Stupid Australian…… had this silly notion that he would look on the web, find a house he likes, make an offer, see the bank and move in about a month or so latter……. HAH! Welcome to the Southern California nightmare that is buying a house……
First up, everything on the web is out of date. So forget that as a resource. Yeah, yeah, I know, hard to believe, but its true. If its on the web, its sold or has a major problem.. Simple as that.
So, how do you find the houses that are for sale? Ah, well, that’s the first hurdle. You need to engage a buying realtor….. You talk with friends and family’s and you get the name and number of someone that has a real estate license. You talk to them a bit and then you enter a formal (signed contract) or informal (verbal, hand shake) agreement to say they will help you find a house.
He signs you up for what’s called a MSL email. It’s an email list of houses that are for sale. As far as I know, you cant subscribe to the MSL listing unless you are a registered realtor.
Ok, so you have your realtor, and now you can start looking. How? Well, you sit by your computer and wait for an email from the realtor. It will be a link to that MSL list of houses. As soon as that email comes in look that the houses. And I do mean AS SOON AS the list comes in.
You are not the only sucker trying to buy a house, and so if you leave it more than 1/2 to 3/4 of a day, you are sunk. Someone else will have got an offer in first.
Ok, so you see a place that you don’t think much of, but its been 2 or more weeks and there has been nothing on the list that is even close, so you tell the realtor that you want to look.
He then checks out the house. This means he checks what types of loans are being accepted on the house. Of course cash is king. Its always accepted. Then come ‘conventional loans’, then FHA and then the last sort which I just forget the name of.
Cash is easy, its the full purchase price of the house in cash. So we are looking at around 250K for the sort of house we are looking at…… You might be Ok, but we don’t have that in the bank……
Then conventional loans. This is where you have between 15% to 25% cash deposit. This is an easier loan for the bank to process, there is less risk for them and so you have more buying power.
FHA is first home buyers loan. Its around 3% to 5% deposit. It also means that you have been to the bank and had your entire history and credit score checked out. Its like you are pre-approved to a given dollar value. This is the sort of loan Freddy and I are going for. Generally its not worth the paper its written on. Its total junk. I hate to think of what the buying power of the last type of loan is like.
So, when the realtor checks out the house, he see’s if FHA loans are accepted. Many times they are not. The seller of the house just cant be bothered messing about with that sort of loan, so they just exclude it.
The other thing he checks is if it is a ‘short sale’. This is nothing like it sounds. Its name comes from the fact that the current ‘owner’ has fallen behind in their payments (they are short on their mortgage). Here is where it gets interesting for two reasons……
First up, the person might have more than one loan with more than one bank on the home.
Yes, that’s right, they may well have drawn more money against the house from more than one bank. This is annoyingly more common than it should be. So, lets say, 5 years ago, they bought the place for $250K. Values went up, so they went to another bank and borrowed some more money using the ‘new’ house value as collateral, and so on. Then the housing bubble burst a few years back and Joe Idiot is left paying a $450K mortgage for a house that is only worth (and only EVER worth) ~$180K. Perhaps his wage has gone down, or the wife has lost her job what ever, point is he can no longer make the payments on it. So, rather than foreclose, he op’s for a short sale with his bank (How we doing, keeping up?).
Ok, so, now the bank(s) is involved, They want to get as much money as they can, and so do the other two (or more) banks. So, you sort of get into a little bidding war. You put an offer in, it goes to all the banks, they all agree, or not, then it comes back to you, and you rinse, latter, repeat.
This all goes on for a long time. Months. Its anything but a short sale. Of course, if you have an FHA loan in all that, man, you are so toast. If you put an offer in on a short sale house. Just forget it and keep looking. It could take 3-4 months before you find out if your offer has been accepted. Naturally, it goes with out saying that if you have a cash offer on a short sale you are in a stronger position, but it can still take months, but yes, you have a better chance. Don’t even think about what’s happening to housing prices during those few months.
While we are talking about foreclosures, the whole country is broken here, and the housing market is not excluded. What people are doing is seeing that they are stuck with this huge (Self inflicted I have to add) mortgage and saying ‘screw it’ and they are walking away from their home. Totally defaulting on the loan. They then go and sell some of the toys they bought from the over inflated home value and they are re-entering the home buyers market with a conventional loan. Yes, you read it right. There is no loss or way for them to be made responsible for the mess they got themselfs into. They are happy, they have a few less toys sure, but their new mortgage is a lot less!!
Ok, so where were we? Right, so we finally found a home on the list… Ok, so the agent checks out and good news, we can put an offer on with our worthless pre-approval. Yeehar! And because Freddy is sitting next to the computer all day, we are the first to look and offer.
Super, so we sign the paperwork, write a check for the offer and go back to the computer.
See, just because we have the first offer in does not mean that we are not going to get trumped by a cash offer latter in the day. Yes, that’s right. We offer $255K on a house that is listed for $250K and Mr Cash comes along and offers $200K, he wins it. Its sold to him and we can do jack squat.
The other thing (sorry this is so long, but it really is a mess!) that happens is that the buyers realtor only gets a small cut, the sellers realtor gets a bigger cut or commission from the home sale. So you are using a guy that really does not want to work all that hard for you, he’s getting a small cut of each house, so he needs to move a lot of houses in a short time to make money. This means that he is really not interested in helping FHA loaners…… The ‘worst’ thing that can happen is that you find a house where the buying and selling realtor is the same person, they will tell you anything to get the joint sold for as much money as they can as quick as they can.
How then can you get a house. You have to hope and pray that said buyers realtor will find out about a house before its listed. He tells you, you look at it, FHA loans are accepted and you put your offer in. This is the only way the 4 people I know that have bought houses in the last 6 months have got a place.
So, you want to buy a house in SoCal? Put away the guns and lock up the razor blades, cause it a depressing, frustrating, time consuming, expensive, and irritating experience.
The end of which you get the scrap house that falls off the end of a bad deal for someone else and is not even close to the house you want or would live in, but you buy it just to put an end to the pain.
