Without question, among your first steps should be assembling your team. Your team should include a Realtor, a home inspector, a lender (a banker or mortgage broker), an attorney and an insurance agent. Now would also be a perfect time to get a financial person – a Certified Public Accountant or a Certified Financial Planner to assist you with the most frequently overlooked step in this process: calculating the actual cost of home ownership, present and future.
Future blogs may address the some of these roles individually in more detail.
Realtor. In thinking about selecting a Realtor, think about the services you will expect your Realtor to perform, and the knowledge base required to fulfill those expectations. Knowledge of the area, schools, neighborhood, and having a finger on the pulse of recent sales are, of course, essential. If you’re buying new construction, look for knowledge of the construction process. On the other hand, if that agent has been representing the builder for the last 20 years, are you comfortable she will stand up for you in a dispute? Some of the larger firms, like Berkshire Hathaway, William Raveis and Coldwell Banker have swallowed up smaller chains and now dominate certain markets. Are you comfortable with a large office, or would you rather work with someone who owns her own, small agency? There’s no right or wrong answer, just be very comfortable with the person you may be spending many hours with, and don’t be afraid to interview multiple Realtors.
Lender. If you’re getting a mortgage, your basic choice is between a bank and a mortgage broker. What’s the difference? A bank will offer you whatever variety of products it has available in-house. That variety may be considerable, for example, conforming loans, non-conforming, FHA, VA, CHFA and other first time homebuyer products, fixed rate and variable rate loans of different maturities. That selection may indeed be sufficient to meet your needs. Even though the mortgage market is fiercely competitive and driven by efficient market factors, banks do differ significantly in the type of customer they cater to, the geographic areas they cover and the efficiency of their loan processing. The loan officer is an employee of the bank, usually on a salary or possibly a salary plus production bonus.
I would subdivide the bank category into the “megabank” and “other bank” categories. By megabank I mean the “too big to fail” banks like Bank of America, Chase, Wells Fargo and Citibank. I have to be honest and say that, as I write this, I cannot remember the last client I had who had a favorable experience getting a home mortgage with a big bank. All of my recent transactions or near transactions have caused tremendous frustration with all parties. “Too big to fail” also seems to mean “too big to care.” Difficulties getting return phone calls or responses to emails, repetitive document requests, endless nitpicking, the so-called “team” approach (which means having enough people involved with the loan to ensure that nobody really knows what’s going on), seem to have become the norm. Needless to stay, I advise clients to stay away from the megabanks for home mortgages. However, they’re still in business, so others’ experiences may differ.
A mortgage broker is not a lender, but a representative of different lenders. A broker may have a relationship with 20, 30 or more lenders. They may have more options for you if you have less-than-perfect credit, or haven’t developed much credit history. The loan officer works for the mortgage broker, typically on a strictly commission basis. That’s not a bad thing, it’s just the way it is.
In either case, get references from people who have gone through the whole process. The loan officer is just the tip of the lending iceberg. The L.O. will take your application and help you put together all the documents required, but from there it goes to underwriting, appraisal (an independent service you have no say in) and ultimately to the closing department. Communication within organizations varies greatly. Find out ahead of time if you’re signing up with “Federal Express” or “Pony Express.”
Attorney. I was tempted to keep this really short and just say, “hire me”, but in fairness I felt I should say more. First and foremost, find out about your attorney’s level of experience. By “experience” I don’t mean just how many years he or she has been admitted to the bar. I also mean: what percentage of the lawyer’s practice is devoted to real estate. Things that are routine to a lawyer dedicated to real estate can become problematic when entrusted to someone who dabbles. Does he have an experienced closing staff? Does his “style” fit the job? In a closing, both sides want to get to the same point. Ironing out wrinkles and “getting to yes” is a skill. Usually, the “mad dog”, win-at-all-costs litigator attitude is counter-productive and can blow up a deal. How accessible is your attorney? While technology has produced some unrealistic expectations about 24/7 availability, you may need some issues dealt with outside of 9-to-5. Finally, don’t decide based on price alone. This may be the biggest purchase you ever make. Is this really the place to save $25?
Insurance agent. This team member is perhaps the most overlooked because it’s usually so non-controversial. Your bank will have very detailed insurance requirements, which a competent agent will have no trouble fulfilling. Usually the inquiry is limited to satisfying the bank. But you’re also the insured, and it’s therefore worth a more detailed discussion with your agent. Get a detailed explanation of coverages and don’t base your decision solely on price or how funny the television ads are. Discuss riders such as jewelry or other valuables. Discuss with the agent his claims experience with the companies he reps. Some companies are notorious for being cheap at the front end, and even cheaper when there’s a claim. Discuss getting a package including your homeowner’s, car and umbrella coverage.
Financial adviser. Why involve a financial planner or CPA at this stage? Simple. The question: “how much house can we afford?” usually means, “what’s the biggest, most expensive house we can qualify for?” The focus is too narrow, based solely on ratios that mortgage lenders have established for their own purposes in underwriting their risk: the likelihood that you will default. What about the rest of your life? How many kids do you have? Are you planning to save for their college education? Are you or your spouse planning on returning to school? Changing careers? How soon will your cars need to be replaced? Have you begun saving for retirement? What does the inspection report say about future repairs? Roof? Driveway? HVAC system? Cosmetic improvements that you want to make? Too often, a house purchase is viewed with tunnel vision, with the focus only on your ability to make the mortgage payment. I have met countless clients who are “house poor”. You will be happier and more secure in the long run if your house purchase is part of a more comprehensive review of your finances.