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November 30, 2009

Dispatches from the home-buying front

Reporters can relay home-buying story after home-buying story, but sometimes it's better to hear them directly from the people doing the buying. So I recently asked if any of you would like to write some dispatches about your experiences.

Peter Arrabal, 22, answered the call. The Ellicott City resident, a health-care worker, is trying to buy a house with girlfriend Karen Parlee, 24.

"Trying" is the operative word. But here, let him tell you about it:

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A million questions ran through my head. Can we afford it? Can we handle it? Is there something available? Is renting more plausible?

As my girlfriend and I began the home-buying process, the answers all started to point to yes. The last question remained: Why not?

We made the decision to buy. Now I had to figure out what I was supposed to do.

The process seemed straightforward enough. Find a lender. Get prequalified/preapproved. Find an agent. Sift through listings. Look at houses. Make an offer. Inspect it. Get the loan. Close. Move in.

So we began to look. I work down by D.C. and she works in the district, so we focused our search on Silver Spring, Burtonsville, Gaithersburg and Germantown. All were a reasonable distance from our jobs, and far better than the commute from Ellicott City.

It was surprisingly difficult to get a lender to return our calls. Finally, one called back, reviewed our finances and came back with a number: $250,000 at the most. I had my own number in mind, based on our monthly spending: $206,000.

We found an agent, and she started sending listings. We knew we would be focusing on distressed properties in this price range. We started in late August. (Free advice: Never look at a foreclosed home in August. A/C anyone?)

The initial trip out to see houses was plain strange. The first foreclosure was in Germantown and was in pretty bad shape. The ceilings were covered with spiders, and the floors were covered with dead bugs, presumably already eaten by the spiders on the ceiling. The layout was close to what we wanted, and the location was acceptable. The next foreclosure was in decent shape, but just not what we wanted. Too small, and a creepy feeling from the neighborhood.

Short sales were a completely different monster. It was awkward. It was weird. We felt like we were walking into these houses and saying to the owners, "Hi, we're here to buy this house for WAY less than you paid. We're going to undercut you because we know you can't afford this house. Tough luck."

Also adding to the awkwardness was the fact that this particular short sale was full of stuff. There's no other way to describe it. Just ... stuff. The shower in the master bathroom was filled with shoes. From the bottom to about knee height, it was full of shoes. In the living room, along with couches, sat the back seat of a minivan.

As we looked over the house, the family sat there and ate lunch and watched TV, occasionally giving us dirty looks. OK, maybe I imagined the dirty looks, but it was very uncomfortable.

The price was right, but the short sale aspect wouldn't work out, we thought. It would take too long and we'd never know when the bank would make a decision.

So the first few trips were failures. Maybe we were being too picky.

But then that house comes along where you drive into the neighborhood and you just know deep down that this is the right place.

A three-bedroom, two-bath foreclosed home in Silver Spring. Listed at $199,000, it was perfect. Well, except for the fact that Montgomery County has some really strangely named streets. I thought the agent was kidding me when she said to take Brahms Avenue to Schubert Drive to Piano Lane and then turn onto Musicmaster Drive. (If we got to Conductor Way, we’d have gone too far.)

We wrote our first offer for above the asking price. The paperwork is enormous and ridiculous. We repeatedly signed papers saying the same things in different words. We have the right to review the county master plan. This property may or may not be near the Intercounty Connector. The ICC is coming to Montgomery County. There may be lead paint in this house if it was built before 1979. This house was built in 1984, so there is no lead paint in this house. Sign here. Initial here. It became a blur.

And then the waiting game began. We wrote the offer Wednesday, Aug. 26. A week passed. Another week passed. We got antsy and asked the agent to pull some other listings, just in case.

On the same day that we found another house we really liked, the bank made a decision: They had a better offer.

We wrote an offer for the second home, a three-bed, two-bath townhouse in Burtonsville. The basement was mid-renovation when the previous owners fell behind on their mortgage and abandoned it.

The offer never reached the bank. Once the listing agency had it, they sent us supplemental paperwork. We submitted that, and they sent more. And the cycle repeated. Three days after we submitted the offer to the agent, he called and said the bank was not accepting further offers.

We were back to the starting point again. Now it was late September.

Our agent found another foreclosure in Gaithersburg, in another weirdly named neighborhood (everything is named after birds: Chickadee, Pintail, Blue Jay, etc.). It was an end unit and definitely a fixer-upper. The place was enormous and had a big deck and back yard, with a park off to the side of it. Perfect. We made the offer, $26,100 more than the asking price.

The next night, I saw on the MRIS listing that it was under contract. I went crazy all night trying to figure out if we got it or not.

The listing agent called in the morning: Denied again. The bank didn't think it would appraise as high as our offer, and they had a cash offer.

Next up, a regular sale in Germantown. It was in beautiful shape on the top two floors, but the basement was stuck in the '70s (why was faux wood paneling ever in style?). Offer submitted, $6,118 more than asking.

This was our fourth offer. This had to be the good one.

The call came from the agent: nope. They had a better offer.

At this point, the whole thing seemed a little ridiculous. Now we were cutting it close on getting the tax credit (this was before the extension, obviously). This is a recession? The housing market is depressed? We're offering much higher than asking and we can't even get close. What's wrong with this?

We had one more shot before the tax credit would expire.

Tomorrow (Dispatch No. 2): Things get really weird.

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Want to write your own dispatches? Email me at jamie.smith.hopkins(at)baltsun.com.

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (6)
Categories: Dispatches, Housing market experiences
        

Comments

The biggest purchase one will ever make, a lengthy/cumbersome offer process, and slow to respond/inept lender sellers add up to an unhealthy level of arbitrage among active listings.

The really good deals (maybe 10% of active listings) are getting lots of attention and multiple offers. Everything else gets no attention. It's also a lesson to sellers to price at the bottom end of your recent sold comps, not just your active competition.

Buying a house has been one of the most frustrating experiences I have been through. You say to yourself "Hey I have 200,000 dollars I want to give someone...they should be doing anything possible to take my money, right?"

Unfortunately that's not how it works. I am now facing the same sort of issue as I try to re-fi. I want to give a bank thousands of dollars a year in interest. Here take my money! I pay on time each month...but due to there being no equity in the house because I bought in 2007 they tell me "we'll get back to you in 6-8 weeks" It all doesn't make sense to me.

Bill,

In theory at least, one of the reasons you can enjoy such a low mortgage interest rate is because of the reduced risk to the lender because it is a SECURED loan. If the value is substantially less than the amount owed, it becomes only a PARTIALLY secured loan and there is behavioral data showing being substantially upside down (beyond 25%) strongly raises default risk.

There is a program that allows existing Fannie Mae and Freddie Mac mortgages to refinance even if upside down by 25%. In practice, while the 25% rule is the stated tolerance for Fannie/Freddie, 10% upside down is about the max every individual lender I know of will allow. Fannie/Freddie also levy an additional charge for their upside down refi programs which can sometimes eat up any benefit if your existing rate is already fairly close to your new potential rate.

Rates are down again this week, you may want to look at getting re-qualified. You may be able to afford an addition $50K or so, which would put you in a much less scrappy market.

Josh,

When I say I have no equity I mean I am right at about 98% loan to value right now, so I am not really upside down per se, but I certainly don't have the 20% they are looking for right now.

The issue with the program you speak of is that you have to go through your original lender, and it can only be for your first mortgage. The bigger issue I have is that my company doesn't seem all that interested in helping me out. Since mine was the one telling me wait 6-8 weeks I tried other companies, ant that's when I ran into the equity problem.

Thanks for the tips though!

Yours must be a Freddie Mac owned loan then for which that is the case. Were it a Fannie Mae loan, any Fannie Mae lender could do it. You are correct that it won't rolling or consolidate a second mortgage, and even if the overall combined equity is still within the tolerance, it is ultimately up to the 2nd lien hold rather to grant a subordination, and as a practical matter they are for lack of a better word retarded in granting those. I've seen absolute no brainers from a lowering overall risk standpoint get denied a subordination for lack of equity.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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