still amusing and pretty unsurprising that they hadn't mentioned it before now. I signed the form, sent it back, and asked Kathy if she could check on my fund deposit. She confirmed that the monies (I love that word!) had arrived safe and sound, and I breathed a deep sigh of relief.
The walkthrough got squared away, and we rescheduled for the next day at 11:30AM. The tenant was present, and this time was all smiles and friendly. The condo was almost exactly the same as before, just very obviously in the middle of moving; I did see some scratched paint in the bathroom, but it didn't seem worth making a fuss over. The tenant talked a bit about how nice the unit was, how she wanted me to like it, and asked if I wouldn't mind holding on to a package that she would be receiving in a few weeks.
We walked out, I signed the walkthrough form, and Matt and I shook hands. He mentioned that it hadn't taken too long for me to find what I wanted. I agreed, and pointed out that Redfin really shines in that regard - their awesome website had done a lot to help me narrow down what I was interested in, and combined with my own side research (walking tours of neighborhoods, demographic research, etc.), I had an excellent idea of what I wanted before I even started touring. All in all, a pleasant experience, bumps in the road notwithstanding.
Friday, December 10, 2010
Default Title
California is a very chill state. They're very libertarian, live-and-let-live folks, where people just kind of do their own thing and everyone else thinks that's great.
That same philosophy applies to closing. In other states, closing is a bit of a theatrical production: all the actors assemble in one room, walk through a ritual of signing, papers are passed back and forth, checks are written, and at the end you own a home. In California, it's way more relaxed. In the Bay Area, title companies also handle escrow duties. I could show up whenever I wanted, sign my papers, and be done with it.
We were with Fidelity National Title company. I'm still not clear on exactly how we ended up with them, whether it's the seller's choice, the lender's, or some other decision. Their office was in Burlingame, decently close to the property in question, and also within easy walking distance of the Burlingame train station. I had dropped by there earlier to drop off a check for my 3% earnest money deposit. Now, I ambled over about a week before closing to take care of signing.
There were a ton of documents, but according to my escrow officer, it's actually quite a bit less than normal - apparently Provident isn't as paper-happy as other lenders. We sat down in a conference room and went through it. For each page, Kathy described what it was about and pointed out the most important points, then indicated where I should sign or initial. In a few cases I had questions or scanned to make sure the numbers were right, but for the most part everything was really straightforward. It definitely helped that I had seen a lot of the important documents before, like the appraisal, the Truth-In-Lending disclosure, and so on. A lot of the other stuff was more or less boilerplate: I agreed to pay back the lender, I agreed to keep the property in good condition, I agreed to notify the lender if any adverse action affected the property, and so on.
I initially blanched when I saw some of the fees, but upon further reflection, I realized that they were actually lower than the initial estimates I had received. I don't remember the exact figures, but I think that the lender's title insurance had been estimated at $2100 and my title insurance at $1900; the actual figures were more like $1800 and $1700. There's a lot of dumb stuff in there, like an "email doc fee" of $50, but even with those I was coming in under budget. I'd read earlier that, with the recent financial reform laws and improved truth-in-lending laws, stated fees were increasing because lenders no longer have the leeway to jack them up at closing. Which works for me - under-promise and over-deliver is one of the very best policies there is.
The whole process took less than half an hour. The sellers would be signing their own documents at some other time. The lender would sign the funding documents on the 9th. Everything is written to be contingent on everything else, so once everyone has signed off, stuff just triggers, and the deal is done. Less dramatic, but way more relaxing, just the way I like it.
I asked Kathy about the closing costs. There was a sum - yes, a pretty large sum - that I still had to pay, which would cover the remainder of my down payment and all the fees. This needs to be paid in "ready money", and I had just learned that Provident does not offer cashier's checks. They do offer "corporate checks" and money orders, but Kathy said that neither would work for this transaction. Therefore, I would have to wire.
I've received wires before - it's how Apress handles advances and royalties - but hadn't sent one. Provident has an excellent online banking system, and I tried to use their "Contact Us" section - which includes a helpful option called "Wire Transfers" - to schedule one. They politely wrote back, included a form that I would need to fax or fill out and bring in. Wires over $50k need to be done in person, so that's what I would be doing.
That same philosophy applies to closing. In other states, closing is a bit of a theatrical production: all the actors assemble in one room, walk through a ritual of signing, papers are passed back and forth, checks are written, and at the end you own a home. In California, it's way more relaxed. In the Bay Area, title companies also handle escrow duties. I could show up whenever I wanted, sign my papers, and be done with it.
We were with Fidelity National Title company. I'm still not clear on exactly how we ended up with them, whether it's the seller's choice, the lender's, or some other decision. Their office was in Burlingame, decently close to the property in question, and also within easy walking distance of the Burlingame train station. I had dropped by there earlier to drop off a check for my 3% earnest money deposit. Now, I ambled over about a week before closing to take care of signing.
There were a ton of documents, but according to my escrow officer, it's actually quite a bit less than normal - apparently Provident isn't as paper-happy as other lenders. We sat down in a conference room and went through it. For each page, Kathy described what it was about and pointed out the most important points, then indicated where I should sign or initial. In a few cases I had questions or scanned to make sure the numbers were right, but for the most part everything was really straightforward. It definitely helped that I had seen a lot of the important documents before, like the appraisal, the Truth-In-Lending disclosure, and so on. A lot of the other stuff was more or less boilerplate: I agreed to pay back the lender, I agreed to keep the property in good condition, I agreed to notify the lender if any adverse action affected the property, and so on.
I initially blanched when I saw some of the fees, but upon further reflection, I realized that they were actually lower than the initial estimates I had received. I don't remember the exact figures, but I think that the lender's title insurance had been estimated at $2100 and my title insurance at $1900; the actual figures were more like $1800 and $1700. There's a lot of dumb stuff in there, like an "email doc fee" of $50, but even with those I was coming in under budget. I'd read earlier that, with the recent financial reform laws and improved truth-in-lending laws, stated fees were increasing because lenders no longer have the leeway to jack them up at closing. Which works for me - under-promise and over-deliver is one of the very best policies there is.
The whole process took less than half an hour. The sellers would be signing their own documents at some other time. The lender would sign the funding documents on the 9th. Everything is written to be contingent on everything else, so once everyone has signed off, stuff just triggers, and the deal is done. Less dramatic, but way more relaxing, just the way I like it.
I asked Kathy about the closing costs. There was a sum - yes, a pretty large sum - that I still had to pay, which would cover the remainder of my down payment and all the fees. This needs to be paid in "ready money", and I had just learned that Provident does not offer cashier's checks. They do offer "corporate checks" and money orders, but Kathy said that neither would work for this transaction. Therefore, I would have to wire.
I've received wires before - it's how Apress handles advances and royalties - but hadn't sent one. Provident has an excellent online banking system, and I tried to use their "Contact Us" section - which includes a helpful option called "Wire Transfers" - to schedule one. They politely wrote back, included a form that I would need to fax or fill out and bring in. Wires over $50k need to be done in person, so that's what I would be doing.
Friday, December 3, 2010
We're in the Money
The loan approval came back thumbs-up: I was funded!
By now we were less than a week away from my originally scheduled closing date of September 2nd. Due to all the uncertainty around the deal, the tenant had not yet started moving out. The sellers asked if I could push back the closing date to September 10th so she would have time to relocate. I agreed - I was happier with closing later in the month anyways, and in any case, I was willing to do whatever it took to avoid needing to deal with an eviction.
At last, I let myself exhale and started to believe that this was actually happening. I began taking care of all the little stuff in life that would need to happen as part of my move.
I switched over my electrical utilities. This was all quite easy to do online - it took a little while to find the right options on the PG&E website, but once I did, it was pretty automatic. One oddity was that, while I was turning on the power in my new place on 9/10, they wouldn't let me keep power in my old place later than 9/23. I'm not sure if this is because they don't allow more than a 2-week overlap between services, or if it was because of the date when I was submitting the request. In any case, while I still would have my apartment until 9/30, I was planning on being all moved out by then, so didn't see a problem even if they cut the power early.
Next up was Internet. Again, Comcast lets you shop for stuff and schedule it online, but requires you to complete the order with a chatroom-esque customer service rep. Once again, I was blown away by how positive the experience is. I know that everyone loves to hate Comcast, but they really do have great customer service. They let me order my internet-only package at the promotional price even though I was a current customer and wasn't getting any of the bundled services; and, the rep even knocked my installation fee in half without any prompting. Good stuff. (All their goodwill would be promptly annihilated a few weeks later when I met the Incompetent Install Technician from Hell.)
I'd decided that I would switch over insurance agents as part of the move. For some reason my lender doesn't require HO-6 insurance, but I wanted to get it anyways, because, y'know, it's smart. I scouted for local agents in Millbrae, found one I liked, and started moving stuff over. This turned out to actually be the single most difficult of my various transactions, because my previous agent did not want to let me go. I think it's actually easier to switch between different insurance companies than to switch between different agents in the same company. It took a couple of phone calls and a firm written letter until I got my policies set up with my new agent. (If I had to do it again, I probably wouldn't have bothered. One of the funny things about all this is that, in the more than five years I've been with my agent, this is the first time we've ever actually talked; previously everything was handled through his staff or online.)
Last but not least: the move. I'd thought for a while that I would pay for a moving company. I used to move myself, but it was always incredibly stressful. The last time I moved was from Kansas City to San Jose, and hiring professionals (Allied, in that case) was so great that I decided it would be well worth doing again. Unfortunately, all of my friends and relatives move themselves, so I didn't have any good referrals. Instead I hit up the online review sites (Yelp, Angie's List, Google Local, etc), scouted out a few places, followed up with three (Go Pro Moving, Lunardi Moving, and one other whose name escapes me at the moment), and eventually decided to go with Go Pro. None of the companies was willing to do an an-person binding estimate, which I kind of understand - especially for a 1-bedroom single guy like me who is packing himself, they aren't making a lot of money on me anyways, and so the time it takes to drive out and do the estimate isn't worth it for them.
I decided to wait until later for a few other things - updating the Post Office and my magazine subscriptions, for example. I was now more or less set, and coming down the home stretch.
By now we were less than a week away from my originally scheduled closing date of September 2nd. Due to all the uncertainty around the deal, the tenant had not yet started moving out. The sellers asked if I could push back the closing date to September 10th so she would have time to relocate. I agreed - I was happier with closing later in the month anyways, and in any case, I was willing to do whatever it took to avoid needing to deal with an eviction.
At last, I let myself exhale and started to believe that this was actually happening. I began taking care of all the little stuff in life that would need to happen as part of my move.
I switched over my electrical utilities. This was all quite easy to do online - it took a little while to find the right options on the PG&E website, but once I did, it was pretty automatic. One oddity was that, while I was turning on the power in my new place on 9/10, they wouldn't let me keep power in my old place later than 9/23. I'm not sure if this is because they don't allow more than a 2-week overlap between services, or if it was because of the date when I was submitting the request. In any case, while I still would have my apartment until 9/30, I was planning on being all moved out by then, so didn't see a problem even if they cut the power early.
Next up was Internet. Again, Comcast lets you shop for stuff and schedule it online, but requires you to complete the order with a chatroom-esque customer service rep. Once again, I was blown away by how positive the experience is. I know that everyone loves to hate Comcast, but they really do have great customer service. They let me order my internet-only package at the promotional price even though I was a current customer and wasn't getting any of the bundled services; and, the rep even knocked my installation fee in half without any prompting. Good stuff. (All their goodwill would be promptly annihilated a few weeks later when I met the Incompetent Install Technician from Hell.)
I'd decided that I would switch over insurance agents as part of the move. For some reason my lender doesn't require HO-6 insurance, but I wanted to get it anyways, because, y'know, it's smart. I scouted for local agents in Millbrae, found one I liked, and started moving stuff over. This turned out to actually be the single most difficult of my various transactions, because my previous agent did not want to let me go. I think it's actually easier to switch between different insurance companies than to switch between different agents in the same company. It took a couple of phone calls and a firm written letter until I got my policies set up with my new agent. (If I had to do it again, I probably wouldn't have bothered. One of the funny things about all this is that, in the more than five years I've been with my agent, this is the first time we've ever actually talked; previously everything was handled through his staff or online.)
Last but not least: the move. I'd thought for a while that I would pay for a moving company. I used to move myself, but it was always incredibly stressful. The last time I moved was from Kansas City to San Jose, and hiring professionals (Allied, in that case) was so great that I decided it would be well worth doing again. Unfortunately, all of my friends and relatives move themselves, so I didn't have any good referrals. Instead I hit up the online review sites (Yelp, Angie's List, Google Local, etc), scouted out a few places, followed up with three (Go Pro Moving, Lunardi Moving, and one other whose name escapes me at the moment), and eventually decided to go with Go Pro. None of the companies was willing to do an an-person binding estimate, which I kind of understand - especially for a 1-bedroom single guy like me who is packing himself, they aren't making a lot of money on me anyways, and so the time it takes to drive out and do the estimate isn't worth it for them.
I decided to wait until later for a few other things - updating the Post Office and my magazine subscriptions, for example. I was now more or less set, and coming down the home stretch.
Friday, November 26, 2010
The Long Pull
By now we had cleared the inspection and appraisal contingencies. The ball was squarely in the seller's court. They were having a hard time getting the HOA documents, so we extended that contingency date.
Redfin initially sent me the wrong documents - I was a little confused when I started reading through them and kept running across guidelines on using the marina. Finally, we got the real documents. They were fairly simple - the HOA started back in 1980, so all the documents were typed up the old-fashioned way. It all looked pretty typical and straight-forward... association meetings, several elected offices (President, Vice-President, Secretary, and Treasurer), rules that seemed reasonable and not onerous.
The one thing that made me nervous was a sheet filled out by the HOA manager, which listed the owner-occupancy ratio as 50%. Since I was buying one of the rented units, that would push the ratio up to 60%, but that was still below the 70% that I frequently heard mentioned. This seemed likely to sink the deal, and once again I bemoaned that we were doing the HOA docs at the end of the contingencies instead of at the beginning.
There are an incredible number of people involved in a real estate transaction. In addition to the buyer, seller, buyer's agent, seller's agent, and various hired professionals, there's also an escrow officer, and, on the loan side, a loan officer, loan analyst, underwriter, and funder. Almost all of my interactions up to this point had been with the loan officer, but as we came closer to the finish line, I started getting a few inquiries from the loan analyst, who prepares documents for the underwriter. A few of the things that she wanted included:
* An explanation for why the company name on my paycheck didn't match the company name on my W-2. (We were acquired by another company, and are handled by their payroll, and operate as a wholly-owned subsidiary.)
* An explanation for why a credit bureau was reporting that I still lived at an old address. (My answer: I have no idea, I haven't lived there since 2003, it must be an error.)
That was pretty much it. I'm not sure how far they dug into these things, it felt like they just wanted a satisfying answer from me that they could document.
A day or so later, I got a conditional loan approval. That meant that Provident would fund the loan once certain conditions were met. Some of those I had no qualms about, like verifying my employment and checking my rent history. I was pleasantly surprised to see that the occupancy ratio wasn't a dealbreaker. Instead, it was the HOA budget.
Ever since Fannie Mae and Freddie Mac entered federal receivership, the government has been tightening their lending guidelines. This didn't happen all at once; rather, it's an ongoing, rolling process; another loan officer told me later that it felt like the guidelines were changing every few weeks. Right now, virtually every loan made in the country is backed by a federally-affiliated program - FHA, VHA, Fannie Mae or Freddie Mac; private money is still extremely scarce, and can have restrictions as tight or tighter than the federal ones.
I've complained about this on the blog before, but I think that Fannie and Freddie have seriously miscalculated in their approach to condo loans. I suspect that what happened is, they looked at the subprime mortgage meltdown, saw that a lot of those units were condos, and decided to make condo loans harder to get. The thing is, though, that condos by themselves aren't any riskier than single-family houses. The reasons why there were so many condos involved were because there were so many flippers operating in places like Miama, Las Vegas, and Phoenix; condo construction boomed, people were treating them as investments instead of as places to live, and as a result they became the biggest part of the bubble. In places with high costs of living and extremely limited space, like, say, the San Francisco Bay Area, condos are a very prudent and conservative housing investment. Fannie and Freddie's one-size-fits-all approach ignores that reality.
Back to my loan: in their current incarnation, the guidelines actually have a wonderful new policy: owner-occupancy ratios are only a factor for investment properties. They are not a consideration if the buyer plans to live in their unit, as I do. This is great, since it allows associations that have slipped towards renters to gradually move back towards owners; under the previous system, once the ratio ever slipped below a magic number, it became impossible to recover because new owners could not get loans. So, I'm a big fan of that change, and look forward to seeing its result.
In its place, though, is a new policy - the HOA's budget must set aside at least 10% of the budget for a reserve fund. Now, in practice, I think that's a great idea. I'm a fan of well-funded HOAs and a foe of special assessments. Once again, though, this one-size-fits-all policy couldn't capture the nuance of each association. In my case, the amount set aside for reserves was rather low - just about 3%. However, the reserves themselves were quite well funded; they had enough cash in the bank to cover all scheduled capital improvements for the next few years, with some more left over. I could certainly see why the association would want to keep fees low... I'm paranoid, so I will always sock more away, but there really didn't seem to be a need for it.
That said, a rule's a rule, and this is one that couldn't be waived. That set things into a minor panic. Everything else had been taken care of, all other contingencies cleared, but this could send the deal down in flames. Regina urged me to start checking around with some other lenders to see if someone else could make the loan. In the meantime, she and the listing agent kept working with the HOA to see if there was any way around the budget.
Regina had worked before with a lender from Wells Fargo who I connected with. I was initially quite skeptical - I didn't feel at all like switching lenders this late in the game, and especially not to someone from a big bank. I was pleasantly surprised when he quoted me a rate and fees competitive with what I was getting from Provident, one that came in below that listed on the Wells Fargo web site. I suppose that loan officers have some leeway in making offers, and can trade in some of their commission in exchange for landing a deal. There was a catch, though - they didn't care about the budget, but would still require a full HOA review, which could take a while, and might come back negative. I could fast-track the application by putting down 30%, which sets it into a different set of standards and has a speedier approval process.
That was a possibility for me; I could have bumped up my down payment, but obviously that wasn't my first choice. I also spoke with a mortgage broker who the listing agent knew. (The listing agent was with Prudential Realty, and the broker with Prudential Finance, so it seems likely that there was some back-scratching going on.) She took all my financial docs - tax returns, pay stubs, etc. - but we never got around to actually meeting due to some late nights I had to work.
Regina and the listing agent were having a hard time tracking down the HOA. The contact person's cell phone mailbox was full, and the only way they could get ahold of him was by camping out in front of his office until he showed up. When they did get him, he was helpful. The budget we had received was the official one drawn up in February at the start of the fiscal year; since then, the budget had been revised, but not yet reprinted. He produced the updated one, faxed it off to Regina. The loan analyst checked on my verification of employment and rent history and submitted everything back to the underwriter. He came back and said that the budget would need to be signed.
Regina mildly flipped out, pointing out (accurately) that this requirement hadn't been expressed before, that it always took days to get updates from the HOA, and that we were running up against the extended contingency date for loan approval, and that our closing date was in jeopardy. Then, we all went back to work. We got the signed budget, put it back in, and waited for the answer.
Redfin initially sent me the wrong documents - I was a little confused when I started reading through them and kept running across guidelines on using the marina. Finally, we got the real documents. They were fairly simple - the HOA started back in 1980, so all the documents were typed up the old-fashioned way. It all looked pretty typical and straight-forward... association meetings, several elected offices (President, Vice-President, Secretary, and Treasurer), rules that seemed reasonable and not onerous.
The one thing that made me nervous was a sheet filled out by the HOA manager, which listed the owner-occupancy ratio as 50%. Since I was buying one of the rented units, that would push the ratio up to 60%, but that was still below the 70% that I frequently heard mentioned. This seemed likely to sink the deal, and once again I bemoaned that we were doing the HOA docs at the end of the contingencies instead of at the beginning.
There are an incredible number of people involved in a real estate transaction. In addition to the buyer, seller, buyer's agent, seller's agent, and various hired professionals, there's also an escrow officer, and, on the loan side, a loan officer, loan analyst, underwriter, and funder. Almost all of my interactions up to this point had been with the loan officer, but as we came closer to the finish line, I started getting a few inquiries from the loan analyst, who prepares documents for the underwriter. A few of the things that she wanted included:
* An explanation for why the company name on my paycheck didn't match the company name on my W-2. (We were acquired by another company, and are handled by their payroll, and operate as a wholly-owned subsidiary.)
* An explanation for why a credit bureau was reporting that I still lived at an old address. (My answer: I have no idea, I haven't lived there since 2003, it must be an error.)
That was pretty much it. I'm not sure how far they dug into these things, it felt like they just wanted a satisfying answer from me that they could document.
A day or so later, I got a conditional loan approval. That meant that Provident would fund the loan once certain conditions were met. Some of those I had no qualms about, like verifying my employment and checking my rent history. I was pleasantly surprised to see that the occupancy ratio wasn't a dealbreaker. Instead, it was the HOA budget.
Ever since Fannie Mae and Freddie Mac entered federal receivership, the government has been tightening their lending guidelines. This didn't happen all at once; rather, it's an ongoing, rolling process; another loan officer told me later that it felt like the guidelines were changing every few weeks. Right now, virtually every loan made in the country is backed by a federally-affiliated program - FHA, VHA, Fannie Mae or Freddie Mac; private money is still extremely scarce, and can have restrictions as tight or tighter than the federal ones.
I've complained about this on the blog before, but I think that Fannie and Freddie have seriously miscalculated in their approach to condo loans. I suspect that what happened is, they looked at the subprime mortgage meltdown, saw that a lot of those units were condos, and decided to make condo loans harder to get. The thing is, though, that condos by themselves aren't any riskier than single-family houses. The reasons why there were so many condos involved were because there were so many flippers operating in places like Miama, Las Vegas, and Phoenix; condo construction boomed, people were treating them as investments instead of as places to live, and as a result they became the biggest part of the bubble. In places with high costs of living and extremely limited space, like, say, the San Francisco Bay Area, condos are a very prudent and conservative housing investment. Fannie and Freddie's one-size-fits-all approach ignores that reality.
Back to my loan: in their current incarnation, the guidelines actually have a wonderful new policy: owner-occupancy ratios are only a factor for investment properties. They are not a consideration if the buyer plans to live in their unit, as I do. This is great, since it allows associations that have slipped towards renters to gradually move back towards owners; under the previous system, once the ratio ever slipped below a magic number, it became impossible to recover because new owners could not get loans. So, I'm a big fan of that change, and look forward to seeing its result.
In its place, though, is a new policy - the HOA's budget must set aside at least 10% of the budget for a reserve fund. Now, in practice, I think that's a great idea. I'm a fan of well-funded HOAs and a foe of special assessments. Once again, though, this one-size-fits-all policy couldn't capture the nuance of each association. In my case, the amount set aside for reserves was rather low - just about 3%. However, the reserves themselves were quite well funded; they had enough cash in the bank to cover all scheduled capital improvements for the next few years, with some more left over. I could certainly see why the association would want to keep fees low... I'm paranoid, so I will always sock more away, but there really didn't seem to be a need for it.
That said, a rule's a rule, and this is one that couldn't be waived. That set things into a minor panic. Everything else had been taken care of, all other contingencies cleared, but this could send the deal down in flames. Regina urged me to start checking around with some other lenders to see if someone else could make the loan. In the meantime, she and the listing agent kept working with the HOA to see if there was any way around the budget.
Regina had worked before with a lender from Wells Fargo who I connected with. I was initially quite skeptical - I didn't feel at all like switching lenders this late in the game, and especially not to someone from a big bank. I was pleasantly surprised when he quoted me a rate and fees competitive with what I was getting from Provident, one that came in below that listed on the Wells Fargo web site. I suppose that loan officers have some leeway in making offers, and can trade in some of their commission in exchange for landing a deal. There was a catch, though - they didn't care about the budget, but would still require a full HOA review, which could take a while, and might come back negative. I could fast-track the application by putting down 30%, which sets it into a different set of standards and has a speedier approval process.
That was a possibility for me; I could have bumped up my down payment, but obviously that wasn't my first choice. I also spoke with a mortgage broker who the listing agent knew. (The listing agent was with Prudential Realty, and the broker with Prudential Finance, so it seems likely that there was some back-scratching going on.) She took all my financial docs - tax returns, pay stubs, etc. - but we never got around to actually meeting due to some late nights I had to work.
Regina and the listing agent were having a hard time tracking down the HOA. The contact person's cell phone mailbox was full, and the only way they could get ahold of him was by camping out in front of his office until he showed up. When they did get him, he was helpful. The budget we had received was the official one drawn up in February at the start of the fiscal year; since then, the budget had been revised, but not yet reprinted. He produced the updated one, faxed it off to Regina. The loan analyst checked on my verification of employment and rent history and submitted everything back to the underwriter. He came back and said that the budget would need to be signed.
Regina mildly flipped out, pointing out (accurately) that this requirement hadn't been expressed before, that it always took days to get updates from the HOA, and that we were running up against the extended contingency date for loan approval, and that our closing date was in jeopardy. Then, we all went back to work. We got the signed budget, put it back in, and waited for the answer.
Friday, November 19, 2010
Inspector Gadget
I'd become mildly addicted to Redfin's forums during my home search. Redfin lightly moderates them, and tolerates an amazing range of voices. The Bay Area board contains a few cheerleaders, who tend to obsessively focus on the specialness of particular areas like Palo Alto, but seems generally dominated by skeptics who are convinced that the market has a ways more to fall. The skeptics range from people who forecast stagnant prices for the next five years to people convinced that we will see a return to 1996 prices.
Anyways, it's always interesting, and often useful. The best bit of wisdom I've heard on there was something along the lines of, "your negotiations have only begun once your offer is accepted." That proved to be very true for me, and I was glad that I was mentally and emotionally prepared for the roller-coaster that followed, rather than passively believing that the hard parts were over.
Like I mentioned earlier, we had put together an offer with a fairly aggressive 30-day closing period. That worked fine for me, but I would have been happy with almost anything - I'm renting month-to-month right now, and while I've been looking forward to shortening my commute, I don't have any particular deadlines to hit. After learning that the unit was tenant-occupied, I actually wondered whether the sellers wouldn't prefer a longer closing period so they could give the renters adequate notice. In any case, though, we decided to go ahead with the 30-days.
Most of the closing period focuses on closing contingencies. My offer had included all the major contingencies - loan approval, appraisal, home inspection, pest inspection, and HOA review. In retrospect, one annoying aspect of this period was that, perhaps partly due to the shortened timeline, I needed to do all the contingencies that I had to pay for up front, and the contingencies that the seller had to pay for towards the end. That meant that, for example, I could easily spend a thousand dollars on my loan application and inspections, only to find out later that the HOA was in bad shape and that I wouldn't want it anyways.
Redfin has a very streamlined and efficient closing process, which is both good and bad. I felt like I couldn't give a lot of input into the process - for example, Regina went ahead and ordered the inspections right away, without asking if I had a particular inspector I wanted to use. I was planning on going with her guidance anyways, but still, I would have appreciated being asked. I'm sure that if I had kicked up a fuss I could have gotten my own inspector in there, but whatever.
On the plus side, it's always very clear what you need to do at any stage of the process. A lot of that involves reading documents, signing them, and then faxing them back by a certain time. I probably put over a hundred pages through the office fax machine before it was all done - fortunately, Redfin's fax is a local call to us.
We did the property and pest inspections on the same day. I stopped by on the way in to work, met up with Matt, and waited a few minutes for the inspectors. They were both friendly and helpful; I tagged along, they voluntarily pointed out the things that they were noting, and answered all my questions. They re-noted some things that had previously come up in the disclosures - for example, that the sliding balcony door didn't have a lock - and also went into more details; the property inspector suggested that I check with the HOA to see if they had records about the door brand and model, since with that information I could easily find a replacement locking handle that I could install myself. They also found a host of other issues, nothing critical but plenty that I would want to take care of... some voids in grout, a loose wax seal on the toilet, some holes on the balcony railing. All the major stuff seemed fine, though... the electrical system was good, no leaks in any plumbing, no mold, all appliances functional.
Matt also did his own walk-through, again noting some of the same things as from the disclosures. He also observed that some of the issues noted in the initial seller agent's walkthrough were probably actually OK - for example, the disclosures had noted that the cabinets above the sink were missing doors, but we agreed that they were almost certainly designed that way.
I chatted with Regina about the results. None of the proposed repairs seemed onerous, so I released these contingencies and waited for the next round.
Anyways, it's always interesting, and often useful. The best bit of wisdom I've heard on there was something along the lines of, "your negotiations have only begun once your offer is accepted." That proved to be very true for me, and I was glad that I was mentally and emotionally prepared for the roller-coaster that followed, rather than passively believing that the hard parts were over.
Like I mentioned earlier, we had put together an offer with a fairly aggressive 30-day closing period. That worked fine for me, but I would have been happy with almost anything - I'm renting month-to-month right now, and while I've been looking forward to shortening my commute, I don't have any particular deadlines to hit. After learning that the unit was tenant-occupied, I actually wondered whether the sellers wouldn't prefer a longer closing period so they could give the renters adequate notice. In any case, though, we decided to go ahead with the 30-days.
Most of the closing period focuses on closing contingencies. My offer had included all the major contingencies - loan approval, appraisal, home inspection, pest inspection, and HOA review. In retrospect, one annoying aspect of this period was that, perhaps partly due to the shortened timeline, I needed to do all the contingencies that I had to pay for up front, and the contingencies that the seller had to pay for towards the end. That meant that, for example, I could easily spend a thousand dollars on my loan application and inspections, only to find out later that the HOA was in bad shape and that I wouldn't want it anyways.
Redfin has a very streamlined and efficient closing process, which is both good and bad. I felt like I couldn't give a lot of input into the process - for example, Regina went ahead and ordered the inspections right away, without asking if I had a particular inspector I wanted to use. I was planning on going with her guidance anyways, but still, I would have appreciated being asked. I'm sure that if I had kicked up a fuss I could have gotten my own inspector in there, but whatever.
On the plus side, it's always very clear what you need to do at any stage of the process. A lot of that involves reading documents, signing them, and then faxing them back by a certain time. I probably put over a hundred pages through the office fax machine before it was all done - fortunately, Redfin's fax is a local call to us.
We did the property and pest inspections on the same day. I stopped by on the way in to work, met up with Matt, and waited a few minutes for the inspectors. They were both friendly and helpful; I tagged along, they voluntarily pointed out the things that they were noting, and answered all my questions. They re-noted some things that had previously come up in the disclosures - for example, that the sliding balcony door didn't have a lock - and also went into more details; the property inspector suggested that I check with the HOA to see if they had records about the door brand and model, since with that information I could easily find a replacement locking handle that I could install myself. They also found a host of other issues, nothing critical but plenty that I would want to take care of... some voids in grout, a loose wax seal on the toilet, some holes on the balcony railing. All the major stuff seemed fine, though... the electrical system was good, no leaks in any plumbing, no mold, all appliances functional.
Matt also did his own walk-through, again noting some of the same things as from the disclosures. He also observed that some of the issues noted in the initial seller agent's walkthrough were probably actually OK - for example, the disclosures had noted that the cabinets above the sink were missing doors, but we agreed that they were almost certainly designed that way.
I chatted with Regina about the results. None of the proposed repairs seemed onerous, so I released these contingencies and waited for the next round.
Friday, November 12, 2010
Rebound
Real estate really is a game. It's a game where the rules are constantly changing, and no two rounds are the same. I've spent well over a year reading up on every aspect of the process, both nationally and locally, and still was regularly surprised by what happened during my own search.
Case in point: about a week after I turned down (or was rejected by) the Mateo Avenue condo, I got a call back from Regina. The sellers were wondering if I would be interested in seller financing. I was fairly familiar with this idea based on my research; the basic idea is that, since I had offered $X and they wanted $X+30k, they would lend me the $30k in a separate loan. There can be some advantages to seller financing - you can get a better rate than from a bigger lender, and you can more easily get approved. I figured that the sellers probably realized that I was the only serious buyer they had encountered, and that they thought I wouldn't go above $X because it was the most I could afford. In reality, I could afford more than their asking price, I just didn't think it was worth that much. I wasn't interested in taking out a $30k loan for an overpriced home.
I told Regina that I wasn't interested in financing, but, if they were willing to drop their price, I'd still be interested in the property. We went through some back-and-forth, and they ended up coming down $20k. That was still $10k over my initial offer. I mulled it over for a while - it was more than I thought it was worth, but it seemed like this might be my last and only chance to get a decent condo that I could afford in the area I wanted. In the end, I decided that I'd go for it.
Rather than put together a new offer, we got back a counter from the sellers with the agreed-upon price. It also came with an "as-is" addendum. I talked with Regina for a while about what this meant - basically, it said that the sellers wouldn't be making any repairs for stuff that had already been disclosed or for "minor" problems found during the inspection. It's intended to acknowledge that this is an older property and that stuff won't be perfect, and that I'm buying it with that understanding. I wanted to make sure that I wouldn't be giving up any rights to ask for repairs or credits for major issues found during inspection. I was safe on this front, so I signed the counter and the addendum, and we entered contract.
Case in point: about a week after I turned down (or was rejected by) the Mateo Avenue condo, I got a call back from Regina. The sellers were wondering if I would be interested in seller financing. I was fairly familiar with this idea based on my research; the basic idea is that, since I had offered $X and they wanted $X+30k, they would lend me the $30k in a separate loan. There can be some advantages to seller financing - you can get a better rate than from a bigger lender, and you can more easily get approved. I figured that the sellers probably realized that I was the only serious buyer they had encountered, and that they thought I wouldn't go above $X because it was the most I could afford. In reality, I could afford more than their asking price, I just didn't think it was worth that much. I wasn't interested in taking out a $30k loan for an overpriced home.
I told Regina that I wasn't interested in financing, but, if they were willing to drop their price, I'd still be interested in the property. We went through some back-and-forth, and they ended up coming down $20k. That was still $10k over my initial offer. I mulled it over for a while - it was more than I thought it was worth, but it seemed like this might be my last and only chance to get a decent condo that I could afford in the area I wanted. In the end, I decided that I'd go for it.
Rather than put together a new offer, we got back a counter from the sellers with the agreed-upon price. It also came with an "as-is" addendum. I talked with Regina for a while about what this meant - basically, it said that the sellers wouldn't be making any repairs for stuff that had already been disclosed or for "minor" problems found during the inspection. It's intended to acknowledge that this is an older property and that stuff won't be perfect, and that I'm buying it with that understanding. I wanted to make sure that I wouldn't be giving up any rights to ask for repairs or credits for major issues found during inspection. I was safe on this front, so I signed the counter and the addendum, and we entered contract.
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