This is a long overdue post, regarding buying a house. Not that I have bought one, yet; but my experiences may help somebody see some light at the end of the tunnel. Are you buying a house, are you thinking about buying a hosue (hosue is a type of structure that you should not buy. It's made up. It does not exist. Cato, shut up)? Then you must read this. If you don't somebody else will. I shall try to write this in Question and Answer methodology, not necessarily following that particular order.
What the heck is a mortgage?
Well, it's money you loan from the bank to purcase the damn house.
Can I get whatever amount of mortgage that my heart desires?
Sure, you'll end up paying so much interest that at one point I am sure the government will come and bail you out. If not, your grandchildren will pickup from where their parents left in paying your 100 year variable rate mortgage.
Seriously.
Well, technically yes, but in reality no. No bank will loan you whatever amount your heart desires. They will stick to whatever amount your pocket can spit out.
That makes sense.
Sometimes. Sometimes the banks will go mad and just throw you the money, only to go belly up, taking you down with them. So the age-old rule of "if it sounds too good to be true, it usually is" still persists.
Shall I inquire to multiple banks or shop online for a loan?
Well I would say ask one bank initially, and don't shop online. After I've seen the documentation that I needed to sign, questions I needed to ask, and answers I had to make up I have no idea how people can do this online. It is crazy I tell you. And don't apply to more than two places. Each application registers a hit on your credit report and brings down your credit score. You will read, in the criminally long section below, how to minimize the damage to your credit score. So, don't apply to multiple places, especially online. And remember, if you need to give your Social Security Number to fill out an application, that means they will do a credit check on you, and that will cost you, dearly.
Do I need a lawyer?
Eventually. Not in the very beginning though. You should definitely get one, after you find the place you want to buy, and after you agree on the price. The lawyer will read the contract with you (the contract will be sent by the seller). And you will both discuss on it. There are a lot of funny things in those contracts. A trusted, possibly referenced real estate lawyer will help you understand those 20 pages full of sentences longer than the Statue of Liberty's green skirts. They will cost money though, those lawyers, but hey, you are the one who wanted to buy a house, not me (oh wait, no it was me)
Do I need a real estate broker?
Yeap. You won't last very long without them. The days of lore are gone. You won't meet the sellers until the day you sign the mortgage. So there are no personal interactions. Everything is done on paper, through emails. You need proper representation. Otherwise, they will screw you dry (yeap, exactly like the mental image you had right now).
Do I need a good real estate broker?
No, definitely not. Just grab the first one you see on the street. Try to match one with Joe Pesci's looks. It will be fun to watch you two on 10 o'clock news.
What the heck is Condo, Coop, Townhouse, Family House?
Well, except Coop, the rest are quite similar.
Coop means "cooperative". It's a wonderful way of being absolutely asshole-ish without the burden of the terminology stamped on your forehad. Let's say you are an asshole, and you like being with assholes and you want to live with similar assholes. When you buy a, let's say an apartment in an apartment building, you want to make sure that your next door neighbor is an asshole, and if he ever dies, the one to replace him will be, yes, another asshole. How do you guarantee this? You get into a Coop. When a building is a Coop, it has a board, it has shareholders. And the board has certain definitions, rules, demands to meet. The coop board makes sure that the tenant's assholeness distribution remains uniform thorughout the building. So they are picky and the rates, terms, taxes are a bit higher for coops but you will be surrounded by assholes like yourself. And when you buy a coop, you will be buying a share of the building, not necessarily an apartment. (Yes, there are no coop townhouses). In coops, you cannot modify the interior structure, because it does not belong to you. You ask the board, and the board decides. Assholes.
Condo is what normal people want to buy. It may still have a board that does work in the building, but no weird rules, no asshole distribution. You may have a nice neighbor or a not so nice neighbor, depends how lucky a person you are. When you buy a condo, you get a deed (a piece of paper the american indians got for their lands too. so you decide how trustworthy it is). The interior walls are yours, the exterior walls belong to the building. This means you can do whatever you want inside the apartment, but you cannot, say, tear down the south wall because you want to watch the 4th of July fireworks.
Townhouse, familyhouse, brownstone... Tomato, tomata. The definitions and structures vary, but they all refer to a building, a structure (not an apartment). A townhouse is a townhouse (a house in a town. just kidding) (no I'm not) (yes I'm) (no I'm not) (...). A townhouse is a single structure, standing by itself with space between itself and the nearest other structure (hopefully another townhouse. if it's right next to the slaughterhouse you may be doing something wrong). A family house can be a house in a line of houses, not necessarily by itself. (these definitions my not be 100% accurate. did I tell you that before? yeah. you should probably google these terms) A brownstone is a building, in which the stones are brown, that's why it's called a brownstone. Other than that, it's a god damn three story apartment building, nothing fancy at all.
OK. Got that part, sort of. Now, how does this process work?
In a not so short way, and in my sequence:
1. You decide what type of place you like. Belive me, this will be harder than actually trying to purchase the place. Do you like a single family house (one that has a garden, a garage, you know, nice drive way, portch etc). Or do you prefer an apartment in a big complex (maybe you like to live on the 50th floor. The view is really breathtaking - less oxygen up there, so it's harder to breath). Or maybe you like brownstones. The neighborhood is important to some (to me) so maybe you want to live in Brooklyn, as opposed to moving to the "shire" (new jersey that is).
2. After you decide what type of a future you wish upon you and your kin you start gaging the market. Now this part will drive you mad. You will see a house, the seller will be asking a price. You will wonder "is this price right? or not?". This, my friend, is a question that nobody can answer correctly, well at least not 100%, but you can come close. You shall get online (Internet, wonderful invention) and start searching. Look for real estate sales figures in the neighborhood (the one that you are interested in, not the Hamptons). What did the median square foot sell for, in the last couple of months. How much did houses appreciate. And remember, you will NEVER, EVER get 100% perfect results, but having some information is better than having none. Keep looking, walk around, you will walk around for months (hopefully you are walking around in Brooklyn, and visiting dozens of open houses. walking around in Houston looking for ranches for sale will not do much good to your foot health).
3. During your months long open house rally, you will start to develop a sense of the normal asking price per square foot versus the crazy asking prices. This sometimes helps. For example, you may say "hey, this guys is asking 20% above the median range" and think that you may convince him to shave off that 20% and start asking a normal price. But you will be wrong. As this douche-bag is, well a douche-bag, he won't be willing to. In fact, he will go higher, just in spite. And ye shall say "f#$k off" and move on. This is important, know when to move on.
4. By now, you are well trained. You know what you want, you know your neighborhood. Now it's time to find a real estate broker. You could have started off with this step, but when you don't know what you want and have no idea what the prices are (in reality, not on papers taped to windows) jumping in bed with a real estate broker is not considered a very sane idea. Totally doable. And if you know a trustworthy real estate broker (I know one, I know one) you can definitely do this step first. But let's face it. If you, yourself is a real estate broker, you won't trust yourself with this step in the first place. So, walk from real estate agent to real estate agent. Meet with them. Talk with them. And stick with the one you enjoy talking to. You will talk A LOT with that individual. Prefer somebody who handles things the way you enjoy to handle. Otherwise, a breakup is forecast for you and your real estate broker, very soon.
5. This is the perfect time to get a pre-approval letter from a trustworthy bank. I suggest one of the big ones (Chase, Citi, Bank of America, HSBC). Stick with one of these guys in the beginning, it will help a lot. A pre-approval letter (sometimes called a pre-qualification letter) is a document that the bank will give you, after checking your credit report and asking you a bunch of questions about your financial situation - to which you will answer as truthfully as possible. Because the bank will not try to check on your words at this level. So, if you cheat and present yourself as somebody you are not, this will come back and bite you quite bitter very soon. When the time comes to actually apply for mortgage, you will be screwed at minute one. So, no lies. The pre-approval/qualification letter is FREE! It carries no obligation. It's a piece of paper that will carry a number, a number that the bank will decide, of how much mortgage you can get. Again, this letter is an assessment letter. It is not binding neither for you, nor for the bank. Without this letter, nobody will take you seriously when you are bidding for a property. This letter has a shelf life however. If it's older than 4 months, it is frowned upon. That's why you should do this towards the middle of your search, not in the beginning. Also, the bank WILL DO A CREDIT SCORE CHECK on you for this paper. So, if you stuck with my word and went to one of the big banks, the letter you have will be accepted by a large variety of people, so you won't have to get another one, again.
6. Now, you have a piece of paper that states how much money you can spend on a house. You have a real estate broker. You know what you want, what you like. Now be serious. Decide on a place you like. It's important. If you don't have a static, chosen place to purchase, it's very, very hard to buy a house. You need to be able to say "I love this place. I can afford it. I want to buy it". At this point, your real estate broker will ask you "how much do you want to bid". Yes, you SHOULD BID. Don't pay the asking price, don't be a dick. Mark it down by 10%, and send in your bid. Then the seller will say NO!. And you can increase your bid, and they will lower a bit and you will meet somewhere. Usually they won't budge. And when they do that, I usually walk away. I don't enjoy people who don't appreciate the fun in a good haggle. After back and forthing you will hopefully reach an agreement and you are ready to move one more step.
7. The mortgage phase. This is the most fun phase. You apply for mortgage. Now, they dissect you, and your financial history. You need W2s dating two years back. Paystubs. You need to document each penny you own. You need bank statements dating back two months. If you have large money deposits, you will have to document and explain them. Every little bit of detail will be dug. Every lie you told will be brought to daylight.
8. Mortgage types, rates. There are approximately 500 million types of mortgage. Each one of them can kill you, some slowly, some instantly (financial crisis 101). The best one is the one you can afford and one that won't kill you (at least not in the next 30 years). I say "fixed rate". That means the interest rate will not change. This will help you maintain your sanity. The other version of this is the "variable rate", in which the interest rate changes and your remaining debt is recalculated constantly. Sometimes you have less debt to pay, sometimes you have more debt than you can ever pay, even if you worked three life times. You can get a 15 year mortgage. Your rates will be lower, but you will have to pay more money each month. You can get a 30 year mortgage. Your rates will be higher, but you will pay less money each month, but you will be paying for 30 years. So choose one. Again, the only good choice is the one you can afford. Usually the bank will say things like "nope, you cannot afford that" and you will say "yes I can" and they will say "no you can't. you make $2000 a month, how on earth are you going to pay $4000 mortgage each month?" and you will reply "I will sell my soul" and they will say "we checked on it it's worthless" and you will say "fine. I won't buy that house in the Hamptons" and you will move in to the projects. Where were we?
9. The contract signing step. This step is needed for the mortgage application to move ahead. You will sign the contract with the help of your attorney. And if you have a good one, you will not be bound by a lot of stuff. Mainly, what's required from you is a downpayment on the property (not mortgage downpayment, this one is a good faith downpayment) and a handful of signatures here and there. The downpayment will be put in an escrow account which is managed by the lawyer, so the seller will not have access to it. If something goes wrong, if you cannot get the mortgage, if the seller decides not to sell, if kingdom comes, or if rupture occurs, you can get this downpayment back. The only way to "default on this downpayment" is to fail to perform your obligations. Another financial term that you will learn by heart: to default. This means that you failed to do your part; either by not doing what you were supposed to do or by doing something that you were not supposed to do. In this case, by defaulting on your contract signing terms you lost your right to buy the place because you were either a moron or Glenn Beck - oh wait, those two are the same, uh. Let's say, you never followed up on that letter sent by the bank, or did not provide the document requested from you and your mortgage application failed because of that, or you did not show up on the closing date to sign the papers. Anyway, the short is if things don't work out because of reasons outside of your control, you will get your downpayment back. But you need that contract signed fast. Because until the contract is signed, somebody else can outbid you and buy the property before you do. So move that lazy ass, and call your lawyer, and be on top of things.
10. So bank, mortgage, application will commence, documents will be gathered, more papers, more questions, more answers. This process will take about two months (yeap, that long). You need to find an institution with which you are comfortable. Usually this means you should find a mortgage officer that you can easily talk to, communicate and yell at. Don't expect too much though. You should, as a rule of thumb, get a second application going parallel to one big bank. A smaller mortgage company will do you much good. The only thing that will cost you extra is the appraisal fee. This is the fee that the bank / mortgage broker company will charge you to get the property appraised (not praised, don't bring religion into this. appraise). When you think about it, it's actually the bank that is buying the house, you are merely renting it from them for 30 years (or whatever your mortgage terms are), at the end of which you will legally own the property (As oppposed to actual renting, at the end of which you will legally own nothing. nice deal, land-lord-of-the-flies). Anyway, yes. So, get two mortgage applications moving in parallel. In case something goes wrong with one of them, it's good to have another one already moving to fall back on (hoping that the thing that went wrong is not you getting shot in the subway) and in the end you can pick whichever is lower. You are not bound by anything until the moment you sign the mortgage papers, so feel relaxed about it. By this time, if you followed my advise, you have only three hits on your credit report and the bank and the small mortgage company are crunching your numbers.
11. Your mortgage is approved. End of post.
Me, no I haven't bought a house yet. I made this entire posting up. Please do not take my words seriously. Go to a bank (if you need a reference, email me icy [at] soksa [dot] com) Just go to a Bank of America branch and talk to a mortgage officer and call First Meridian at Brooklyn, they are awesome. If you want to buy a property in Cobble Hill, Carroll Gardens Brooklyn, NY, make sure you email me and I will send you my real estate broker's name. She is wonderful.