Throughout Rookie Roosts Week, we'll be hearing from first-time homebuyers with tales both awesome and terrible. Got a first-time homebuying story? Hit us up at the tipline. Today: Countrywide Financial's "#1 Trashman" gives you advice on avoiding the foreclosure horrors he's seen.
I’ve always subscribed to the maxim that a wise man learns from his mistakes, but only a fool doesn’t learn from the mistakes of others. Because of my career, I’ve had many chances to see the mistakes of others which ultimately helped me avoid some huge missteps in my recent purchase of a loft in downtown.
My story is not one of failure; I succeed in purchasing an affordable place in a good location with some awesome neighbors. I attribute my success to my work as Countrywide’s (and then Bank of America’s) #1 Trashman. Meaning, I foreclosed on people. My first job out of college was in Countrywide’s Litigated Foreclosure Unit where I helped Countrywide foreclose delinquent loans. From there, when Bank of America purchased Countrywide, I joined the Correspondent Lending Risk Management Group where I audited defaulted loans for Mortgage Bankers. As you can imagine, a lot of those audited/ foreclosed loans were of the subprime variety. On a daily basis I got to see people make the worst mistake of their lives.
When I ultimately made the decision to buy my own place the failures of thousands of loans weighed heavily on my mind. Specifically, I thought to myself, how do I NOT become like them? At that time, I sat down and wrote down the common mistakes I saw and how I could best avoid them. If you are looking for a sob story, this is not it.
#1: Buy within your means. This seems pretty simple, but in actuality it’s a difficult thing to pull off. People want to stretch their finances just a little bit to get that one house that is a little bigger and better but a little more expensive. This could put you in the position of being ‘house poor’ meaning that all your income is being used to support your mortgage payments. For me, I didn’t want to spend more than 40% of my take home income on the house. I know that I have a taste for cheap beer and fast women, so in order to satisfy that taste I need to keep my house payment to no more than 40% of my take home income.
#2: Learn what you can live without. When I was searching for a place I told my broker that all places were on the table except for places that didn’t have an in unit washer and dryer. We live in the damned 21st Century, Condos should have machines that do basic house work. However, I knew that parking in downtown was an issue so I was willing to sacrifice onsite parking if I found a place that matched what I wanted. The counterpart to this is the following:
#3: Learn what you can’t live without. I wanted a unit with a view, many of the lofts I saw downtown were inward facing so they looked like concrete caves. I’m a product of Los Angeles; I need to be able to see the sky and sun. Therefore, all units without a view were non starters. The unit I ultimately ended up is south facing (tons of morning and afternoon sun) with has a cityscape view.
Once you find a place that meets your requires as set out above, you then need to focus on the financial aspects of purchasing the house. I might add, that for the vast majority of Americans the purchase of their home is the biggest investment they will make in their entire lives, so don’t fuck it up.
#1: Know your credit. Run your credit report and find out what’s on your record, seriously, it’s free and easy to do. You should know if you have any stupid judgments hanging on to your credit report. I had a LADWP bill for $78 that I forgot to pay 3 years ago suddenly show up.
#2: As stated above, BUY WITHIN YOUR MEANS!!! I really want to live in the condo building on 201 Ocean Ave in Santa Monica. However, the condos in there are over a $1.5 Million apiece, which is way beyond what I can afford. Do the math; find out what you can put toward a place per a month. Take into consideration your life style, if you like expensive sushi make sure you buy a place where you can afford to go out for sushi every once in a while. I created my Good Faith Estimate work sheet so I can accurately plan how much money it would take to own my place.
#3. Avoid Purchasing Short Sales. Like the Plague. Seriously. Take it from a Mortgage Banking professional that if you find your dream house but it happens to be a short sale. Avoid it. It’s not worth your time or effort to deal with the bank. Let me dispel a myth, short sales are not better deals than normal sales. Banks use a Free Market Value model on whether or not to accept a short sale. Bank Owned properties are much better deals than Short Sales because the Bank is motivated to move the property off their balance sheet.
#4. Go with a Good Lender. If you know nothing about mortgages, then make sure you go with a lender who can explain the process to you. And, be prepared for a ton of paper work. As a personal side note, since I work in the industry I knew what to expect going into the mortgage process. From signing of the purchase contract to the closing of the loan it took me 3 weeks. My Loan Officer said it was the fastest closing he’s ever done, it only happened that way because I knew what to expect and to provide. If you don’t know the first thing about mortgages and you get stuck with someone who can’t explain the process to you, then it could be the worst experience of your life.
Finally, once you complete the purchase of your new home (congratulations for getting this far) my final piece of advice is to know your neighbors. Have them over for dinner, say hi in the elevator, hold the door open for them. Having good neighbors can turn your home owning experience into the best thing to happen to you. I feel lucky that the downtown community is tight-knit and that I can call all of my neighbors my friends. It takes the pain out of paying my mortgage every month. Image via Reuters
· In Short Sale Purgatory, Where No One Knows Anything [Curbed LA]