Whether it’s their first home or their fifth, a lot of home buyers are excited about searching for their new home. It’s a momentous occasion. It’s also one that tends to be split into all the various financial considerations and the personal passion for a place you can truly call your own. You need to work to optimize your credit rating, minimize your interest rate, find mortgage terms that make sense for our household, and, of course, do all your due diligence on the property itself. It’s like buying a car, starting a retirement fund, trying to do your own taxes, and getting an X-ray of your spending and saving habits all in one.
You’ll probably also be subjected to any number of blogging experts, friends and family, and banking reps telling you to do your research and carefully plan. You need to remember, you’ll be told, that your home is going to be your biggest financial asset—often by a large margin.
And the lion’s share of this advice is true, more or less. But here’s the thing: For most home buyers, it’s not that we don’t understand the weight of the decision or the importance of gathering as much information as we can before making a home-buying decision. Rather, the central problem is that it’s logistically implausible to do all the necessary background research. Not only is the home buying contract several pages of dense legalese in which, for example, realtors in training routinely sit through four hours of instruction on the first page, but if you’re working with a home lender, you’re likely to have a crush of reporting requirements for financial information and form-based documentation. Simply keeping up with the bare minimum of this paperwork as well as the bare minimum of, you know, life—well, it doesn’t leave a lot of time for reading up on the fine, fine print. Deep research about contract ambiguities and the role of third-party vendors, especially property mortgage insurance, is not in the cards for the vast majority of home-buyers.
Realtors and Home Loan Officers
It’s easy to think that these problems are solved by working with a knowledgeable real estate agent and a home loan officer you can trust. But it’s actually much more difficult to find these types of professionals than you might think. Word-of-mouth and online reviews can be manipulated and obfuscated, but even the standard services offered frequently leave much to be desired. If the realtor is put to sleep by the hours of lecturing on the first page of the home sale contract, how much are they going to know about the rest of the document? Whether it’s clearly communicating the risks of adjusted rate mortgages or updated rules about mortgage insurance, home loan officers don’t always seem to have your best interests at heart or else are ill-informed by those who actually write and enforce the rules.
Real Estate Market Realities
I’m not saying that home lending institutions are infallible—lolz, tears, lolz. Even apart from their role in the Great Recession, it’s not difficult to find stories in which real estate investors and other actors find ways to exploit the legal code to their own benefit and at the expense of the lending institution. But it goes without saying that this isn’t the experience of the typical home buyer.
Or, at least, I wish it went without saying. I’ve had more than a few friends and family members go through the home buying experience and, almost without exception, their responses were cynical in attitude and/or bitter in mood:
- “We made $40k on our home and thought we got out at the top of the market at the time. Little did we know. Still, we feel really fortunate with the place we have now. It’s a rental at a great price, and now we’re not letting our housing dollars go to a big bank.”
- “We got a favorable appraisal and the market continued to surge. Our realtor, our home loan officer, and every online source at the time talked about getting the property mortgage insurance removed when the loan-to-value ratio hit 78 percent. So when our market analysis hit that point we made the request. We got a letter in the mail saying that the PMI was ineligible for removal during the first two years and required a 75 percent loan-to-value ratio during the first five years. Which okay. Whatever. But at least tell me so I know what’s what. We went through everything else with the purchase of our home, why wouldn’t we also talk about the terms of the property mortgage insurance?”
- “I made an appointment and cleared my schedule to meet with the home loan guy from the bank. I went to the appointment with a tape recorder so I would be able to go back and reference everything that we talked about. We went over a bunch of stuff, so much so that it was impossible to keep track of it all. It seems like, at some point, you just have to take it on faith.”
And therein lies both the problem and the answer for the typical home buyer. One of the most important financial decisions of your life hinges upon doing the best you can to make a well-informed decision, but even then, it’s all too easy to overlook something that threatens to harm years of planning and sacrifice. It’s also another lesson in why homeownership is best when the focus is on the experience and long-term financial potential, rather than any short-term accounting gain.