Mortgage industry dickery...continued...

For the record, I am well on my way to getting drunk.

The stupid amount of research and hostage taking that goes along with figuring out this mortgage thing is just more than I can take. If it weren't for the fact that it involves my money, I'd just do what I did in school and bullshit my way through the thing.
Unfortunately, that's not a viable option. And I apologize in advance for the dullness of this entry. To make up for it I plan on including pictures of adorable animals, as well as boobies and well-toned abs. Although you might want to bookmark this crap anyway just for it's own sake. It may help later.

Aaaaannnnddd, here we go!

So wee!

Over the past few weeks I've learned that it's a lot easier for me to come up with inappropriate acronyms for APR than to actually understand what it is.

Annoying Person Rant... Acute Paranoia Risk... Anal Penetration Rape...

Turns out it stands for the much more boring Annual Percentage Rate.
The APR as it pertains to mortgages is basically an estimate of what your loan will actually cost you on a monthly or yearly basis. It's not an exact science, but it is helpful when comparing mortgages.
For example:

Bank Slick approves you for a $100,000 mortgage at a 5% interest rate.

Bank Shady approves you for the same amount but at a 6% rate.

Seems like common sense to go with the first one, right?

Pictured: Lack of common sense.
Although that pic is pretty sweet..

Yeah, except that Bank Slick wants to charge a $2,000 origination fee and have you pay for three discount points at $1000 a pop. As opposed to Bank Shady charging a $500 origination fee and only asking for one discount point.

$5,000 vs. $1,500

Suddenly Slick doesn't seem like such a great deal, eh?

APR's are good in that they can take these things into account. This prevents bank's from advertising insanely low interest rates, but then tacking on a bunch of extra costs and fees which drive up the total cost of the loan.
There's also a ton of APR mortgage calculators out there to help you figure things out.
In a nutshell, APR is a more accurate, black and white, formula to compare mortgages.

And now.. kitties!

Not what I would have used for bra stuffing, but to each their own..

Okay, so we mentioned these "point" things a few moments ago. What the hell are those?

Discount points are a means for the buyer to lower, or buy down, the interest rate on their loan.
One discount point is generally worth 1% of the total loan. So with a $100,000 loan, the discount points are worth $1000 each.

Example: You have a $100,000 mortgage loan at a 5% interest rate. You buy two discount points for a total of $2,000. Assuming that each point lowers the interest by .25% you have now changed your interest rate to 4.5% for the life of your loan.

Discount points do pay off if you plan on staying in your house for a long time, and they're tax deductible, which is cool. But if you wind up moving only a few years after you buy, you won't see the savings.
Lenders love discount points because by receiving the cash up front, they don't have to wait on interest payments and it enhances their liquidity.

But what's the difference between buying discount points and just putting down a larger down payment?
I'll be happy to get into that. But first!

Rawr!

Both discount points and the down payment come out of your pocket immediately, so it's kind of hard to see the difference. But remember that discount points affect the rate of your mortgage, while a down payment affects the amount.
Rate vs. Amount

Stick with me here.

Your monthly mortgage payment is made up of three different components. Interest rate, loan amount, and term, (or length of your mortgage).

So, if you're staying in your home for a long time, buying points may be to your benefit as they lower the rates over the long term. If you'd like to buy more house, increasing your down payment will help to do that. It all depends on your situation. Although here's a point calculator to help figure things out.

Oh my god. So F#$%ing adorable. Also, thirsty.

Yeah, but there was also something about an origination fee, what's that?

An origination fee (sometimes called origination points, administrative fee, underwriting or processing fee), is the money the lender charges upfront for evaluating and preparing your mortgage loan. Generally used to pay for a credit report, attorney fees, document preparation costs, and notary fees.
Bullshit? Yes. But what else are you going to do? Pay for a house in full? HA!
Anyway, the origination fee is generally calculated into the percentage of the total loan, which brings us back to the APR.
Make sure you check that shit!
The interest rate isn't everything, comparing loan APRs is the best way to determine which is the better deal.

I bet they have the cutest adventures

 So, after you've crunched the numbers, determined which loan is best for you, made an offer on a property, negotiated until you hate life, get your offer accepted and do an all too short happy dance, there are then closing costs to consider.

To help deal with it, here's more adorableness...

*sigh*

A property transfer between owners and banks is a legal process. Which, not surprisingly involves lawyers, who need to charge a good chunk of money to pay back their law school loans.
I think you see where I'm going with this...

Closing costs are made up of three categories. The cost of getting the loan, the fees involved with transferring ownership, and the taxes paid to state and local governments.
Generally, you can expect closing costs to be anywhere from 3-6% of your total loan. However, a lot depends on your location and the real estate market. And the list of closing costs is just silly.
Of course you could get the seller to pay for the closing costs, but you may wind up paying more for the property than if you had just been able to pay those costs up front.

If I've learned anything from this foray into mortgage lending, it's that "location, location, location" coincides with "depends, depends, depends".

There's just no telling what your mortgage situation is until your location, income, and a million other little things are factored it. So bring a pad of paper, a calculator and don't feel bad about making your lender explain things two or more times. With both examples and pictures.

You're the one who's going to be living with whatever plan you decide.
So good luck, and wish me some as well..

And now, please enjoy a piglet in boots.

Wilbur!

Mortgage Loans = Mind fuckery

Unless you're Warren Buffet, (In which case, why are you slumming through crappy blogs? And where can we meet for some strings attached sexy time?)

Hey, we've all got goals, some just take different routes to get there.

Sorry, off on a tangent.

Anyway, assuming you're like 99.999% of the population you're not going to be writing one fat check for your home purchase. You're going to be entering into a deal with the devil bank, also known as a mortgage or "dead pledge". Seriously.
Urban Dictionary also defines it as "middle class slavery". Either are accurate enough.

But hey, what is it to be an American without some debt? Pfft! I went to college, how hard can it be to understand a mortgage contract?

Shit.

Like a reasonable person, I started off calling lenders and inquiring into their mortgage programs.
After being inundated with information about rates, APR, ARM vs. Conventional, closing costs, and these insane sounding things called "points", I barely managed to hang up the phone mere seconds before my head exploded. Afterward calming myself within alcohol's warm embrace.

Keeping it classy.

After a brief time out, I called a cab and made my way to a local lenders. Unfortunately it was almost closing time, the realization of which made me a smidge irritable. So I made sure to keep one knowledgeable looking chap around to help me understand the mortgage process, while encouraging him to use very small words and visual aids, as applicable.

Don't judge. He was much more helpful this way.

Despite the crying and attempts at showing me pictures of his children, I actually learned a lot about how mortgages work. Which is reassuring when you're getting ready to make the single largest purchase of your life.

Now granted, there are a million and one different variables when it comes to lending. But since I'm pretty average, Mr. Sweeney just hit the highlights for me.

An average mortgage is made up of four parts. Principal, Interest, Taxes, and Insurance.
Or P.I.T.I for short.

And now I want you to forever think of Mr. T as your mortgage broker.

I piti the fool who gets a 100% financed balloon plan!

Breaking it down: The principal is the amount of money you've borrowed from the bank.
A bank is a business and is going to make money off the sum that you borrowed, so you'll be charged interest. And instead of paying a large lump sum in taxes once or twice a year, (depending on your location), the taxes are rolled into the mortgage payment. And since the bank, owning a large percentage of the property, has a vested interest in it, they want to protect their investment. In which case you've also got insurance lumped in there as well.

Much, much more...

Remember when you were little and there was always that one kid who decided to change the rules of whatever game you were playing right in the middle of it?

I like to think that all those kids grew up and joined the mortgage industry.

There's a lot of lending plans that just ain't happening anymore. You know why. And since they no longer exist, I'm not going to acknowledge them.
According to Mr. Sweeney, this is what we're working with now:

Fixed Rate, Adjustable Rate, and Balloon. There are several variations to each, but I'm trying to keep it simple here, dammit!

A fixed rate mortgage is the safest of the bunch, and the most traditional. Go figure.

Safe like suburbia, behind a white picket fence.

Most people tend to get the 30 year fixed rate plan. (At least initially, but more on that later.)
With a long range plan like this you will be paying the most in interest, but your monthly payments will be lower. Kind of like if you only paid the minimum amount on a credit card bill. You'll also be able to deduct a larger amount of your interest from your taxes.
There are also 20 and 15 year fixed plans. The major difference being that your monthly payments are higher as the number of years drops, but you won't be paying as much in interest.

Adjustable rate mortgages, (or ARMs) were very popular for a while. I like to think of them as that weird hippy family down the street that smells like patchouli.

It's hard to get hired with a name like 'Kansas Moonbeam' on your resume, huh, kid?

ARMs are a riskier venture, and much more confusing. Kind of like taking acid. It may be great with the right precautions and supervision, but God help you if you take a bad trip.

The spiders never stop coming man...

ARMs are most attractive to buyers who anticipate selling their house after a few years. They'll buy into a property at a very low interest rate, and will be locked into said low interest rate for a predetermined number of years, after which the interest rates will adjust depending on the market. There are a stupid lot of variations, but the most common ARM plans are the 5/1 and 3/3. In the 5/1 you're paying low interest for the first five years, after which the interest rate changes annually. In a 3/3 you pay the low rate for the first three years, and afterward your interest rate changes once every three years.
Now there are limits on how high your interest rates can go. They can't just increase forever, but there's still a huge difference between monthly mortgage payments if you've gotten used to paying 3% and now have to pay 4%.

You may have to give up that porn subscription.

Lastly, there are balloon mortgages.
And let me just say that if someone, or you know of someone, who had the hubris to attempt this and then succeeded. Well, damn. Buy them a shot and then ask for help with lotto numbers.

A balloon plan is a huge gamble, and we all know how those turn out...

VS.













It's basically designed to be a short term mortgage for people who plan on "flipping" a house and selling it quickly. The length of the loan is usually around 5-7 years, but the payments are treated as though it's a 30 year loan. So for those first five years you're making very easy, low payments. But here's the catch, and it's a doozy. After those 5-7 years when the time is up, you've got to make good on the remainder of the loan, or that inflated, "balloon" payment at the end, (Ha! I see what they did there!), will make you its bitch.

Hint: The one wearing gloves isn't anyone's bitch.

Whew!

Anyway, seems pretty straight forward so far, eh? Sure.
But then those bastards started getting into annual percentage rates, which is just too much, and I will deal with those mind blowing issues another day.
Until then, I leave you with this...

The object of my affection

After months of stalking real estate websites, newspaper listings and open houses like a rejected lover, I've finally narrowed the field to one.
One glistening, shiny, beacon on a hill, thing of residential beauty.

Behold! The dream house.

Okay, so maybe I exaggerated. Slightly.

In reality it's a hundred year old bungalow with no insulation, save, perhaps, a few bundles of old newspaper clumsily stuffed in between the walls. The windows are in desperate need of being replaced. Some are broken and others are leaking.
There's no garage. No one has any idea when the last time the septic tank was pumped out. And although the electrical has been updated, most of the old wiring was left in between the walls.

Also, there's an old indian burial ground in the backyard.

Yes I suppose that does sound terrifying

Alright, just kidding about the burial ground.

Maybe.

In the seller's disclosure, which is basically a piece of paper stating the details of the property to the best of the seller's knowledge, there's a question asking if there have been any graves, burial pits, caves or mine shafts on the property. Guess which box they checked?

Our home ownership could either play out like Poltergeist or Indian Jones

Anyway, being a good daughter, I sent pictures and information to both parents soliciting advice.
Also, in case we get sucked through a portal to the "other side" it might be handy if someone else knows the address to our potential residence.

Just in case..

Being that I have wonderful parents, the internet, experienced friends, well-meaning co-workers, and live near a massive library, I've compiled a list of good advice.
None of which I'll be following particularly closely...

Such as:

# 4 Stay away from fixer-uppers.

 Okay, I get this. There's no telling what horrors await in the structure of an old house. Inspectors are human and may miss things, which, left unchecked, could devastate a property.
On that note, I've been told to Netflix The Money Pit more than once as a reference for home renovations gone horribly wrong.

Horror movie masked as comedy.

 Maybe I'm just arrogant and naive, (yes), but it seems that as long as you're honest with yourself about the condition of the property, there's no reason to write off a house needing some TLC.
Mainly because there's no such thing as the "perfect house" anyway. Especially for people just starting out. Compromises will need to be made, and brand new buildings, whether because of budget constraints or personal preferences, aren't always a practical option.
That said, know your limits. A house may have great "potential" but only after you've sunk the equivalent of Luxembourg's gross domestic product into it.

Sometimes a bulldozer is the best solution.

# 3 Make sure it's not more work than you can handle.

  So now after I've effectively ignored the first bit of advice, several sighs and shaking of heads later, I'm warned to at least not get in over my head.
Ah, tis wise counsel. Fortunately I have a secret weapon.

Ladies..

No, not just paper towels, although they are ridiculously handy.
Fortunately I'm partnered up with someone who actually has some real world experience building houses. Otherwise the go it alone route would be terrifying.

But a lot of things can happen after an inspection. The number of structural issues, plumbing and electrical problems that come to light will certainly weigh heavily against the "vintage charm" that drew us to the property in the first place. If the house is solid in and of itself however, most other things can be dealt with.

This is where I've become bff's with the local library and youtube. Both have a wealth of knowledge in everything from installing insulation to repairing plumbing. And honestly, as a result, I feel pretty good about replacing windows.
Feel free to laugh though when I screw up later.

Because I'm not ashamed to blog about it

Yet despite what may sound like over-confidence, I do know where to draw the line. And that would be electrical and anything beyond minor plumbing. Also, if there happens to be a geyser or quicksand under the foundation, we'll be moving on.
So yes, know your limits. Of both your budget and abilities.

Oh, and home warranties aren't a bad idea either. They'll cover your appliances and most electrical and plumbing issues. And since most everything is negotiable in a sale, it's not a bad idea to get the sellers to pay for a year of warranty coverage if you can.

# 2 Avoid short sales.

If there are some serious time constraints attached to your need/desire to purchase a home, it's true that this may not be the best path.
A short sale is basically the last step before a property goes into foreclosure status. The seller to just trying to dump the property for whatever they can get.
Sounds like an opportunity to get a sweet deal right?
Not necessarily.
The seller's lender is also involved in this increasingly awkward menage a trois. And if they don't like the deal you've proposed to the seller, then it doesn't happen.
Say two consenting adults agree to get a little freaky. In a short sale the bank bribed the desk clerk and busts into your cheap motel room to say nah-uh to the shetland pony and saran wrap.

I don't think so, whore.

Also, banks aren't designed to manage real estate. A lot of short sale properties may be sold "as-is".
This puts even more importance upon the inspection, if the seller/bank isn't going to fix issues with the property then it becomes your problem, leading to continued lengthy negotiations regarding the worth of the house now that you have to do X, Y and Z repairs.
Banks are also notorious for taking their sweet, sweet time when it comes to replying to an offer. For us though, it'll be worth a try simply because we aren't in a huge rush. Our jobs and lack of children allow us to be fairly flexible. And if you're willing to wait, there are deals to be had.

# 1 Don't get emotionally attached

Okay, we're talking about a future home. Not just a house. This will be a place where memories are made. An emotional attachment is the difference between a home and a well insulated box. (Or in our case, not so well insulated.)
Granted, limits need to be addressed. We all need to know when to walk away. But that doesn't mean I won't be a little broken-hearted if, when push comes to shove, I'll have to let go.
Maybe it'll be the foundation that will be that proverbial straw, or the indian burial ground.
Someone else could be a little quicker and snatch it up first.
Either way, there's no way to know until a little digging is done.

Maybe it's that reckless confidence of youth. Bold and slightly retarded.
Ah hell, what's the worst that could happen?

But it has an awesome porch!

6 cliches to avoid when shopping for houses.

I've logged more hours than I'd care to admit watching various house hunting shows on HGTV and TLC. And it's come to my attention that, on every show, almost without fail, the home buyer will have a stupid complaint or crack a tired joke with the realtor. The realtor will express concern or give a half-hearted laugh, but you know that with every fake smile they die a little on the inside.
Customer service as a profession, although potentially rewarding, often sucks harder than True Blood. So besides remembering that your realtor is a human being, take these things into consideration when buying your first place, to, you know, avoid killing them softly with your retarded entitled demands.

# 6 "I was really hoping for some better landscaping."

Really? Really asshole? We haven't even gotten inside the house and you're crying that there aren't enough pretty flowers for you to neglect?

Don't lie, this is exactly what it would look like in six weeks

Lets be real here. A well landscaped yard, although it does make the place more desirable, does not increase the value of a home. And as nice and full as that wisteria vine is, or isn't, it's all just window dressing. Realtors are occasionally guilty of this as well though, trying to sell people a craptastic house simply because, "It's got an orange tree in the backyard!"

And for $30 I can have an orange tree anywhere.

Anyway, don't get bent out of shape over landscaping, especially because, with a little effort, it's such an easy fix. For a few hundred dollars you can throw down some dirt and mulch, buy a few bulbs and plants and presto chango! The neighbor dog will come and dig it up anyway.

Next time invest in a fence first.

# 5 "I don't know if I like this color.."

And I don't know if I like your face. But guess what? One of them only costs $80 to change!

The other is free, courtesy of my fist.

For as often as realtors must have to listen to people complaining about wall coverings it's amazing that one of them hasn't just completely flipped their shit. Unless the wall is either smeared with feces or the most ridiculous glitter flecked avocado green, wall color isn't even worth mentioning unless all you're saying is, "I can repaint this."
Paint is literally the cheapest, quickest, easiest fix there is. And unless you have some sort of disability, everyone can do it. If you are disabled, buy me a pizza and some rum and I'll throw down some primer for you. It'll have to be a lot of rum though. Plus travel expenses.

I will Sistine Chapel that shit.
(Results not typical)

# 4 "Seems like a lot of maintenance"

Every so often you'll see a guy, after looking out onto a vast expanse of lush grass, turn, and with a skeptical expression, make a comment about "upkeep".
Really, I can't hate on this one too much. If you work hard and don't want to be concerned with skimming the pool, mowing the lawn, or checking for drafts when you get home then fine.
But then why are you looking to buy a home?

Unless it's something like this.

Being a homeowner means a constant battle with the elements, bugs, moisture, and just.. just everything. You are constantly under siege and it's easy to see why that might not be everyone's brand of vodka.  But unless you've got stupid amounts of money and can hire as many illegals or ex-convicts as you need to keep up appearances, save yourself, and your realtor, some time and energy and just rent a sweet loft.
That way, when the A.C goes kaput you don't have to call fifteen different heating and air companies, hoping you manage to pick the one that will at least use lube while reaming you in the... compressor?

I have no idea how air conditioning works.
Ice gnomes?

Nope, the landlord is your one stop shop for all your oh-shit-the-toilet-is-overflowing-and-oh-oh-God!-It's-EVERYWHERE   needs.

Homeowner? That is all you buddy.

# 3 "I really like this house, but prefer that location" (looks expectantly at realtor)

Facepalm

Okay, fantastic, you've got things narrowed down. However, unless your realtor is some kind of sorcerer who can pull an abracadabra switcheroo why even bring this up? It's not going to happen. Ever. EVER.
When making this kind of decision though, keep in mind, depending on how hard you're willing to work, you can change your house, but never your location.

I don't care how many community gardens you start, you're still just going to be the nicest house in the 'hood.

At this point it just comes down to priorities. How much you value your PS3, laptop, and sense of security vs. your abilities as a renovator?

Either way, don't inquire into violating the laws of physics so casually.

# 2 Be realistic

Enter a young couple. They're bubbly, fresh and excited. Their spending limit is in the neighborhood of $95,000 and they've come equipped with a three page list of "must-haves".

Bitch please. You're not getting a jetted tub.

No.

Yeah yeah, it's a buyers market. Blah, blah, blah.
I don't care, unless you're building your house from the ground up, don't get upset if your realtor is unable to find your magic princess dream house. In a modest price range like that you will either:
A. Get the nicest house in the shittiest side of town.
or
B. Get a piece of shit house in a nice area of town.

Choose your fate!

For me personally, location tends to win over structure. Mostly because of my job, and partly because I'm dating the equivalent of the Brawny lumberjack.

The man can fix anything.

Just have an idea of what you can afford before you go making a jackass of yourself. That's really all we ask.


# 1 "Signing my life away!"

Congratulations! You're closing!
Now please, for the love of all that is good and pure, avoid making this comment as you pretend to read your contract.
It's the equivalent of using the same tired pick up line on a cocktail waitress.
They'll smile, but really they've just died a little more inside.

And yes, I know how much an average polar bear weighs.

Seriously though, its...just...terrible.

So you want to buy a house…

We’re looking because we just got married…want to start a family… move out of the parent’s place…need more room…settle down…invest in property…good time to buy…the bodies are starting to pile up and I need a place to put them...

……

Er... I mean... need more space

You don’t have to explain yourself. There are a lot of reasons people want to become homeowners. We’re all chasing after some version of the American Dream. And for most people, owning a piece of property is a part of that, whether it’s a condo high rise, townhouse, or single family home.
So if you fantasize about spending Saturdays at Home Depot, or killing your obnoxious apartment mates, homeownership could be for you!

Sweeping generalizations here, but I'm going to run with it.

Like many of my friends I graduated college in 2008. In Michigan.
Coincidently that is the same year the economy decided to explore it’s daredevil side and go into a freefall.  

Pictured: Economy circa 2008

You know things are bad out there when you’ve got a bachelors degree and are working as a cocktail waitress. Suddenly those four years of higher learning don’t seem as valuable as the ability to hike up your boobs and apply just the right amount of eyeliner.

Hustlin’…hustlin’…hustlin’

Not complaining though. In reality I am very, very lucky.
My “in-between time” was short, only about eight months. And I had the privilege of working with and for some of the best people I’ve yet to meet.

After putting out applications and resumes to most of the lower 48 I finally got what I thought was my “big break” and went to work for the state of Ohio as a juvenile corrections officer.

Ever have a job so soul sucking that you literally got sick to your stomach every day before you went to work? Yeah. I did that shit for a year. While again applying to jobs everywhere I could think of. Every. Single. State.
After using up all my vacation, personal, and sick leave to attend interviews I finally caught a break and was hired on as a parole officer for the state of Georgia.

And for those of you that haven’t done it yet. Let me tell you, there is nothing more satisfying than giving the finger, both of them, to the job you hate. It was almost worth spending a year in that hell hole just to instigate a riot and tell ODYS to suck it on my last day.  But that’s a story for another time…

Although seriously Ohio, fuck you.

And for the record, I’m not trying to pull any bullshit that I single handedly pulled myself up by my bootstraps. As ingrained as that ideology is in American, no one is an island. And the people who pretend that their success is only of their own making are either liars or delusional. Everyone gets some help in some form along the way, and if you fail to recognize it, then screw you for being an ungrateful bastard.
I’ve definitely had help from family and friends, for which I am eternally grateful. And, let’s be honest. A little luck can do wonders. However, for as much as you can “trust to Providence” you’ve still got to row toward shore.

So anyway, one happy dance, a transfer, and a year and six months later, I’m living in Savannah fuckin Georgia. 

Yeah, that's basically my backyard.

And I am actually, dare I say it? In a realistic position to hoodwink a bank into buying me a house so I can pay them back twice it’s worth over the course of thirty years!

Long live the American Dream!

Seriously though, most people are in the position where they’re spending just as much in rent as they would be on a monthly mortgage payment, for significantly less space, and zero investment potential. And the only thing keeping them from being homeowners is that down payment.

Yup. This is 2011 folks, the days of 100% financing are pretty much over. Better start saving your pennies, and hope that life doesn’t decide to screw you with a horrific mudslide of failure.

So here I go. I’m young and inexperienced, but don’t let the mascara fool you.

I’m off to buy a house.