Homes in the Puget Sound area are selling at a torrid pace, but if you haven’t bought or sold a home since the real estate market imploded nearly a decade ago, you could have a rude surprise coming when you re-enter the home market.
For homeowners and potential homebuyers, the buying and selling experience in many cases has become a complicated and often expensive labyrinth of new rules and strict loan qualification standards.
The restrictions have stretched closing times by weeks, imposed new costs on sellers and buyers and raised the frustration level of both to new levels.
Tacoma Realtor Dick Beeson advises clients never to assume they’ve provided all the information needed to close the sale.
“Until you’re finished, you’re not finished,” he said.
GOOD NEWS, BAD NEWS
From many perspectives, there’s a lot to be thankful for these days in the residential real estate market.
Prices are rising. Persistent low interest rates keep payments affordable even in the escalating market. Well-priced homes are selling quickly. And multiple offers are becoming more commonplace.
“We see many multiple offers on properties,” said Beeson, principal managing broker at RE/MAX Professionals in Tacoma, who described sales activity as “phenomenal.”
Tacoma Realtor Tom Hume said the steep rise in Seattle housing prices has caused more King County workers to consider moving to Pierce County, where housing prices are more affordable.
The median price of a closed sale of a single-family residence (excluding condos) in June in Seattle was $500,000, according to the Northwest Multiple Listing Service.
In Pierce County it was $257,000.
For many, that good news is tempered by the new rules and regulations that were imposed in part as a result of the lax pre-recession loan standards that helped create the housing collapse.
That’s left a real estate industry that in many cases is struggling to handle the demand of the sudden influx of new business.
DELAYED CLOSINGS, MANY REASONS
David Gintz, a Tacoma-based housing redeveloper, said he has doubled the time he expects it will take for deals to close on the rehabbed homes he sells.
Banks are especially cautious about granting loans for these types of purchases because often there is a wide gap between the amount the house flipper paid for a run-down property and the price buyers are willing to pay after the homes have been rehabbed.
A bank then may ask for not just one, but two appraisals, followed by appraisal reviews to allow appraisers to double-check estimates of the home’s worth.
Those multiple appraisals cost extra money and add time to the homebuying process. The extra appraisals put a strain on appraisers already under pressure to handle more appraisals each week and to produce them quickly.
For home sellers and homebuilders, the extra time needed between the purchase and sale agreement signing and the final closing costs them money in interest on the loans they’ve taken to buy, build or rehab the houses and the property taxes they’re paying each month the home remains in their name.
“I figure it costs me at least $100 a day for every day the closing is extended,” said Gintz. “I’ve used hard-money loans to pay the fix-up costs, and that money isn’t cheap,” he said.
Delayed closings can cost buyers money for temporary housing and storage of their household goods.
Gintz said the mortgage industry has overcompensated in its demands for extensive documentation for loans. The sometimes intrusive demands for documentation make potential buyers feel as if they’re suspects in a criminal investigation.
“They’ve gone too far,” said Gintz. “The banks’ motto now seems to be ‘guilty until proven innocent.’”
Tacoma home buyers Nic and Alex Van Putten say they hope they’re adequately prepared for the road ahead. They made a full-price offer on a home on South L Street. Theirs was one of several offers for the home.
Van Putten, who is a political consultant, said he’s ready to provide whatever records are necessary to satisfy the banks’ need to know.
“I suspect that because I have my own business, they’ll want some details,” he said. “I think I’m prepared to provide whatever they require.”
MEETING MULTIPLE TESTS
Tami Champagne, a loan broker with Bay View Home Loans, said she understands why banks are more selective about financing these days.
“The saying was that before the recession, anyone who could fog a mirror could get a loan,” she said. Those loose loan standards resulted in unqualified buyers getting financing for houses that they ultimately could not afford when the economy turned sour.
But in the wake of that real estate debacle, both the federal government and the banks have tightened up documentation and qualification standards enormously.
Seemingly each bank has developed its own standards that don’t necessarily coincide with those of their rival banks. That results in mortgage brokers gathering information from potential borrowers to satisfy the demands of all the potential lenders, creating a demand for a seemingly endless river of information and data from buyers.
Prequalification for a loan is the standard first step, but don’t think that prequalification scrutiny will necessarily put you on a fast track to a loan.
Expect, for instance, to provide not only bank and investment statements, tax returns and pay stubs but also documents for all financial transactions $500 and more in the past several months, to explain all credit inquiries in the recent past and to provide additional information on any late payments, unexpected expenses and outstanding accounts.
If you’re receiving money as a gift from a relative, expect to provide a signed letter from that relative saying no repayment is expected and also be able to obtain financial statements from those relatives showing their ability to provide that gift without putting their own finances in jeopardy.
And in the process of seeking the loan, be prepared to sign statements, declarations and permissions on short notice, or at least within 24 hours, to keep the loan process moving forward.
Champagne said that with her nine years in the business, she recognizes the need to get a full picture of applicants’ finances, but in some cases, the inquiries and standards have gone over the top.
Sharon Benson, a Realtor with Coldwell Banker Bain in Pierce County, said the loan qualification procedures have become “a very, very tedious process.”
She tells clients to be prepared to produce documents required by mortgage lenders quickly lest the closing process go wrong.
Mortgage broker Champagne recalled a still-pending sale. She’s been working with one couple who has been trying to buy a house for a year. Several years ago, when the economy went south, they both lost their jobs and incurred a backlog of debt. When they found new employment, she said, they worked assiduously to erase that debt. And they succeeded.
They put in a bid on a modest home in Tacoma, but have spent some 90 days explaining their past financial situation to bankers and are gradually working their way toward closing. The home’s owner extended the closing deadline several times to allow them to negotiate the loan process.
As closing finally neared, the couple, who declined to be interviewed for this story, encountered a roadblock that put their whole effort in jeopardy, said Champagne. In one final review, the mortgage underwriter noticed that a lien remained on their credit record. That lien had been filed by Washington’s Employment Security Department because of an overpayment of unemployment benefits five years ago. The couple repaid the overpayment, but the lien had never been removed.
The underwriter, although noting that the lien was for zero dollars, refused to approve the loan. Luckily, when the mortgage broker asked the bank for reconsideration, the objection to the lien was dropped.
Another Realtor who works with many military and ex-military families said a recent closing was delayed because the bank changed its mind midway through the signing about how the soldier’s wife, who had a power of attorney to sign on her deployed husband’s behalf, should sign the closing documents. The documents had to be reprinted, and the signing began anew.
INSPECTOR: ‘THIS IS THE BUSIEST YEAR’
Just reaching the closing is a major achievement considering the demand for the professionals who must inspect, appraise and repair homes prior to their sale.
Todd Obergfell of Lakewood’s Immaculate Home Inspection said he’s working from dawn to dusk to satisfy the demand for inspections. He’s restricted the geographic area in which he performs inspections to allow him to handle more homes each day.
“If the Realtor is a longtime client, I’d consider traveling a bit farther to do an inspection, but only because I want to help my friends,” he said.
“In my 18 years in business, this is the busiest year,” he said. “It’s just insane.”
In less busy times, Obergfell could promise getting the job done within five days. Now it’s 10 days.
The call for re-inspections to see that repairs have been done correctly also has bloomed. About 40 percent of his jobs now call for a re-inspection.
Because of the competitive nature of bidding on some houses, however, some sellers are simply telling potential buyers they won’t correct any problems the inspection discovers, he said.
Correcting those defects costs the seller money and time because qualified contractors likewise are booked up. It can take two to three weeks to get repairs handled, according to Obergfell.
REACHING THE FINISH LINE
Appraisers also are in high demand. A recent change in Veterans Administration loan rules has extended the time that appraisers have to produce their reports in order for them to have more flexibility to handle business. That 20-day deadline has in some cases again extended the time it takes to close VA loans.
A change in home financing rules promulgated by the Consumer Finance Protection Bureau is expected to lengthen the closing process further beginning in October, said Becky Thompson of New American Funding. That rule change will require a three-day waiting period between when the final closing figures are produced and the actual mortgage closing. The new procedure is designed to keep buyers and sellers from being surprised at closing by new financial figures when they’re on the verge of getting their keys or their check from the transaction.
Good loan officers, she said, have learned to anticipate the questions that will arise in the loan approval process and gather needed information early rather than let it ride until the last minute.
Benson, president-elect of the Tacoma-Pierce County Association of Realtors, said that despite the new hassles, buyers seem eager to dive into the homebuying process.
“After all,” she said, “owning your own home is the American dream.”
John Gillie: 253-597-8663
SELLING, BUYING TIPS
Recent home buyers and sellers say they learned much from their recent trip through the real estate system. Here are a few tips:
Selling your home
Stage to sell: Start getting ready to sell before you call an agent to market the house. Get everything fixed that could come up in an inspection, make sure interior and exterior paint looks new. Have your agent do a walk-through for tips on what you need to change or stage for better viewing.
Answer the phone: Agents will call to show your house, and you never know which call will be THE ONE. One of the biggest frustrations for agents is for sellers not to be reachable so they are left unsure of whether house is ready to show or not. Keep your cellphone with you during the process.
Be ready for a buyer’s demands: Full-cash offers, for example, may come with stricter terms for closing from the buyer, such as a reinspection or a quick turnaround for sell date.
Expect detailed questions from buyers: When is the nearby arterial scheduled for repaving? What species of trees are planted next to the street? What’s the maximum tax rate the fire district can impose?
Time to buy: Things to check
Where is it? A newly constructed house may not be on Google maps: Don’t be surprised if your appliance delivery or cable installer has difficulty finding your place; GPS can get confused, especially by new housing developments.
Can you hear me now? Check cell reception when doing a walk-through of a potential new home.
How restrictive is the HOA? If there’s a homeowners association, check out their rules. Will they prohibit you from having a particular breed of dog? Will the HOA require their approval for what you might consider minor alterations to your home, planting a new tree or bush, for instance, or altering the color of your front door? Does the HOA require a financial buy-in at closing?
Waiting to close: Keep calm and carry all your documents
Closing dates are not set in stone: An endless array of factors can delay a closing date, and this can be a problem particularly when it comes to your interest rate. So-called rate locks can expire if a closing is delayed, potentially exposing buyers to higher interest rates or buydowns.
Book early: Be prepared to stay in a hotel, and make sure you ask for discounts up front, such as extended stay, AAA or AARP when booking. Hotels might not offer discounted rates after you show up.
Book a top-floor room: That way the pitter-patter of vacation feet from the room above won’t keep you up, since you probably are used to the quiet of your home and not your new impromptu apartment-style life.
Use change-of-address coupons: Don’t forget to use the coupons that come with change-of address packet from the US Postal Service. Many of the participating vendors are stores you may find yourself frequenting after your move. Double up on the coupons by registering online and going to the post office for a packet.
Don’t send everything to storage: Escrow delays can hold up the final round of paperwork, as can holiday weekends. Don’t send all your clothes to storage; save back a mix of casual and work attire in case you go beyond the number of days you thought you’d be homeless.
Read the fine print in all of the instructions from the mortgage company: It could mean the difference of 24 hours if something isn’t done correctly in your loan submissions. Example, some mortgage companies require the word “remitter” in full on a cashier’s check, while banks routinely issue “re” in place of the full word. Don’t let one institution’s process trip you up on your requirements; what the mortgage company expects overrules how the bank may routinely do something.
Remember your health: Hotels typically have pools and workout rooms. Use them to keep your sanity and to work off frustrations in the process.