Building a new house in Palo Alto

Building a new house in Palo Alto

Wednesday, December 14, 2011

Making an all-cash offer and getting a mortgage



One of the first rules of buying Palo Alto real estate is cash is king. For our bid, we made an all-cash, no contingency offer with a three-week close.  Because so many things can go wrong with a mortgage, sellers prefer buyers who can simply plop down the cash and close the deal quickly.  Sometimes they will accept a cash offer even if it's not the highest bid.  Unfortunately, this was not the case for us. There were five offers on the house and three were all-cash.  The sellers ended up giving us a counteroffer 10K above our offer price which we gratefully accepted.  We then started hustling to find a loan.  With rates being at an all-time low, we decided it made good financial sense to carry a mortgage.

For our last couple of loans, we've used a broker, whom I affectionately refer to as the Mortgage Nazi. She's a shrewd Chinese tiger mom who has terrible customer service skills, but always manages to offer the lowest rates with no closing costs.  The experience leaves something to be desired, but as the person who referred her to me advised, "If you want to save thousands of dollars, call her, if you want to feel good afterwards, spend $200 and go to the spa."

When we decided to buy the house in Palo Alto, I gave the Mortgage Nazi a call.  It went something like this:
Kay:  Hi MN, we'd like to buy a home and want to get a loan.
MN:  How much?
Kay:  The maximum amount we can get.
MN:  How much you make?
Kay:  Well, I'm mainly consulting these days and...
MN:  No job?  No mortgage for you!
Kay:  But I can pay with my LNKD stock.
MN:  Doesn't matter, you no good.
After a little bit of begging, she conceded that we could get a mortgage if we put it in my gainfully employed husband's name only.  However, we encountered the next hitch--getting it done in time for the close.  None of the banks could close the mortgage in less than three weeks right before Thanksgiving.  No problem I said, we can pay cash at the close and get the mortgage afterwards.  But that was no good either.  In order to qualify for the lowest rates, it has to be a "new home loan" which means it needs to be done by the close of escrow.  Doh, no mortgage for us.

That's when our real estate agent, Erika recommended we call Derrick Yee at First Republic (dyee at firstrepublic.com).  Derrick had helped another one of her clients qualify for a mortgage despite being self-employed (quite a feat given how much lenders hate entrepreneurs).  First Republic is a private bank that actually uses common sense in qualifying people for loans.  They don't just look at your pay stub, they look at all of your assets when determining whether you can afford a loan.

When we described our predicament, Derrick not only said it wasn't a problem for them to do a mortgage post-close of escrow, but he also called his buddies at other banks to see if anyone could give us a loan in time for our close.  While First Republic was able to offer the same rate before or after close of escrow, the main disadvantage of getting the loan afterwards is that you have to pay certain title fees twice, amounting to approximately $600 in additional charges.  Hoping to avoid this, we decided to keep looking.  Derrick managed to find us someone at Wells Fargo who thought they could turn it around before our close date at a similar rate.  In the end we decided we didn't want to deal with the stress, so we went with the loan from First Republic.  Derrick's unprecedented customer service and their super competitive rates made it a no-brainer.

In the end, we (the loan is in both of our names) are getting a 15-year fixed rate jumbo mortgage at 3.45% (3.6% base rate plus an additional discount of 0.15% for the entire loan as long as we keep a 50K balance in a First Republic checking account for two years).  They also have additional discounts if you put more in more (0.25% for 100K and 0.35% for 150K).  Side note: When I called the Mortgage Nazi to ask if she could match the rate, she said no and recommended that we take it.  That's when I knew we were getting a great deal!

[April 2012 update: We ended up lowering our mortgage rate to 2.9% by putting our funds for the construction of the house into a First Republic bank account.  We'll drain those funds in the next 12 months but we'll get to keep the low mortgage rate for the life of the loan.  Sweet.]

I generally find corporate mission statements to be quite hokey, however I really believe that First Republic has lived up to everything in their promise to "change the way you feel about banking."  This is the first time I've left the mortgage kitchen without needing a spa appointment.  Woohoo!

[Dec 2011 Update:  Many of you have requested Derrick's contact information.  He can be reached at: 650-470-8859 or at dyee at firstrepublic dot com.  Many of you have also asked whether I'd recommend the Mortgage Nazi and the answer is yes!  If you meet her demands, she may be able to get you a great deal.  Send me a note if you'd like her contact info.]


7 comments:

  1. I work for a mortgage company right now (Hawaii's Premier Mortgage Company - on Maui) as their Social Media Director. My hope is that we'd get a blog post similar to this on how our company goes above and beyond to help our clients :) Nice post and great for Derrick :)

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  2. I don't think you would have had to get the title insurance twice, even if you had to get the mortgage after close. There are two types of title insurances: lender's and owner's. You wouldn't have needed a lender's insurance if you had paid cash. Owner's insurance is optional and lasts as long as you own the house and wouldn't have to be re-issued when re-financing. And I believe it's customary for the seller to pay for the owner's insurance in Santa Clara County.

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  3. Hi Kay - did First Republic insure your construction funds since I'm assuming they were over the $250k FDIC insurable limit? Or did you not care about that?

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    1. Hi Margarita,
      That would be a great question for Derrick. As for us, we weren't worried about it since the funds will be there for less than a year and if First Nationwide goes under, we'll just stop making mortgage payments. : )

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