More Than a Credit Score

Roberta and Jimmy at home in Kerrville

A Blast from the Past- Kerrville, TX

I was updating my home-buyer’s packet, and I reached out to a knowledgeable lender, James Dowis, of Infinity Mortgage here in Austin, to ask him what I need to tell people to prepare before they go home loan shopping. James, being the ever-helpful person he is, promptly responded with these suggestions:

For all pre-qualifications:


  • 2016 & 2015 W-2’s and/or 1099’s.
  • If you are a business owner please provide your 2015 and 2016 K-1’s
  • 2016 & 2015 Filed Personal Tax Returns, all pages and schedules
  • Most current 30 days paystubs
  • Most current 2 months bank statements, including account number, name and address, all pages
  • Copy of your driver’s license
  • Copy of your existing mortgage statement and most recent property insurance bill, if you currently own a home and plan on retaining it


When I first talk with the borrower I ask questions including if they have been involved in a foreclosure / bankruptcy /divorce and I alter my document requests to possibly include the following:


  • Copy of your divorce decree and child support orders, if applicable
  • Copy of the Trustee Deed from when your foreclosure was finalized
  • Copy of your bankruptcy documentation showing your discharge date


For underwriting, we would also need:


  • Explanations of large non-payroll deposits.  “Large” typically means 25% or more of gross monthly income.
  • Transaction log from bank statement showing the earnest money check was cashed.


All deals, every one, require different documents based on the unique scenarios.  If gift funds are received we need documentation on that.  If the borrower is married but the spouse will not be on the loan there are documents needed for that.  So, we collect the basic items, review them along with the application and then ask for the remaining items.

I hope this helps you buyers out there on this “Mathematical Monday”. Thanks, James!


Stuff to Know About Buying a House

IMG_0097I love to insert into this blog photos I’ve made over the years!

You can get lots of information on the internet about buying a house, selling a house, maintaining a house, etc. Much of the information is even correct. In some state. Under some circumstances. At some point in time.

I start reading about ‘How to sell a house’, or ‘How to buy a house’ and I think, “Yes, but not in my state…. That’s not the way it’s done here.” We have personally bought and sold homes in three states, multiple times, over decades. Each state is very different, and things change within one state over time. Every two years, after the Texas Legislature meets, we have new laws to follow.

The first thing to know about buying a home in the Austin area in April 2017 is that, if you are going to need to borrow money to buy the house, you must tend to that first thing. REALTORS® keep lists of lenders they’ve worked with and whose clients have had a good experience. Interview some REALTORS®, pick one, and ask about lenders.

Lenders will pre-qualify you for a loan, which means that they ask in person, or online, for your numbers and information, crank it through an algorithm, and spit out a pre-qualification, if your numbers pass the test. Because it is based on self-reporting, and doesn’t go in-depth with your complete financial picture, a pre-qualification doesn’t carry much weight with the seller of a home, especially a nice home in a ‘hot’ neighborhood.  Your REALTOR® is not likely to show you very many homes until you have a more substantial loan work-up done than pre-qualification.

Special note: if you cannot get pre-qualified for a loan, there are companies that can guide you through your journey to financial stability; a good lender might very well partner with a company that can help you in this way; and some lenders offer this service. All is not lost if you don’t qualify right away.

The next level is a pre-approval by the lender. This means that the lender has checked your background information, such as your credit scores from the three major reporters; Experian, TransUnion, and Equifax, has seen copies of your pay stubs, etc. A pre-approval is as far as most lenders will take you before you have a signed contract to buy a house. For the purposes of most home sellers, a buyer with a pre-approval is good enough to sign a contract with.

A few lenders will actually take you through the underwriting process before you even sign a contract to buy a house. Underwriting means a specialist has rooted through your work life, your banking and financial life, your credit history, and your related personal life enough to agree to loan you up to a certain amount of money to buy a house, providing the house you choose passes muster. Going into contract negotiations with a home seller after you have been underwritten for a loan is a strong position, provided your offer is one that makes the seller happy.

Okay, next subject is paperwork. There is a lot. I have been told, and have seen evidence,  that appropriate paperwork provides some legal protection for the following parties: 1) YOU, the buyer, 2) the seller, 3) your real estate brokerage, 4) the agent or REALTOR® looking after your interests on behalf of that brokerage, 5) the agent and brokerage on the seller’s side, 6) the title company insuring clear title on your purchase, 7) the lender, 8) the property owner’s association, if there is one, 9) the builder, if it is a new home purchase, 10) any lien holders on the property in question, 11) the government entities under whose jurisdiction the property falls, 12) any inspectors you employ to assess the property for you, and 13) anyone else who is breathing and walking, rolling, or slithering  nearby your real estate transaction. There is gonna be a lot of paperwork, and it’s my job to make sure it all gets negotiated where possible, filled out properly, and signed.

Because there is a lot of paperwork that gets looked at and signed at various points along the way from agreeing to hire a particular brokerage to work for you to completing the buyer transaction and taking possession of your new home, you must plan to be available during the time-intensive periods

Also, in this still-hot market, you must plan to be available to look at homes and make decisions in short-order. In most cases, you won’t have time to mull over a situation during the buying process; the home you want will be under contract with someone else that day. The time for big, mulling-over decisions is before you go looking at homes. Your REALTOR® can help you think through your situation and decide on your must-haves, your bottom line, and your contingencies before going into battle.

While we’re talking about going into battle, let me touch on the subject of negotiations. I have found that negotiating on behalf of a client works so much better when we all treat each other with utmost respect. I aim to be unfailingly polite and respectful, no matter how the seller approaches things- not only does it make work more satisfying, but I am able to be more successful in getting you what you need as a buyer.

Some of you have heard the opening salvo in a negotiation- the selling price on an item- and then offered a low bid, followed by going back-and-forth with the seller until you eventually meet in the middle.  In home-buying, there is an element of that strategy. However, it pays to understand the psychology of what happens with a house offer. Sellers are usually quite invested in their price and their home, and they don’t respect a low-ball offer on their prized possession. Not to mention, in this market, a lot of times the offers start at the list price and go upward from there. No, it would not be unusual for a low-ball offer to have the effect of cutting off any possible negotiation. You could end your chances before you even get started.

There are other considerations besides price. The standard one-to-four family residential resale contract has 9 pages, not counting additional disclosures, addendums, and ammendments, so you can imagine how many other points there are for a buyer and seller to agree on besides just the selling price. Your REALTOR® can help you put together an offer package that is appealing to the seller. Maybe even appealing enough for the seller to sign a contract with you!

Now you have signed a contract to buy a pre-owned home. Congratulations! Except in unusual circumstances, you will want to pay the seller an amount of money for the privilege of keeping the home off the open market long enough for you to hire professionals to inspect the various systems of your home and give you a report. You need to be reasonably certain that you know what you are getting into. The money you pay the seller for this purpose is called the “option money” and it will be a direct payment. If during your option period that is specified in the contract you decide not to buy the home, the seller has no obligation to return the option money. After all, you paid her the money to let you sign a contract, yet still spend time re-examining your future purchase, and possibly deciding against it. That keeps her home off the market for days, and could be a real liability for her.

You will also pay an amount of money called “earnest money” to show that you are indeed serious about following through with the home purchase, provided there are no nasty surprises that weren’t evident in the home after first inspection by you. This earnest money does not go to the seller; it goes to the escrow officer, usually at the title company you and the seller have agreed to use. Or, it may go to a lawyer’s office and be held in escrow there. This money is recoverable, as long as you follow all the agreements in the executed contract. If you buy the property, the escrow money may be used toward your transaction at closing. Earnest money is typically about 1% of the agreed-upon selling price of the house, but this is one of the many negotiable points between you and the seller.

In most cases, one of your expenses as a buyer will be the appraiser’s work. In a loan situation, the lender will order an appraisal by a licensed individual to give that appraiser’s best assessment of what the value of the house is. In this market, sometimes the agreed-upon sales price is higher than what the appraiser says it is worth. One of the decisions you, as a buyer, will be making ahead of the home-search process, is whether or not you can afford to make up the difference between what you contract to pay for a house (higher amount) and what an appraiser says the home’s value is (lower amount). There are also acceptable ways to provide the appraiser with information about the neighborhood and local sales that she might not have access to through standard channels when she is doing her work.

There are many expenses that a buyer will have in closing a purchase transaction. Some of them the seller might agree to pay, but many more will be your responsibility. Someone will pay for title insurance. Someone will pay title company and county recording fees. Someone will pay loan origination fees. Someone might even pay for a new survey to be made of the property. These costs are something your REALTOR® will help you grasp before you start your transaction and, if you will be getting a loan, your lender will take them all into consideration when they are looking at whether or not you are a good credit risk for them. They will help you understand the costs of closing a transaction.

Part of the transaction cost that is ultimately shared within the selling price by both parties will be paying your real estate broker and the seller’s real estate broker their commissions to cover the work done on behalf of both you and the seller. This is another reason for you to hire carefully when you hire a REALTOR® to work for you- the commission cost is not insignificant, and you want to make sure that the brokerage you hire will serve your needs to the fullest, and then some.

I know I have given you just a bare outline of what goes on from the buying side. In other posts, especially those tagged ‘buyers’, you can see more specifics that might answer some more of your questions. I keep writing these posts as a service to the community, because I know the feeling from my own pre-licensing days of being completely confused and in the dark about what was happening during my own real estate transactions. I want to shed as much light as possible on a complex and important topic.  I always welcome suggestions left in the comment section of this post, or other posts on this blog.

If you are reading this on a device other than a computer, scroll down to see links, more pages, and to subscribe to this blog by email.

Cost-savings for Borrowers

I love sending my home buyers who are planning to borrow to an in-person local lender. I love the personal touch. However, in the world of online everything, I do have a great online option for my homebuyers: Keller Mortgage. Keller Mortgage is new, and our Southwest Market Center has been the testing ground. It is licensed only in Texas right now, but will soon expand. The first loans have been closed speedily, with rates equal to, or better than, competitors’ rates.

Keller Mortgage is partnered with Keller Williams agents as a way of producing a product for our clients that is more than competitive. The business model is based on the best of the traditional lender model (talking with actual people) and the best of the internet model (very low brick-and-mortar costs because the loan center is all in one place), plus an advantage of no advertising and marketing costs. This means that Keller Mortgage is able to charge the borrower no fees AND the borrower gets a credit of $1000, which can save the borrower several thousand dollars on a closing. Other lenders may do something similar, but then raise the interest rate on the loan to make up the difference. The Keller Mortgage business model is based on a large volume of loans from the clients of its many agents, as well as the re-sale of the loans after they are closed.

Keller Mortgage is offering other advantages, too, including starting the appraisal process as soon as the home-buying contract is signed. If you decide not to buy the house during your option period, you do not pay the $450 or so for the appraisal; Keller Mortgage does. Also, you can be underwritten for the loan even before a home buying contract is signed, saving you time in the trip through the closing process. (In multiple offers, this can look good to a seller whose home you are hoping to buy!) You can be underwritten in 24 hours from the time you get all the requested documents to the lender.

I have installed the Keller Mortgage app on my phone and I can use it to help you compare rates to make a decision about which lender you are most comfortable using. If I list your home to sell it, a potential buyer using Keller Mortgage for a home loan could financially make the difference for that buyer between being able to buy at your price point or not. It is certainly something to think about.


AJ Berzsenyi of KW Mortgage explaining the company’s value for clients

Ideas For Getting Into the Home-buying Market

Hello, First-time Home-shoppers, Parents of First-Time Home-shoppers, and Friends of People Who Don’t Have a Lot of Money to Spend!

On Friday, I met with a lender for Guild Mortgage, Joani Wilson, and she gave me the run-down of Austin-specific programs and area loan types that benefit people who are figuring out how to buy a home in the hot Central Texas market.

Joani Wilson and her borrower booklet

A USDA loan (United States Department of Agriculture) has income requirements on the borrower, as well as property location requirements. This is a loan oriented toward middle-income borrowers. USDA loans are meant to keep rural areas developed and thriving, so that is why there is a property location requirement. The maps on the USDA website linked above will be your first stop to see if a property qualifies for this type of loan. 100% financing is available and the seller is allowed to contribute up to 6% of the amount of the loan toward closing costs, so a buyer could make the purchase with virtually no money up front.

There are also various down-payment assistance programs in the area, so it is possible to get into a home using various FHA (Federal Housing Administration), VA (Veteran’s Administration) , and even conventional loans coupled with the DPA program.

Down payment assistance in Austin

Hill Country Home Down Payment Assistance Program for any area in Travis County

From the website:

  • Per FHA guidelines, all homebuyers qualifying for down payment assistance with credit score of 660 or higher will receive 4% of the original loan amount to be used for down payment and closing costs, which includes lender compensation of a 1.5% origination fee.
  • Per FHA guidelines, all homebuyers qualifying for down payment assistance with credit score ranging between 640 and 659 will receive 5% of the original loan amount to be used for down payment and closing costs, which includes lender compensation of a 1.5% origination fee.
  • The origination fee can be paid by the borrower or the seller.
  • This assistance is a gift/grant and does not require repayment at any time.

Southeast Texas Housing Finance Corporation (known as “SETH”)

Right now, from the website:

  • Current Rate / Offerings Lock Rate FICO     DPA     Effective Date 
    Option 1– FHA 5.50% 660 w/6% 3/9
    Option 2a– FHA 5.00% 660 w/5% 12/15
    Option 2b– FHA 640 or 660 w/Manual UnderWriting 640 or 660 w/4%
    Option 2c– FHA w/Manual UW 640-659 w/3%
    Option 3– FHA 4.875% 660 w/4% 4/10
    Option 4a– FHA 4.50% 660 w/3% 4/10
    Option 4b– USDA-RD, VA  640
    Option 5– HFA Advantage 5.125% 640 w/4% 3/22

Texas Department of Housing and Community Affairs 

I enjoyed visiting with Joani because she is so enthusiastic about her job, and she obviously enjoys figuring out how to get people into homes.



Interesting Interest

I asked a broker friend what he thought my topic should be for this day, and he suggested that I should re-visit the extreme home loan rates of the 1980’s and 1990’s. I remember those days, so I got excited about the suggestion and here we are.

Interest rates of 20% or more sounds crazy today, but there was a time when it was reality, and we all took notice when someone found a home loan at only 18%. In a nutshell, the cause of such high interest rates was the Fed’s response to mounting inflationary pressures through the 70’s and 80’s. It kept raising the rates at which banks could borrow money, which trickled down to consumer-oriented loan rates.

The economy was not as global then. A global economy tends to keep a lid on prices because there is always someone willing to do the job or make the gizmo for less, somewhere on the planet. A more insular economy means that prices respond to internal national pressures for higher wages and more expensive products. Rising prices mean inflation. The way the Fed cooled down rising prices in the 80’s was to put a lid on the economy through making the cost of borrowing money to do business higher.

We haven’t seen the super-high interest rates in decades because, due to the different structure of the economy now, inflation hasn’t been much of a threat.

I found one blog associated with a commercial website that did a great job of explaining the 20th Century history of home loans.

In the early 1900’s, a typical loan structure was 50% down, and a 3-5 year payment on interest only followed by the entire principal due at the end of that time. Needless to say, you had to be pretty wealthy to afford a home.

summer home in walpole
Circa 1915. You needed a lot of cash to build this home!

In the 30’s, because of the Great Depression, there wasn’t much money to loan and not very many people could afford a home loan anyway. The federal government decided that more people should be able to buy homes and that this was a good way to promote the health and welfare of families, thereby promoting the health and welfare of the nation. The government gave birth to the Federal Housing Administration, which gave birth to 30-year mortgages and amortization.

Freese ranch house being built.
Home under construction in about 1940. A home loan was entirely possible by then.

The great story of mortgages and increase in homeownership in the U.S. goes on through the 70’s, 80’s, and 90’s in which the government and private institutions invented more ways to make money available to those institutions to lend to consumers. There have been perilous instruments such as ARMS and wraparound loans and subprime mortgages that helped some consumers get and keep the homes of their dreams, but created nightmares for many others who defaulted on their loans.

In times of high inflation, it makes sense to borrow money, even at a high rate of interest, to buy the most expensive house you can because the money you are using to pay back the loan is worth less and less as inflation rises. With the relatively flat rate of inflation we’ve been experiencing for some time, this strategy makes no sense, since you are paying back money that is worth about the same as the money you borrowed in the first place.

So, what’s with our gently rising interest rates now? Compared to the past, the current home loan rates of approximately 4 to 4.25% still seems pretty small, don’t they?

Here are a few more websites that are themselves a few years old that I found helpful in explaining the 1980’s that I still remember.

And, I can’t recommend enough this easy read on the modern history of home loans:

Thematic Thursday- What I Wish Buyers Knew

Thursdays are devoted to the theme- the heart of this blog- real estate transactions and all things REALTOR®. BTW, a REALTOR® is a licensed individual who belongs to the National Association of REALTORS® and subscribes to a higher code of ethical behavior than the state licensing boards require.

Whether this is your first home purchase, or the last in a long string, you can be sure that this transaction is at least a little bit different from any other you have experienced. In fact, I have fellow agents who have been in the business for decades tell me that they are still surprised by the unexpected in purchases and sales. Sometimes the curve balls come from changes in law, but more often they come from changes in practice. People are always thinking up new (sometimes unethical) ways of doing things, and the area of real estate changing hands is no exception. I am thrilled to say that I work with a brokerage that provides deep expertise from generous fellow agents and brokers who are willing to share their discoveries and knowledge with me, so if something ‘smells funny’ in a transaction, I have plenty of people from whom I can get second, third, and fourth opinions.

If yours is one of the approximately 30% of central Texas transactions that is to be a cash purchase, you have a huge chunk of work behind you already. In paying cash, you do not circumvent the range of emotions that you will feel during the course of a purchase, but you will not also be playing the waiting game to see if you AND your chosen property will qualify for a loan. Whew!

For the other 2/3rds of you who will be acquiring a shiny new loan along with your dream home, the very first action you will take is to find a great lender. A great lender is a detail-oriented individual who stays up-to-date on all sorts of loan possibilities, including even local grants (!) that some borrowers are eligible for. A great lender works for a home loan institution that is motivated to get its background work done in a timely manner, and get you to the closing table on time with the least amount of drama. A great lender is a masterful communicator who will calmly talk you through all the details of what will be required of you, and who has an eye on the clock and on the calendar to keep the process flowing.

YOU, my friend, must pay attention to this great lender and pedal as fast as you can to come up with the information, documents, proof, identification, numbers, whatever, that the lender needs in order to get your business done for you. You will have your financial life examined like you can’t believe, but a lending institution, like a doctor, has seen so many bank account records/naked bodies that yours is no surprise. Now is not a good time for you to clam up and feel all embarrassed. A good REALTOR® has a few great lenders they have worked with, and can suggest that you meet with more than one of them to make your own decision. If you are thinking about using an online lender, please check with your real estate agent to see what her experience has been with other clients borrowing through the same online lender. They are not all created equal.

Now why would I be talking about a lender before you have even looked at properties? Isn’t the house the most important part?!?!? Here’s why: in current conditions and practice in our area, a smart seller would not entertain an offer from someone who doesn’t even officially know how much she can afford to pay, and would definitely not appreciate a REALTOR® taking you into his home and possibly wasting his time. You are not a ‘real’ buyer in anyone’s mind until you have been at least pre-approved for a loan, and better still, underwritten for an amount that equals or exceeds the price of the home you are making an offer on. In many areas around central Texas, there is still a high probability that you will be competing with other buyers when you make an offer on a home. You lose if you are not prepared to move quickly in offering and in executing a contract.

If you are in the 1/3rd group who will be paying cash, your financial institution needs a heads-up to prepare a statement to give to a seller that proves you can pay for the home you are making an offer on. Some sellers might be fine with making a phone call to your institution to hear it from the horse’s mouth, but other sellers might only consider you ‘real’ if you have it in writing.

Okay, now that you have been pre-approved, or underwritten, or you have your proof of funds letter, how are we going to work together to find you the home you have dreamed of? Let’s sit down together, if we haven’t already, and sign the paperwork that puts me to work for you. Did you know that, if I am showing you houses and helping you to buy one, I am legally working for the seller, unless we’ve signed a buyer’s representation agreement? Do you really want me working for the seller? No, I didn’t think so.

Most buyers have already spent untold hours looking at houses online and driving through neighborhoods. This is fine for starters, but let me share some secrets: those beautiful and alluring websites you are probably looking at aren’t up-to-date with the latest information. Very often, a house you love has already been sold. And, please don’t, that is, DO NOT believe the automated value that some algorithm somewhere has assigned to a property. Sellers, I am talking to you, too, here! Those values can be far, far off from the actual market for that particular property.

We will set you up on a search according to the criteria I elicit from you in directed conversation and written “homework”. We will suit your needs and wants as closely as we can match them in the market. I can change the search, if you decide you want to be in a different area, or if you realize you need something a little different from what you started out wanting. The story in your head about how you live your life comes into clearer focus through the buying process, and the plot might change a bit as we go along. Perfectly normal.

Back to looking at homes- have you ever read or heard about studies on choice and satisfaction? It seems as if the more homes we find to look at, the freer we feel to make the best choice, right? Apparently, uh-uh.  Seems it doesn’t work that way. Too many choices just confuse and discourage us, even to the point where we procrastinate and don’t make a choice at all. Knowing this about the brain, we will look in the multiple listing service (updated every few minutes) at all the homes that fit your criteria: neighborhood, price, size, features, etc., and we will pick the 5 or 6 that you like best. I will make appointments to see them, one right after the other, if we can, and let you compare and contrast without brain overload.

You might decide on one that very day, and we’ll discuss the offer you want to make, and we’ll fill in the contract for you to sign and me to send over to the listing agent to present to the seller. On the other hand, after that first day of house-hunting, you might have a different perspective on what you want/need, and we’ll discuss this in a direct manner before we go on the prowl again. Occasionally, your will “lose” a house, or several houses, to other buyers who had offers more attractive to the sellers than yours was. There are ways other than more money to make an offer more attractive to some sellers, and if this is what you need to do to get your dream home, then that’s what we’ll do.

The last thing I’ll mention here is the emotional side of buying a home. Even the most facts-and-numbers-driven person has feelings that need to be recognized and handled in order to go from one stage of home-buying to the next. Real estate agents joke among themselves that one hat we wear is the therapist hat. Of course, for most of us, that isn’t literally true, but part of our job is to get you from the state we meet you in- a person without a new home- to the point at which you have closed on your home, moved in, and beyond, easing you through the myriad decisions and feelings that will come up. This is rewarding work!

Welcome home!

Mathematical Monday- FHA vs. USDA (huh?)

Mondays are numbers days here at this blog, and loans involve numbers. Lots of numbers. Here we are in lender-land!

Mike Coble held a lunchtime class for REALTORS® last week, and the topic was the financial differences between FHA home loans and USDA home loans. My two simplest take-aways were:

  1. If you have a high enough credit score and a substantial down-payment, a conventional loan is your best bet, unless you don’t plan to keep the house for very long.
  2. A USDA loan is cheaper in total than an FHA loan, and is a better deal, if you and the property qualify.

FHA loans are insured loans from a Federal Housing Administration-approved lender. In other words, it is not a loan from the FHA, but one insured by the FHA. Your down payment can be quite low, and your credit score can be on the lowish side- 620 and up.

The USDA loans for low-income buyers are loans through the United States Department of Agriculture Rural Development Guaranteed Housing Loan Program. All USDA loan types are restricted by area, being intended  to keep rural areas developed and inhabited, so you must check to see if a property is eligible for this loan type. USDA also insures loans through approved private lenders much like the FHA does. Your credit score needs to be 640 and up, but you can put no money down at all to get the loan. A third type of USDA loan is for home improvement.

The FHA loan is restricted in amount. For example, in Hays and Travis Counties, the largest base loan amount you can borrow is $361,100, and in Blanco County, it is $275,665. The USDA loan amount is not restricted.

On the other hand, the USDA loan is restricted by family incomeFor example, a family of one to four members can get a USDA loan in Hays County if the annual family income is $89,500 or less. In Blanco County, the same family is eligible if its annual income is $80,950 or less. The FHA loan has no income limits.

With a conventional loan, the lender requires the buyer to pay for private mortgage insurance against the day the borrower defaults, but that mortgage insurance payment goes away when the borrower has paid down the loan a certain amount. An FHA loan requires an upfront mortgage insurance premium, which can be rolled into the loan amount, and it also requires a monthly mortgage insurance premium payment. The circumstances under which this insurance is no longer required are restricted, so those payments will probably stick with you like a bur. The USDA loan has a one-time payment called a ‘funding fee’, which can be rolled into the loan. In other words, if you are getting a $300,000 USDA loan, a 1% funding fee will make your loan amount $303,000.

Just because… you know… rural… deer… country properties.

As always, I welcome suggestions for topics you’d like to see covered in this blog. Just leave me a comment, or, if you see this on Facebook, leave a comment there.