Ocracoke Real Estate: The saga of a first-time homebuyer
I have been so excited for my first-born child this week. Each
milestone as you watch your child grow is sure to set off fireworks
inside a proud parent from the very first infant smile to school
On Friday, February 25, Soren became a first-time homebuyer! I must
have texted this “Yahooo!” message 10 times over the course of his
home-buying adventure, from the loan approval, to the signed contract,
and finally the closing.
Spurred by the government program that gave first time homebuyers an
$8,000 credit, his journey started over a year ago. With the credit as
a carrot, Soren started searching the websites offering homes for sale
in his market of Virginia Beach. The architectural characteristics of a
property plus the number of bedrooms, the neighborhood, and the option
for a garage were all important factors under consideration. And so the
dreaming began. I loved getting the emails where he linked me to the
MLS sites of the houses he was considering.
As a real estate agent in a resort community, I have really only worked
clients who had enough discretionary income to afford a second
home. Owner-occupied home sales have been rare for me. I had a general
idea of my son’s income level and advised that a wise first step was to
get qualified by a bank. There is nothing like the scrutiny of a bank,
to bring a prospective buyer back down out of the clouds. The good news
was that within Soren’s circle of friends, he found a trusted banker
and a real estate agent with whom he could work.
Through Soren’s loan qualification process, I learned a few interesting
His job produced a 1099 at the end of the year instead of a W-2. The
bank used a more stringent formula for qualifying the potential loan
amount because of his 1099 status. This type of employment describes a
category in which the individual is contracted to perform certain
duties and can write off his expenses against the income. The
individual assumes the responsibility for paying all of the Social
Security, Medicare, and state and federal taxes. The bank looked at the
income after expenses rather than the gross. Consequently, he qualified
for a smaller loan amount.
This house buying process took more than a year. He missed the
opportunity for the first-time homebuyer’s credit. In the meantime, two
good things happened. First, his employer switched him to W-2 labor, in
lieu of a raise. This type of employment is one in which the employer
takes half of the Social Security, half of the Medicare, and all of the
state and federal withholding taxes, out of the employee’s pay. W-2
labor requires the employer to pay the other half of the Social
Security and Medicare. It is actually a great deal for the employee.
With this switch in the type of labor, the bank used the gross wages on
his W-2 and he qualified for a larger loan amount. I checked in with a
favorite banker for more explanation on the loan process with a 1099
versus W-2 as proof of income. The bottom line is that the bank looks
at the pre-tax dollars that the applicant has to work with. A 1099 and
a W-2 both indicate a gross amount of income, but the bank will look at
two to three years worth of expenses to get an average for a 1099
laborer, to deduct from the gross, before it can arrive at the pre-tax
Soren is very lucky to have a Dad who was a contractor and a plumber
and is currently a home inspector, energy auditor, mold tester, and
Soren would look at the house and the neighborhood, decide if this one
was the “one,” and the next day, Dad was called to do a home inspection
on the house.
Soren was able to submit an offer without requiring it to be subject to
a home inspection. In a regular real estate market, the waiving of the
home inspection simplifies the negotiations and helps it sail through
Even with this inside track, Soren ran into a number of peculiar road
blocks. With his initial loan qualification, he found a postage stamp
of a house on a nice lot in a very decent neighborhood. His first offer
was lost to a higher bid. Developers, watching this declining market,
could swoop in fast and secure the good stuff in Soren’s price range.
Another contract was lost when the seller went into foreclosure. He
must have been teetering when Soren’s offer was submitted. Once
foreclosure proceedings start with a bank, the door is closed and you
might as well not wait.
My conversation with a favorite banker yielded a clearer understanding
of just how complicated the banking system has become. When loans are
made, they get bundled and sold to investors. Many of these loans will
be re-bundled and sold again.
Consequently, when the mortgage holder runs into trouble, it is
difficult to find the owner of the mortgage to re-negotiate the terms.
The banks that made the loans were not prepared for the deluge of
people in trouble. There is just so much work to be done to attend to
every troubled mortgagee.
Along the same lines of the foreclosed seller, the third contract was
lost when the bank chose to take the house to auction rather than
entertain Soren’s offer. I think that the banks have created three
grooves within which to work: short sale, foreclosure and auction.
The second bit of luck over this long process was that the market
dropped even more. As Soren’s ability to borrow a little more principle
grew, the prices went down. It was hard for him to see how these price
drops were going to work for him. Even with this buyer’s market,
imagine the frustration of having submitted three offers to purchase
and having asked Dad to inspect three houses and losing the option to
buy three times.
The frustration was mounting, and Soren periodically caved into
despair. After hundreds of Internet MLS searches, drive-bys, and house
viewings with his agent, he felt like it was never going to work out.
When he started looking, I had recommended that he confine his search
to single family dwellings as opposed to town homes and condos. My
rational is that the Tidewater area is flooded with condo and town home
projects to accommodate short term military residents. Soren’s father
and I had purchased a brand new condo around 1990. When we wanted to
sell only three years later, there were more brand new complexes that
were selling in our range or lower.
A seller can’t compete when the buyers have so much from which to
choose. Soren’s greatest chance to maintain his investment was to go
with something that a young family or single person might consider as a
starter home. This is a guaranteed pool of buyers. There will always be
a rising segment of the population that leaves the apartments to have a
little patch of land to call their own.
In his state of despair, Soren would lapse into scanning the condo
options one more time. And I had to butt out.
Dashed hopes were everywhere until Soren uncovered a three-bedroom,
two-bath house, with a Norfolk address. This property had been
purchased by a couple for their son to use while he attended Old
Dominion University. The house had been on the market for too long.
They had tried renting it and that did not work out to their
satisfaction. They were ready to sell. It was not a bank-owned
property. He had real live sellers to work with. They had just dropped
the price into his range. Soren had been searching Realtor.com for
better than a year and this one was looking promising.
To secure the contract immediately, the offer was submitted with the
home inspection contingency clause included. They must have been as
thankful for Soren as he was to find real sellers and this house. The
absolute best part is that this 1,100 square foot house, with a small
lot totaling 5,000 square feet and a garage, was move-in ready.
The carpets were new. The kitchen had all the appliances and clean
surfaces. Both bathrooms were tiled. The windows had been replaced with
energy efficient, vinyl, double-insulated ones. The heating and cooling
system was relatively new. One of my favorite attributes of this house
is its location across the street from a marsh. An adjacent building
lot belongs to the house to the right; no one across the street; and a
neighbor to the left. So far, it is a very quiet setting.
Good things come to those who wait and don’t freak out. There were a
few hurdles to get to closing.
About a week after the signing of the contract, someone bashed a hole
in the foundation of the house and stole the copper plumbing. The
sellers had the unexpected expense of re-plumbing the house. There was
a glitch with the title, but the title insurance squared that away.
Along with learning about home loans, Soren also had to jump into the
research project called homeowner’s insurance. I had read an article
about how the folks in California learned a lot about their policies
after they made a claim because of brush fires. I e-mailed the article
and suggested that he ask around about which companies were used by his
real estate broker, his banker, and home-owning friends. He uncovered
more good news. When you bundle your homeowners with your car
insurance, the premiums go down.
This has been a win/win on a lot of different levels. The learning has
been incredible. Gaining equity appears to be a given. Soren bought low
and should be in this house for a period long enough to see some degree
of increase in the market. The payoff after a lot of hard work is so
reinforcing. And then, to warm a mother’s heart, the knowledge that the
mortgage payment plus the escrow (monthly portion of taxes and
insurance) is less than what my son was paying per month for an
apartment. The icing on the cake is that he brought two roommates with
him from the apartment, who will help to pay this mortgage.
I think that our children’s milestones are the parental assurance that
the child has successfully launched to the next level, that they will
find their own way in this world, and that they have garnered the
skills to meet new challenges. They will be okay and flourish.
lived on Ocracoke Island for more than 30 years and has worked in the
real estate business for 26 years. She is a broker with
Ocracoke’s Lightship Realty and a real estate columnist for The
Ocracoke Observer. You can reach her by e-mail at