THE PERILS OF THE HOME MORTGAGE PROCESS

The following applies to mortgages called “jumbo” or over the standard Fannie Mae size that you hear adds for such as “rocket mortgages”.

If you are in a position of considering a refinance to help you purchase a home you most likely know someone who has gone through this process already. If you have then you probably know that refinancing (especially with a “jumbo” mortgage’) is going to be painful. In this blog I am going to give you some details that many don’t learn about until they are knee deep in the process.  I am hoping that I can pass on this information to forewarn you of the difficulties you may encounter so that you may be able to prevent them.

This process, unfortunately, can be costly and you may start to feel like you have no control.

Five realities that become apparent once you enter into the process:

  1. The system is structured to favor the wealthy.  The more money you have, the easier it will be to get a mortgage and the lower your interest rate will be.
  2. As with any commission based field, the lending agents will make big promises to entice you but may not be able to follow through on the offers they have made. Once you are embedded in the process the pitfalls that raise your costs will become apparent, but only one at a time.
  3. The process is somewhat unpredictable and there is no roadmap as to the next steps required.
  4. You will be paying for expenses along the way, such as appraisals.  So have some cash available.
  5. Most likely there will be a need to put in cash at closing.  You will not be able to anticipate how high these costs are so be prepared to pay more than what you were originally told.

This is an arduous and frustrating process thus it is important to know as much as you can so you will be prepared for a long process that can be quite difficult to navigate. There are a few things you will probably not have a lot of control over that will affect you directly. 

For example:

  • Your credit scores, (which determine the interest rate): Typically the fewer credit cards and loans you have the better your score will be. However, if you don’t have at least 3 credit lines, and you don’t use them, your score will be lower than if you actively use credit.
    • Be on guard that your loan sales agent or broker does not seek too many sources of funding which will individually run a credit check on you.  Apparently two or three close together is not too harmful, but beyond that any further checks will cause your credit score to  drop like the ball at Times Square at New Years.
  • Appraisals of your property: These can vary widely and rise and fall with the mood of the housing market.  In addition you will not be able to choose the appraiser, the loan officer will assign you one of their choice.  This could result in an appraiser from out of the region where you live which can result in them being significantly off in their perception of value.
  • Let’s say that you are assigned an appraiser that puts your house at “market Value” or gives an assessment that seems reasonable to you; unfortunately you are not out of the woods yet. There will be a second appraisal done called a “desk appraisal”. This in an appraisal done by someone who has not seen your home but they set guidelines for the secondary market. The lenders do this because they intend on selling your loan about twice down the line and they are the ones that give a value of your property.
  • Cash needed at closing:  Not all expenses may fit into the loan, so you will have to come up with cash for taxes and a long list of costs at closing.  You will not know this amount until a few days prior to needing it.

Percentage rate for interest on your loan directly affects your monthly payment amount.  Every strike against you such as your credit score, or the amount of reserves you have affect this rate.

What I found disturbing is that I could not get a roadmap as to the steps involved in this process, and the amount of time each will take.  It seems there is always a rush because there is a constant set of surprising discoveries along the way.

It is important to remember (albeit frustrating) that when you are applying for these loans you are at the mercy of the lender. They are able to handle these loans however they like. The housing crash in 2007 made banks rethink how they give home loans. The end result was creating this process that leaves the lender in power and the lendee in a position where they have no control. 

It is my hope that you will not experience all of these roadblocks during your mortgage process and that you use a broker that will make you feel like they are invested in you. Hopefully some of these thoughts above result in an outcome where you end up with a decent mortgage on your great property. 

Once you have completed the mortgage loan process and have the amount of money you need to make improvements on your home you will have the power back in your hands and can start the process of hiring a team to help you with renovations. Please refer to my older blogs for tips and advice on how to make the rest of your renovation or home improvement process organized, easy and puts you in charge. 

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Undeveloped 110-acre Tiburon Ridge property for sale for $110 million- The ARK

The ARK published an update of the controversial Martha Property litigation. Will having a single buyer wanting to build a single home fair better for Tiburon Open Space? Or will it leave the door open for the new owner to sell some of the property to developers? The fight continues as non-profit groups such as TRUST, LCOTNA and TOSC try to find a way to purchase the land, preserving it for good.

Read the full article from The Ark here

 

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Richard Wodehouse Quoted in the Wall Street Journal

In this article from the Wall Street Journal yesterday, October 24th, Richard is quoted below the second picture as the president of TRUST (Tiburon/Belvedere Residents United to Support the Trails). He is discussing the lawsuit to preserve the trails in Tiburon that are currently at risk of being developed. The proposal is for 43 homes to be built which would not only make the trails unusable to the public, it would destroy the trails and a large portion of the surrounding wildlife.

See the article here

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INTRODUCTION TO SERIES ON BUILDING SCIENCE

Over the next few weeks I will be publishing a series of articles on practical applications of what has come to be known as “Building Science”.  Yes, there is such a term.  “They don’t build them like they used to” is quite true, but in a good way, we build much better now.

We have learned so much since the days of the log cabin in the real old days, and Sears kit houses which symbolized the emergence of fast and efficient building techniques after WW2.  Every year there are new products offered by an industry that has a world wide market.

In North America we build primarily with wood because that is a resource we have available.  In more Southern countries cement and masonry are the  dominant building materials.  High-rise buildings are made primarily of steel.

The concepts of preventing moisture infiltration, of creating healthy and comfortable buildings is similar in all.  What is important is a thorough understanding of how to combine materials so as to prevent holes.  Holes that allow water to enter or air to both enter or exit uncontrolled.

In the evolution of building techniques we have both improved our buildings in terms of energy efficiency, and at the same time created some flaws such as trapping moisture.  We have made our buildings more comfortable but at the same time sealed in some very harmful chemicals.

That is where building science comes in, it is the well studied concept of best practices.  It is how to have an energy efficient comfortable and healthy building. Topics this series will cover:

  • We will address what constitutes a high performance building or home.  
  • We will learn how to avoid the pitfalls of moisture build-up and mold creation.
  • We will learn why we now split insulation into both inside and outside the wall to create what is called CI or Continuous Insulation. 
  • We will learn why we want to think of a building enclosure, and not building envelope.

Due to the horrific fires suffered by so many residents of California in the last year, we will also cover ways of lessening vulnerability to fire. For example, we are finding fire often entered attics through vents and started burning the roof structure from the inside.

In the next issues you will find information on:

  • Thermal movement control in homes (heat and cold)
  • Water barriers and rain screens that allow the building’s skin to breathe but repel water
  • Various new products that are worth considering in new construction
  • Fire prevention measures
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HOW TO CREATE A SMOOTH, PREDICTABLE AND ENJOYABLE CONSTRUCTION PROJECT

I am listing below tasks that I have found are critical for creating a smooth running home construction project.  These are all tasks that an experienced Owner’s Representative, (a.k.a., Project Manager) should either initiate or ensure are accomplished during the design and building process. Ideally the Owner’s Representative/Project manager is to be the person in charge of managing these tasks listed below.

  1. Budgets:  Create budgets that are realistic at various times during the process in order for the owner to be confident that the project is proceeding within the financial comfort zone.  This budget should be comprehensive including all associated costs and wish list.  
  2. Budgets ideally are created:
    1. Early in the conceptual design phase and verifying as the design progresses that the original budget is still realistic.
    2. Prior to the construction drawings being drawn.
    3. Prior to construction starting
    4. Once a month during the construction. Keep owner apprised of Predicted Final Cost.
  3. The design team is the clearing house for all design related communication, unless otherwise requested.  We don’t want random people making design decisions that may not have the overall design direction in mind.
  4. Offer possible solutions to problems prior to announcing the problem.  Always consult with Design team first, then after agreement, notify owner of the problem with options for solution.
  5. Consolidate questions (RFI’s) into a list and then communicate these to the appropriate entities with as much lead time as possible. Avoid panic phone calls. Identify which party is responsible for answering each item: Architect, interior designer, owner, contractor.
  6. Arrange questions to be answered into groups by date needed in order to continue an orderly pricing/ordering/construction process.  
  7. Expect that some answers will come as building takes shape. In a true custom home some selections are best made when the building is taking on character.
  8. Send weekly updates to design team and owner apprising them of tasks being worked on each current week as well as planned for the following week.
  9. Plan ahead on critical times for owner and design team to visit the site; such as electrical wiring time, to avoid future surprises and changes.
  10. Make client feel as much an informed participant in the process as they wish to be.
  11. Schedule site meetings with all key subs, and if needed designers, during various stages of the job to coordinate their needs and timing.
  12. Update budget and schedule on a monthly basis and share with owners, and if desired, the design team.
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