So, instead of only taking a couple of weeks, in the end it took me more than a month just to surface above water and come back from said hiatus. This week, I’m still not completely above water as to be up to date with tech news so I will forego the weekly roundup until next week. In the meantime, I want to share a lot of the things that I learned over the course of 2 months of buying a house and renovating. It’s also a way for me to remember what I learned throughout the process.
This is from the perspective of someone who does most things online, can’t stand being on the phone with a live person (and that annoying hold!), and generally savvy about using productivity tools to keep track of everything. So, if you find yourself thinking, “why didn’t she just try to talk to someone?” It’s because most of the time, when you do talk to someone on the phone: a) they don’t write down your issue like they said they would; b) your issue gets lost somewhere and you’ll have to repeat yourself; c) loss of documentation. With that said, here goes.
- Most people take their time buying a house but for people like us who like to fast-track things, keep in mind that a mortgage loan approval (at least in the US) can take a minimum of 30 days and even a minimum of 45 days for some banks. That period also rests on you, the homebuyer, to be on top of all the paperwork needed. Being on top means a turnaround response to a lender’s request within hours or at most a day.
- Getting a mortgage involves the following steps in summary: loan application, conditional approval, good faith estimate (estimate of monthly payments, additional fees, closing costs), processing (where the lender verifies and reviews your information), home inspection arranged by borrower/realtor with seller, appraisal performed by the mortgage lender to estimate the value of the property (paid for by the borrower during closing), underwriting where all information are reviewed and verified and the title is legally cleared for transfer of ownership, closing where the borrower pays the closing costs and the purchase of the house is finalized. Read here for a more detailed account of the process.
- Personally, the underwriting took the most time for us. As non-US citizens, there are limitations and extra guidelines that we had to adhere to. Unfortunately, neither the mortgage officer (the one who helps you throughout the process) nor the underwriter (the one who actually approves or rejects the loan) may not always have the best knowledge on the immigration processes – anything out of the ordinary can throw the application for a loop. If you’re a non-US citizen, make sure all your immigration documents are current and valid.
- At the very least, get a pre-approval for the loan amount that you want to borrow. Getting pre-approved is the next step to being pre-qualified, which is only an estimate of how much you can borrow based on information you gave to the lender. A pre-approval involves completing an official mortgage application and in some cases paying a fee (usually to pay for the credit check). With a pre-approval, you will get a letter detailing the specific mortgage amount you can borrow and the interest rate (which can be locked in). This gives you some leverage in negotiating with a seller.
- There’s quite a difference between a 3.75 % interest rate and a 3.70% interest rate. On a $300,000 30-year loan, that may mean a monthly payment difference of $8 but over the life of the loan, that’s a $3000 difference. So, definitely shop around, you will be surprised at the seemingly minor but important differences in the interest rates that lenders can give. For a quick and dirty mortgage calculator, Google has you covered right here. Out of the banks I looked at: Wells Fargo, HSBC, Citi, Quicken Loans and TD Bank – only TD Bank gave an online rate quote based on information you provided via online form.
- If you have time, getting your credit score a few points above could spell a huge difference in your interest rate. A credit score is a rating 300 to 850 (850 being excellent) and is a numeric representation of your credit history with the following associated weights:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- How many types of credit in use: 10%
- Account inquiries: 10%
- There are a few things that you can do to help with the score: pay off all the balances on the cards you currently own. Apply for 1 or 2 new credit cards, purchase a few things on them and pay off the full balance. This will help increase your credit rating by a few points. In order to keep track of your credit score, use sites like Creditkarma.com to keep track of your score. If you don’t want any surprises about your credit history, request your credit history for free (you are entitled to 1 free report/year) from the 3 major credit reporting companies: TransUnion, Equifax, and Experian. You can request your credit report on each of the sites or you can also visit Annualcreditreport.com to request reports from all three companies.
- Be aware of bank fees that may not be readily apparent during the mortgage application process. Fees can be any of the following: credit report check; appraisal fee (read above for the loan process); origination fee (similar to a commission-based payment and is an upfront fee charged by the lender for processing the loan; varies from lender to lender); title services fee, government recording charges, etc. There are more costs during closing such as the homeowner’s insurance, escrow account setup but I found the origination fee to be something that can be negotiated. As for the homeowner’s insurance, it’s also up to the borrower to shop around so that’s something else that you can actively participate in.
- This might seem really, really obvious now but check with the closing agent, mortgage lender and/or your realtor on what to bring during the closing. On the day that we closed, we were also moving out of our apartment so these kinds of details got lost in the frenzy. I had my IDs, my phone and a checkbook but got a call from the closing agent that we needed to wire transfer the closing funds instead of writing a check. Thankfully, our bank was 5 minutes from their office so that did not become an issue.
- Finally, buying a house is a major financial decision. We have been moving a lot so I got into house-hunting with the idea of renting. After several discussions and lots of research, we decided that now would be a good time to buy. What really convinced me is seeing the numbers laid out over the course of the 30-year loan. Despite the numbers being speculative (house value increases, rent alternative costs, rent increases based on Zillow), these are still very useful to consider. All credit goes to my amazing husband who came up with the Excel spreadsheet. You can download the mortgage loan worksheet (with sample numbers) here (automatic Excel download) or access it via Google Sheets here.