1.28.2016

What I Learned: Getting Financing

Last year was very hectic for me. The reason for this is that in addition to working and running a few races, I was in the market for a home. There are a lot of moving pieces involved when buying a home, especially when you live in the San Francisco Bay Area, which is one of the hottest places to live (and the most expensive) in the country.

I thought I would break down my search into a few posts, starting with the beginning, which was financing. Oh the joys of getting a loan. Now, I have no idea what the right or wrong way to go about this is, but I will talk about the way that I did it, and what seemed to work for me.

First, I pulled my credit report. I have heard, and I am not sure if this is true, that it is better to pull it 6 times in one month than 6 times over the course of a year. So I pulled it, knowing that the lenders would also pull it. Luckily, it was in good shape.

The next thing I wanted was a pre-approval letter. I had no idea what I was getting myself in for, but I did know that a pre-approval letter was better than a pre-qualify. With a pre-approval, the lender gets mostly all of your paperwork and then they use that to figure out how much they will be willing to lend you. This is important for a couple of reasons. Firstly, it is hard to figure out how much you can afford. I spent a lot of time on the internet plugging in numbers, but until the lender actually used my actual hard data to get an amount, I was just guessing (with the help of Google).

The second reason that it's important is that it helps to submit the pre-approval letter with your offer. This can help convince the seller that you are serious about the offer, and it will make them more comfortable that your agreement is not going to fall through due to lack of financing. In the Bay Area, your offer will most likely not get accepted without a pre-approval letter.

To get a pre-approval letter, you have to figure out who you want to try to get a letter and/or a loan from. How do you figure this out? Good question! Once again, I turned to Google (and Zillow) to find out who could give me the best rate. In addition, I asked several people who they had used and how their experience had been. I got a lot of different answers. Zillow named two internet banks and Bank of America as having the best rates. Two of my friends used Quicken (internet bank) and Bank of America.

So, I contacted one internet bank, Bank of America (who happens to be where I have had my accounts since I was a teenager) and Citibank. What happened next was this:

The internet bank asked me to fill out a form with my financial info and send it back to them. The lady was very nice and the operation seemed legitimate. I filled out the form and sent it back and got a pre-approval letter the next day.

Bank of America connected me to Texas. I finally got routed to a local agent, who barely spoke English (sorry!) and tried to talk me into getting a 5/1 arm (adjustable rate) instead of the 30 year fixed that I asked her for. She then asked me to send in about 400 different kinds of paperwork, including all of my Bank of America  bank statements. I sent them all to her and did not hear back from her for three weeks (when I called her, her message said she was on vacation).

Citibank sent me an unprofessional email with no signature or logo that looked like a 12 year old had sent it, asking for 400 different kinds of paperwork. I told them I would feel more comfortable seeing a real person and giving my documents to them and the guy blew me off.

Since the Citibank guy seemed unprofessional, I contacted a third option, a local broker, and I sent him all my 400 different kinds of paperwork. He was very helpful and even helped me run a few different scenarios, depending on my down payment and/or desired purchase price. The guy was easy to reach on the phone and answered any (dumb) questions I had throughout the entire process.

The verdict: The amount I could qualify for was less than I wanted, since they could not count bonuses or overtime unless you could show two full years and proof that it would be ongoing. Bummer. So that meant the amount I thought I could spend was not the actual amount... in addition, I found it very strange that they ask you how much you want to spend. Can't they just crunch all the numbers and then tell you what the absolute max is?

My advice: Try a bunch of different lenders. You have no commitment to them. Once you have all of your 400 documents in pdf form, you may as well send them to as many lenders as you can!

In addition, my realtor told me a few tips. (1) the big banks (BofA etc) take forever to get you an answer, sometimes meaning you lose the house because you can't get financing in time. I know this as well because I work for a big bank and I see some of the frustration over how long thing take. (2) The internet banks will give anybody a pre-approval letter and will often give you the number YOU want, rather than what you can really afford. This causes problems later when it comes to getting the actual loan. Due to this, often times sellers will not accept offers if the letter is from an internet bank.

So, there we have it, my new understanding of financing in a nutshell.

Have you gotten a home loan? What advice or tips do you have for others regarding the situation? 

*Disclaimer: I am not a professional. Any opinions I give are my own and you should do your own research before making any rash decisions. :) 

5 comments:

  1. I got my mortgage through Wells Fargo when I bought my condo back in 2005. It was a different world back then as I had a 'stated income, stated asset' loan so I barely had to send in any documentation. The world has clearly changed for the better since then. I have heard that WFHM is one of the pickiest lenders and that they are not efficient, and I know this because I worked for the mortgage area for several years! Phil went with WF, too, and was so frustrated by the process. I think it's probably a better customer service experience to go with a smaller broker like you did as I think they are more customer service oriented, and you have more control over who you work with whereas at big banks you are assigned to a processors and you never know how good or bad they will be at their job!

    I think having every single piece of documentation that they could ask for at your hands is important. And I think shopping around for the best rate is a good idea, too. It can't hurt and you obviously aren't obligated to go with anyone if you aren't happy with their rate/financing package.

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  2. We went through our local credit union here, which made the process simpler and easier because we always had someone to contact. Then, the credit union sold the mortgage to Wells Fargo. We were quite lucky and privileged to have some financial help with our downpayment from Mark's parents, and that made things much smoother because, although we had moved up here for my job, I hadn't started it yet, and Mark didn't have employment when we bought.

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  3. This was very interesting to read (since we also just bought a home).... I had no idea about the whole process, but were asked during a usual "financial advice session" with our Wells Fargo Banker why we don't consider buying (instead of renting) a house.
    They ran the numbers for us (and gave us the pre-approval) and they interestingly they approved us for WAY MORE than I felt comfortable with.

    I also thought (like you) that they could just "run your numbers" and tell you what you can afford, but I learned that a) they run the nubmers on your gross income (not net) and b) they don't really care about other "commitments" (like taxes, retirement) that you might have.

    We told them that we wanted to be able to pay our mortgage on my income alone and they basically told me we can afford a mortgage that would have been a monthly payment of more than 50% off my net earnings. My question was HOW??? How am I supposed to be able to afford this?
    They told us they just base it off the gross income, because they don't really know what other financial obligations we have and they don't take them into account. We ended up telling them what monthly mortgage payment (all included) we thought we could afford and based our loan off of that.

    We did decide to go with a smaller mortgage company in the end and were very happy with the customer service (although one thing I wasn't clear about is that they keep re-selling the loans to other companies, which will be a little bit of a paper hassle in the future, I guess).

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  4. We bought our house in 2006 and I don't remember much ha. We did go with a bigger bank with a local branch based on a personal recommendation of the person in charge of mortgages there. She was great to work with as first time home buyers who didn't know too much ha. We remember thinking they approved us for like 50,000 grand higher than what we wanted to spend. In the end I think we bought for about 15,000 more than what we were aiming for but still less than what we were approved for obviously.

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  5. Oh man, that sounds like quite the process! When we got ours, we worked with a mortgage broker. All we had to do was send her the paper work and provide her with our financial information. She went and found us the best rate and then sent us all the paper work to be signed. It was so easy!

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Thanks for commenting! Any suggestions, tips or praise you have is always welcome!