First Time Home Buyer: Loving Your Lender (Part 4)Oct 22 '03 (Updated Oct 29 '03) Write an essay on this topic.The Bottom Line A good place to share your experiences with renting, buying, selling or rehabbing a home, condo, apartment, co-op or second home. Acting on a recommendation from my Buyer's Agent, Kay, I decided to take the bull by the horns and hook up with a Mortgage Broker, I'll call May, the morning of my 53rd birthday. Yes, I'd worked a grueling shift since 9 p.m. the previous evening, but as a banker's child I happen to know that lenders in California tend to be larks, given the fact that that all important New York Stock Exchange closes at 2 p.m. West Coast time. May was very professional, cordial even, when I produced the requested W2 forms, recent banking account/credit union statements, pay stubs, 401K, 403K, and the fortunate few credit card statements, (I'd paid off one big cards at least 6 months before in anticipation of this particular type of credit check). It wasn't painless, but it wasn't a trip to the dentist either. May's honest and straightforward approach smacked of competence, fair dealing and a desire to find me a loan at a price I could live with. In an hour's time, she knew what I could afford, and although she didn't tell me right off, what my likely FICO score would be. A Mortgage Broker is slightly different than a lender, say like Washington Mutual, (one of my other contenders), in the fact that they don't service the loan, but rather find the best rate, for a price. I suppose I might have skipped this intermediary, but as an anxious newbie I was hoping for the smoothest, simplest path to homeownership. With the promise that May would be mailing the usual HUD Fair Housing Practice disclosure statement, (an estimate of closing and total loan costs, including percentage rate and APR, (annual percentage rate, which adds in points paid and other loan origination charges), plus the pre-approval letter, we concluded our initial meeting. Note, this is different from so-called pre-qualifying, which isn't actual much, just a ballpark figure thrown out with limited input (annual income, monthly debts, any foreclosures/bankruptcies), and won't mean a thing to a prospective seller, especially in a hot seller's market. In our Central California city, single detached properties are appreciating at a rate of at least 12.5% per year-can you say scorching? Attractive starter homes with 2 bedrooms, 1 bath, in decent neighborhood/condition and price were being snatched up in an average of just 30 days since initial listing. Sure enough, May's approval letter, (no surprises in the amount okayed), and disclosure stuff arrived in the mail as promised, with separate quotes for both the 5% convention and 3% FHA down payments. These HUD mandated estimates also included a payment by payment list of both Principle, (amount of loan financed), and Interest, (interest on said financing), over the life of the loan. Other items, like PMI (mortgage insurance, protecting the lender's investment), property taxes and homeowner's, (aka hazard or fire), insurance, may or may not be part of your monthly house payment. I was sold on a 30 year fixed rate mortgage, versus the initially tempting low rates, (sucker rates my grandfather would have said), for the 1-, 5- or even 10- year variable rate loans. As a middle-aged female, I know I am at the peak of my earning powers now, not later, and would rather pay a lower rate, (once the 20 to 25% home equity point is reached), about 10 years down the road as I approach retirement and the welcome dismissal of PMI. At the time I was approved, (I had actually gone through a complete loan approval process in that office hour and didn't even know it!), I was quoted a decent rate of 6.25%. Good considering I could only manage 5% down on what was probably going to be a 200K loan, not to mention the typical 3 to 5 per cent closing costs! Those closing costs can sneak up on you if you aren't prepared. I was, and I still freaked at bit at hearing 8 to 9K more than I would be plunking down for a deposit. Later, I found it is pretty common for home buyers to just about tap themselves out by the time escrow closed and the property changed hands. I'd rather know, up front, what my monthly payment would be, than 5 years from now, with the typical 1 to 2% annual rate increase cap with the variable rate loans, than wake up one day to find out I'd grown a 10% mortgage rate! Of course, refinancing is available, but remember these generate discount points, (1 point=1% of your loan), and closing costs of their own. Depending on the market, you may wish to lock in your quoted loan rate, if you anticipate the rates going higher. In reality, the stock market/bond futures yo yo about each day, and escrow can take longer than a frequently offered, but skimpy 30 day loan lock. I asked for a 45 day lock and was nicely told if the rate went down before close of escrow/settlement, I would be offered the lower rate, (a very good thing). And, since this communique was in the form of an email, I actually had this promise in writing! Another possibility was an FHA loan for about 6.50% with the positive aspect of lower closing costs. Older homes like the ones I was envisioning can have a tough time meeting the slightly more stringent clearances, (especially with an attached deck or porch), and unfortunately some sellers feel an FHA loan is not up to a conventional loan in terms of quality. Pre-approval letter in hand it was now time to actually meet with my Buyer's Agent, face to face, and begin the house hunting I'd up until now only watched on our cable's Home and Garden channel. The game was afoot!  |
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