Does it matter how you obtained the money you have in the bank?

Yes.  One of the considerations of the lender in determining whether or not to loan you money, is whether or not you can afford to repay the money.  Let's say that your current rent payment is $1,000 a month, and your new housing payment after you purchase the home is going to be $2,500 a month,  The lender will be looking for some proofs that you can afford to pay the $1,500 increase in monthly housing payment.

You have 10% for the downpayment to purchase the home at $350,000 ($35,000) and you have the money to pay your closing costs ($6,500) and you have the income to support the $2,500 a month ($85,000 a year) and you have little or no debt payments.  On the surface, everything looks good.  Now the lender wants to see 12 months worth of bank statements, including the statements for the account where you have the $41,500 or so that you are using for the downpayment and closing costs.

Everyone seems to know that the lender needs bank statements.  But they don't stop to think about what the lender is doing with those bank statements.  Ideally what the lender is looking for, is that you have accumulated the $41,500 or so that you are using to pay for your downpayment and closing costs on an equal monthly basis over time.  Since your new housing payment will be $2,500 and your current housing payment is $1,000, it will be obvious that you can handle the new, higher payment, if you are consistently putting $1,500 into your savings account.  If they look at your bank statements and see $1,500 transferred from your income to your savings account for over two years, and that is how the savings account grew to be $41,500, then that is proof that you can afford the new,higher payment.

If however, the bank statements show that you had no money left over every month, and the $41,500 you have in hand came in all at once last week, that is a big red flag that you really cannot afford to pay $1,500 more a month on a housing payment.

That does not mean that you cannot get a loan if the $41,500 was an inheritance or bonus.  There are many ways to get around lending standards  But whether or not you need to prove to the lender that you really DO have an extra $1,500 a month, you should prove it to yourself.  For some period of time before you purchase a home, pay your rent of $1,000 a month and put $1,500 a month into your savings account.  This will not only help with the loan process, but it will help you prove to yourself, that you are willing to live with the trade offs in your life, associated with a $2,500 a month housing payment.

Until we identify the house in question, I cannot firmly determine who will be paying the closing costs.  But in the $300,000 give or take price range, many, if not most comparable sales, would have had $6,000 or so in closing costs paid by the seller built into the price.  Consequenty, for valuation and negotiating purposes, it will likely be best for Adrianna to request $6,000 in closing costs from the seller in her eventual offer.

Before we get to "cash TO close", let's talk about cash BEFORE close needs.  At time of offer, an Earnest Money deposit of $1,000 or $5,000 or $10,000 will be in order.  The more you like the house, the more certain you are that "This is the ONE!", the higher the Earnest Money deposit.  Since the downpayment is expected to be $30,000 to $33,000, an Earnest Money deposit is simply and advance against the downpayment. 

On the one hand, if there are any doubts about the house you should maybe try to get away with $1,000.  On the other hand, $1,000 sends a clear message that you may have doubts about the house.  It's a catch 22. 

Besides the Earnest Money Deposit at time of offer, there are two other out of pocket expenses before you close on the house.  One is the Home Inspection fee which is about $400 and the other is the Appraisal Fee which is also about $400.  Possibly $900 for both.  These monies are gone, once spent, whether you buy the house or not.

Next we will examine how much of the total cash to close is expected to be met by the $6,000 requested of the seller in the offer.  Let's see if Adrianna has any questions regarding this part before we move on to the costs at tome of close.

I had the great pleasure of meeting Mr. and Mrs. "Adrianna" this weekend.  For me the first step is deciding whether or not I want to work for someone, rather than vice versa.  I don't really spend any time trying to "win" someone's business, which seems a bit odd.  I spend all of my time figuring out if I can help the person in front of me achieve their objective, and with a couple I do that two times, separately.  I quickly evaluated that I could meet Adrianna's objectives and shifted to Mr. Adrianna.  Mainly because I will likely communicate with him less during the process, and wanted to take advantage of every minute I had with him in my presence.  What we talked about is somewhat irrelevant as I am testing many things, reading between the lines, and not taking notes about houses.  I am trying to figure out what will make them happy, not what they want.

Clearly they are both wonderful people and I would be proud and honored to assist them in achieving the goals of their family.  So I am finished with the "evaluation" process.  I do not ask if they choose me, as for a buyer, that process is not a 2 hour interview.  It is an ongoing process.

We touched on commission issues.  I told them that I would not hold them accountable for any portion of my fee that is not covered by the mls offering. Given their choice of housing is widespread geographically, and offers challenges to get a good value and a good home, I told them that the commission at 3% is a break even for me, given their price range.  If the seller offers less than that, I am willing to live with that, but it is not likely that will happen.  It's a bit of a gamble on my part, and if the best house for them equals a loss for me...that's OK.  I'm willing to take that risk in this case.  It is also not likely that the seller will offer a commission in excess of my break even point.  So we can proceed without much discussion regarding commissions in this case.  The anticipated sale price is $280,000 to $325,000, with the expectation at $300,000.  The timeframe will likely be anywhere from now through March, so it could be a five or six month effort.  Negotiating down from $9,000 or so, for five or six months possible to end, is not appropriate.  We all agreed there, as far as I could tell.

So how do I feel differently about housing options now that we have met in person?  I think a house like the one above is likely the best choice for them.  Shoreline, Kenmore, Lake Forest Park or Finn Hill.  Townhome is in the mix, but back burner, option.  If I see something great in a townhome or single family attached, I will clearly introduce it into the picture.  But I think the bogey is more like the house above and below, that sold in their price range.

So here are my questions for Adrianna.  Take a hard look at the house shown, which is SOLD by the way, as it seems to me to be a good example of what would make you both happy. Positives:  Better schools, three bedrooms, newer roof, garage, needs little or no work, huge flat lot.  Negatives: one car vs. two car garage, you need to drive to the bus, only ONE bathroom, wires attached to home, no sidewalks or pavement

My perception is that this huge yard is worth the trade off of only one bathroom.  You can add a master suite at some point and greatly increase the value and serviceability of the house at some point in the future.  It would make this 3 bedroom 1 bath house at just over 1,000 square feet, into a 4 bedroom 2 bath house with a master suite, and you would get every dime of your investment back, and then some. 

The cost of the addition is not great, given it is a one level house on a flat lot.  In fact, you could likely do the addition within the next two years, after the dust settles on getting acclimated to your new neighborhood and the new schools for the kids, and you get into a better routine regarding commute.  I'd say spring 2008, you can add the master suite and have everything you could ever need in a home.

The house is in move in condition already, with gleaming hardwood floors, no work needed anywhere, even the kitchen and baths.  It should be an easy transition and a comfortable life style.  This particular home was on a corner lot,  Better if it was an interior lot...so we would be looking for a house like this, but not on a corner.

So the big questions for Adrianna are, can you make do with one bathroom for awhile?  I can find everything else, but likely the end result will be a three bedroom one bath rambler, on a large lot with better schools, and a one car garage.  Next question is, Shoreline vs. Lake Forest Park, vs. Kenmore or Finn Hill Kirkland.  Up and around the Lake (Washington). Are these four areas equivalent to you?  Shoreline Schools, Northshore School District, Lake Washington School District on the Juanita side.  Not sure what schools are in Lake Forest Park.

Tell me your preference of area after figuring in schools and commute issues.  Rank the neighborhoods shown.  Don't do it separately.  Don't say "I like Lake Washington Schools best, BUT I like commute from Shoreline better."  That doesn't help me.  I need you to combine schools and commute, and rank based on both considerations.

If you could pick a time that would be ideal for you to close escrow, when would that be?  Too soon seemed to scare you.  If you could close on November 15th, would that be too soon?

A good start in the right direction.  One last question.  If you could live ANYWHERE, where would it be?  That would bring in townhome option.  If your favorite  place to live, does not equal  affordable single family options, then that is where I would look for other options.  We should not overlook your ideal place to live, just because it changes your option from single family to townhome.  You can decide between that area in a townhome vs. a different area in a single family home on a case by case basis.

If you can choose the very best school option, I can pinpoint homes that are not currently for sale.  So narrowing down school choice is "Mom's" job, and important to getting to the next step.

Our first house was "my" house.  Near my Mom.  Just the right size. In a cul'de sac In a neighborhood I knew, where I could walk around and even walk to my Mom's if I was feeling energetic.  Down the street from the church.  Around the corner from the hospital.  I thought I'd live there forever.

On our first vacation we were sitting on the beach, and my husband started talking about our first single home (vs. a "twin") and I was amazed that he was already thinking about moving.  The house was just getting to be "our" home with the changes we were making.

Our second house was "his" house.  I was panicked at the price and payment.  I even went to the minister and said "I think I'd rather have a divorce than a $100,000 mortgage!"  It was across the bridge in NJ from everyone I knew.  It was gorgeous and big on a half acre, but too much for me to handle with three little ones and a full time job.  I finally freaked out and we sold it.  (I switched to real estate then, before I sold it)

Our third house was a transition house that wasn't really suited to us, but the kids really liked it.  I insisted we qualify on his income only as I had a 4 year old, a 2 year old and a 6 mo. old.

Our fourth house everyone liked and was in the same neighborhood as the third house...

It's why I never forget that when I am working with a married couple, I have two clients and not one.  Best for everyone to like it.  OK if one likes it more than the other.  But not OK if one compromises too much and isn't comfortable in their home.