Le Bébé, C'est Un Garçon

At the mid-pregnancy anomaly ultrasound scan, we had the option of finding out what gender our baby is. Instead, we decided to have the midwife call someone that would make us the delicious "gender cake" seen here.

In lieu of a full-blown gender-reveal party, we did the revelation with our Bible study small group. Blue cake means it is a boy! We have thought it might be so all along (from how easy it was to agree on boy names), until I switched votes over the last couple of weeks. I suppose you really cannot trust dreams; two about a baby girl using some names on our shortlist was enough to convince me. Either way, we are very excited to finally start using "him", "he", or "son" in reference to the baby.

His mother is in her 23rd week at this point and doing well. True to form, the 2nd trimester has been calm. In 125 days, we look forward to welcoming this little boy home. For my Ugandan family, I hereby present a Baluku (which will become his middle name). I know this was the expectation, par tradition.

We do not have any first/given name for him yet, but we have a shortlist of 6 boy names from which we will choose just before birth.

House and Loan Match-Ups

In the course of searching for a home, you will begin to compare and match the different house and loan options at your disposal. We considered about 11 houses and 5 loan offers, and needed to find the best financial match (numbers only). It can be mind-boggling to keep mental note of everything, but that's what computers are for. So I added a feature in our financial app to do the match ups and analysis.

Below is an example of one such analysis. You can review how much money you must have on hand to close on a particular house with a certain lender. Don't forget to account for earnest money, inspection fees, and appraisal fees, which are paid before closing. The lender's GFE might not include these fees. After closing, consider any penalties for breaking your current contracts, moving costs, and stuff you must buy for the new home during first few months, in addition to your usual monthly expenses.

For the houses we considered high possibilities and loans we found reasonable, we entered that data in the application. We could then pair up any house and loan to see what the numbers came to, given a certain down payment. Most importantly, we wanted to know how much money we'll have spent by the end of the first month in the house, and ensure that it would be available when we make an offer.

I did not have enough time to complete the feature, but I had intended to further implement active analysis, where the application would also consider our house requirements and our weighted observations from house tours to help us determine the best value. It would consider our funding sources and monthly budget (since we track them in the application) to give us a rough estimate of our financial picture over the first year. It would obviously exclude current rent and make informed adjustments to utilities and gasoline costs to produce an good estimate. I think it would have been a cool feature. Apparently a weekend is not enough for this kind of work.

What We Want In A Loan

I do not understand why a mortgage is considered a hallmark of the American dream. It is essentially debt, with your very house as collateral to the banks until it is paid off many years down the road. To measure economic progress by how many people have mortgages is foolish; rather, we should be counting those that fully own their homes, having paid off these mortgages!

As much as we hate debt, we decided this was "good debt" that would help us get into our own home, rather than continue to bleed thousands in an apartment situation. So after finding a realtor and starting the search for a home, we also began looking for a mortgage lender. Some rules we followed that made it an easy process:

(1) Ensure you have an excellent credit score. Ours range from 760 to 790 from all 3 credit agencies, mostly built through a credit card we pay off every month. This was good advice from a friend when we first got married, that we should start building credit at least 2 years before planning to purchase a home.

(2) Ensure a low debt ratio by minimizing other debts you have (or earning more income). We practically have no debt except the revolving credit card mentioned above.

(3) Educate yourself about how mortgages work, and choose the right one for your situation. We chose a 30-year fixed conventional loan. We'll be retiring empty-nesters when this loan is finally paid off, but we plan to try and pay it off in less than 20 years.

(4) Aggressively save for the down payment, if your loan requires it. We started saving about 2 years ago, intending to pay 15% or even 20% down. Some lenders offer different interest rates depending on what bracket of down payment you fall in (5/10/15/20%). Most lenders have a flat rate regardless of the down payment, but will instead have steeper PMI rates.

(5) Know how much your monthly expenses are, and what proportion is currently spent for housing/rent. We have the data of all our spending over the last 2 years, so it was easy to see what our reality is. We spend about $1200/month for rent in this apartment, which is our psychological upper limit for a mortgage payment.

(6) For the houses you are considering, have an idea what the property taxes were last year. The MLS listing usually provides this data, but you can also query the county assessors. The houses we've been interested in have ranged from $800 - $1300/year.

(7) For the houses you are considering, also know about how much annual home insurance you might expect to pay. A quick way to determine this is to multiple the house list price by 0.0051 (statistical estimation of data from 3 insurers on 5 properties).

(8) Find a reputable lender. Whoever you contact, make sure you ask for an estimate and pre-qualification, giving them your credit scores to use so that you don't divulge too much personal information upfront. You also don't want too many hits against your credit at this time. But know that whichever lender runs your credit must send you a statement showing the FICO scores they pulled and used to determine your terms. So let one run it and furnish it to other lenders.
Online and out-of-state lenders are just as good as banks and local brokerages since everyone eventually sells your mortgage to the government. Until a week ago, I was considering a lender from North Carolina that I found online but eventually decided to go with Ent Federal Credit Union, who actually finance their own loans.

(9) In terms of who offers better deals, the order is such: credit unions, direct lenders, mortgage brokerages, and finally banks. Ask around and read the reviews about any institution you feel interested in. It is true that there are scams and bait-and-switch situations out there, so be very discerning. It look me 2 weeks to decide on 5 good lenders.

(10) With the house list price, property taxes, homeowner insurance, and desired total monthly mortgage payment, you can crunch the numbers on how much loan you can afford. We started our search thinking we could afford a $250,000 home but through this exercise settled in the $230,000 or less range, with a 15% down payment.

(11) When you speak with a lender, you want to know their 0-point interest rate for each of the down payment brackets, and their mortgage insurance rates for each down payment bracket. With this, I initially judged a good loan as one that has the lowest payment (P+I).

(12) If you additionally consider closing fees (excluding all title fees, processing fees, and appraisal fees) and the lender's escrow requirements, the best loan may be one with the lowest out-of-pocket at closing cost. ENT has high closing/origination fees (around 1% of loan value) but offers some of the lowest 0-point interest rates. Direct lenders have no or little closing fees beyond the usual processing charges.

(13) Take advantage of rate buydown, where you pay a certain percentage of the loan value (called "discount points") to have the interest rate reduced. A low interest rate translates to low monthly payments, so if you can afford the upfront cost, you get a better deal in the long run. Besides, this pre-paid interest is tax-deductible. The law allows up to 5% of loan value in discount points, or the loan is considered "high-cost", which is governed by slightly different rules.

(14) Keep an eye on national interest rate trends. The rates change on Mondays and are the same the rest of the week. Some lenders can offer you a rate lock-down, but it might cost you: they will run your credit and do some underwriting. Even so, the lock lasts anywhere from 30 to 45 days, and depending on the rates when the lock expires, it may be extended.

I noticed a strange correlation between how high the Dow Jones opens on Monday and whether mortgage interest rates will change. If the markets open considerably higher, it is very likely that mortgage interest rates will go up that week. So I requested my rate lock last week after 2 consecutive big opens on Wall Street. No science to this practice, but I might have scored.

We locked in at the bought-down rate of 3.875% (1 discount point), which put our monthly total mortgage payment anywhere between $1000-$1100 (including principle, interest, mortgage insurance, property taxes, and homeowner insurance) for the few houses we are interested in. This is obviously less than our current apartment rent, so our overarching goal is achieved. As a matter of good faith, I requested a counter-offer from the other lenders I was considering, and none could beat it. So we rest this case.

What We Want In A Realtor

Or simply a Real Estate Agent (REA), since "Realtor" is trademarked and reserved for agents that are affiliated with the National Association of Realtors (NAR). Although you can probably conduct a house purchase yourself (especially if you work with a builder directly), the American standard is to employ the services of a REA when buying a home.

Finding a REA is no science; most people find agents through recommendations of friends and family. Perhaps the most important things to us about the agent were that they had appreciable experience helping in home purchases, and that we got along and could trust their word. Being first-time homeowners, we were green about how it all works and would need patient hand-holding and guidance. We started searching for a REA in January initially intending to engage 2-3 agents, each specializing in one of existing homes, new construction, or short sales. We would not sign exclusivity contracts until we were ready to make an offer on a property they showed us. When we interviewed the agents, we also let them know we'd fire them if we were not satisfied with their services, even if they were our friends.

Here is a set of expectations we used to evaluate which REA we would go with:

• Obviously do the usual agent duties professionally: arrange for us to tour properties, provider us with seller information, negotiate the sale, manage the paperwork involved in the purchase process, and guide us towards a smooth closing, etc.
• Be able to assess any houses we consider like a buyer would, but also help us understand what the seller might be thinking, and anticipate any problems that could arise with the property.
• Know the neighborhoods we are interested in well, including zoning codes, trends, regulations, and developments that may affect us if we lived there.
• Understand what kind of house we want and steer us away from ones we will not like, even if they initially match our criteria. But also be able to suggest homes we might like based on (but not limited to) our search criteria.
• Provide us access to additional MLS data beyond what Zillow.com and Trulia.com already show, and be able to consider suggestions we provide outside that scope. Provide us with comps (comparisons of similar homes in the neighborhood).
• Be available by phone or email when we need them, and provide prompt/clear answers when we have questions. Be prompt, meet deadlines, and follow through on promises made.
• Not a "dual agent" on properties we are interested in or that are suggested to us.
• Have a couple of recent references we could contact to hear about their experiences with the REA.
• Be licensed (see www.arello.com, for a license number and info), belong to active trade associations, and have additional certifications.
• Work full-time as a REA, and be able to work with us personally throughout the process instead of pushing us to assistants and junior agents. Not too busy to attend to us, although they likely are working with other clients simultaneously. In other words, able to make time for us such that we feel we are their only client.
• Been doing real estate work for at least 3 years and closed on at least 10 transactions in the past year. At that, we wanted to know how many transactions were with first-time home buyers.
• Experience selling or buying homes in our price range, and not steering us towards a different price range than we have already established. In fact, also don't push us towards certain neighborhoods and kinds of houses.
• Have a good process for purchase, closing, and followup that is easy to follow.
• Able to suggest tips for saving money during the purchase, such as getting the seller to pay your closing fees, or concessions that would help ease life in the home.
• Tell us the whole truth, be honest, personable, well-spoken, and considerate. And patient since we would be pains to deal with.

I considered 5 real estate agents and ultimately decided to work with Acquire Homes, Inc., which is operated by a friend of ours. Yes, the conventional wisdom is to avoid working with friends in such business transactions, but we felt the risk was too low in this case. In a span of 5 weeks, we only visited 11 homes and are hoping to own one of them soon.

The Insurance of Lives

Whether we like it or not, our lives have a 100% mortality rate. Many of us avoid talking about end of life matters as if it'll never happen, but I think it is wiser to settle that issue while life is still on the upswing. The topics of discussion are many, including estate wills and medical directives, but the simplest one is about life insurance.

A few years ago when we considered term life insurance, we decided it was not necessary at that time. If either of us were to kick the bucket, the other would be okay financially at salaries we earned at the time. We had saved up enough to cover reasonable medical (beyond health insurance) and funeral costs, and did not have any other long-term commitments that needed the assurance an insurance payout would bring.

Then everything changed, with expectations of a mortgage and a baby later this year. We felt it was time we carried life insurance as a safety net because those two long-term commitments would be difficult to handle alone should either of us not be around. We didn't want a huge policy; we figured a good policy should be just enough to pay off the mortgage and provide replacement income for up to 5 years. The raw number comes to about $375k (that is, $192k mortgage + 5x12x$3000 budget) per person. But that also means $50/month ($100/month total) for a 30-year policy, which we felt was too much.

Eventually we settled on a slightly smaller policy through Primerica that allowed us to pay $680/year for two 30-year policies (one on each other). It'd be sufficient to cover the remaining mortgage balance and at least 1-2 years of replacement income. Of course, as we build equity in our home through monthly mortgage payments, more money would be alloted to replacement income. We think it is a good plan for basic coverage.

The biblical imperative: "A prudent man foreseeth the evil, and hideth himself; but the simple pass on, and are punished." (Prov.27:12). It is the imperative to prepare for the future and leave an inheritance for your family (loosely Prov.6:6-8, 2Cor.12:14c, 1Tim.5:8), and life insurance is one small way you can do this. The loss of a loved one is hard enough, but it's worse with an additional financial burden.