Author Topic: How do I get a mortgage?  (Read 3101 times)

mtn

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How do I get a mortgage?
« on: June 13, 2016, 01:37:13 PM »
My wife and I are considering buying a house. We’d like to get preapproved for a mortgage as we start looking. But we really don’t know how to go forward with this. Did you just shop around and apply online? Go to a few banks/credit unions near you and apply? There are a lot of mortgage companies (I assume brokers) that I’ve never heard of—how do I know if they’re “good”? How do I compare fees and whatnot, other than just looking at the rates? I obviously want the cheapest one available, but I also don't want to deal with the worlds worst customer service either.

Some info:
  •   26 and 27 with about 45k net worth
        o   $15k in a brokerage account (some cash)
        o   $30k in student loans,
        o   $60K in 401k’s/403b’s/IRA’s.
        o   Maybe $3k of credit card debt that is currently at 0% interest--could pay off today, would be easier to pay off after the next paycheck (should we make sure this is all gone prior to applying?)
  •   We’ll need a HUD loan since we only have about $15k for a down payment (brokerage account). My parents would likely loan us money if we asked, but I’d rather not ask.
  •   We want to buy as we’re getting priced out of the rental market
  •   We’re looking at houses that are between 2x and 3.6x our combined gross income.
        o   The 3.6x homes would be a “dream house” that we’d move into and not have to do anything to, and would be able to stay for 5 to 30 years
        o   The 2x homes are something that we’d probably be moving out of in 5-10 years and we’d either slowly be updating unless we decide that the house would be sold as a teardown.
  •   We’re not in a huge hurry to make a move, but would like to have preapproval ASAP in case we find the right place

forummm

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Re: How do I get a mortgage?
« Reply #1 on: June 13, 2016, 02:06:41 PM »
If you know your credit score (you should if you're buying a house) you can check out aimloan.com without giving any personal info to get an idea of what mortgage prices are like. Then you can get quotes from whatever mortgage broker/lender you like and see what you might be paying.

SwordGuy

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Re: How do I get a mortgage?
« Reply #2 on: June 14, 2016, 10:45:11 AM »
I wouldn't look at a house loan for > 2x my income.  Period.    The term "house poor" was invented for a reason.   Don't learn it from personal experience.  Wait until you can afford it.

mtn

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Re: How do I get a mortgage?
« Reply #3 on: June 14, 2016, 11:53:02 AM »
I wouldn't look at a house loan for > 2x my income.  Period.    The term "house poor" was invented for a reason.   Don't learn it from personal experience.  Wait until you can afford it.

Had this argument with myself, and discussions with my wife, father, father in law, and boss at work. Simply not realistic to keep ourselves to that budget in a place that gives my wife and I a reasonable commute. If I were in most parts of the country I would agree with you. In Chicagoland, it is a lot more difficult. And before you say rent, we're being priced out of the rentals as well. It is cheaper to buy, and yes I've run the numbers a million different ways. Our total monthly payment will go up about $700 a month, including taxes and insurance; her commuting cost will drop about $100 a month (and we'll save an additional $500 a year on car insurance), and mine will stay stagnent. Her commute time will drop significantly--30-50 minutes one way to 5 to 20 one way (she has 3 offices), and mine will increase by about 15 minutes, but is a much better commute overall.

If it hits the fan and the higher earner of us loses our job AND we bought a house at 3.6x our income, then we'll be house poor--no vacations, I'd have to sell a guitar or two, and eating out would be cut off entirely--but still surviving and saving 10%.


Papa bear

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Re: How do I get a mortgage?
« Reply #4 on: June 14, 2016, 12:28:12 PM »
Go to bankrate.com and price out a few mortgages.  Call the banks and ask to a loan officer.  Ask for quote on rates and fees.  Repeat.  Let them compete over you - tell them what the others offer and see if they can beat it.  Pick your favorite.


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marty998

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Re: How do I get a mortgage?
« Reply #5 on: June 15, 2016, 03:54:35 PM »
I wouldn't look at a house loan for > 2x my income.  Period.    The term "house poor" was invented for a reason.   Don't learn it from personal experience.  Wait until you can afford it.

3.6x sounds more than fine to me. OP could easily pay it off in 5 years if they knuckled down.

I'd have to pay 9x for a place here...

ender

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Re: How do I get a mortgage?
« Reply #6 on: June 15, 2016, 04:37:42 PM »
I wouldn't look at a house loan for > 2x my income.  Period.    The term "house poor" was invented for a reason.   Don't learn it from personal experience.  Wait until you can afford it.

2x income if you make $100k is a lot better than if you make $30k, spending $18k/year.

Using a random multiplier without any context is pointless.

onlykelsey

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Re: How do I get a mortgage?
« Reply #7 on: June 15, 2016, 04:43:58 PM »
I wouldn't look at a house loan for > 2x my income.  Period.    The term "house poor" was invented for a reason.   Don't learn it from personal experience.  Wait until you can afford it.

Had this argument with myself, and discussions with my wife, father, father in law, and boss at work. Simply not realistic to keep ourselves to that budget in a place that gives my wife and I a reasonable commute. If I were in most parts of the country I would agree with you. In Chicagoland, it is a lot more difficult. And before you say rent, we're being priced out of the rentals as well. It is cheaper to buy, and yes I've run the numbers a million different ways. Our total monthly payment will go up about $700 a month, including taxes and insurance; her commuting cost will drop about $100 a month (and we'll save an additional $500 a year on car insurance), and mine will stay stagnent. Her commute time will drop significantly--30-50 minutes one way to 5 to 20 one way (she has 3 offices), and mine will increase by about 15 minutes, but is a much better commute overall.

If it hits the fan and the higher earner of us loses our job AND we bought a house at 3.6x our income, then we'll be house poor--no vacations, I'd have to sell a guitar or two, and eating out would be cut off entirely--but still surviving and saving 10%.

Yeah, I think 3.6x is reasonable in the circumstances.  I bought at ~3x my pre-tax income (when I was single) which was pretty risky.  Dual incomes help. 

On the other hand, I had 80K down.  15K seems dangerously low to me.  I don't know if you're looking at buying in an apartment building, but most places wouldn't look at me until I had 10% down and some buildings only would entertain bids from folks with 50% down.  It's a market specific thing, but don't get ahead of yourself.  I think once you get emotionally invested in house hunting, it's hard to stop the process.

ender

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Re: How do I get a mortgage?
« Reply #8 on: June 15, 2016, 04:59:15 PM »
Yeah, I think 3.6x is reasonable in the circumstances.  I bought at ~3x my pre-tax income (when I was single) which was pretty risky.  Dual incomes help. 


I think this is where:

2x income if you make $100k is a lot better than if you make $30k, spending $18k/year.

Using a random multiplier without any context is pointless.

becomes important. Your income is really high and provides a large buffer in the event of <life problems>.

We have no idea what OP's combined incomes are, other than a fairly confident statement about being able to support the mortgage on the lower income earner. But that does suggest that they have pretty significant incomes.

mtn

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Re: How do I get a mortgage?
« Reply #9 on: June 15, 2016, 05:11:38 PM »
I wouldn't look at a house loan for > 2x my income.  Period.    The term "house poor" was invented for a reason.   Don't learn it from personal experience.  Wait until you can afford it.

Had this argument with myself, and discussions with my wife, father, father in law, and boss at work. Simply not realistic to keep ourselves to that budget in a place that gives my wife and I a reasonable commute. If I were in most parts of the country I would agree with you. In Chicagoland, it is a lot more difficult. And before you say rent, we're being priced out of the rentals as well. It is cheaper to buy, and yes I've run the numbers a million different ways. Our total monthly payment will go up about $700 a month, including taxes and insurance; her commuting cost will drop about $100 a month (and we'll save an additional $500 a year on car insurance), and mine will stay stagnent. Her commute time will drop significantly--30-50 minutes one way to 5 to 20 one way (she has 3 offices), and mine will increase by about 15 minutes, but is a much better commute overall.

If it hits the fan and the higher earner of us loses our job AND we bought a house at 3.6x our income, then we'll be house poor--no vacations, I'd have to sell a guitar or two, and eating out would be cut off entirely--but still surviving and saving 10%.

Yeah, I think 3.6x is reasonable in the circumstances.  I bought at ~3x my pre-tax income (when I was single) which was pretty risky.  Dual incomes help. 

On the other hand, I had 80K down.  15K seems dangerously low to me.  I don't know if you're looking at buying in an apartment building, but most places wouldn't look at me until I had 10% down and some buildings only would entertain bids from folks with 50% down.  It's a market specific thing, but don't get ahead of yourself.  I think once you get emotionally invested in house hunting, it's hard to stop the process.

Looked today--it is actually $20k, which is over 10% on the bottom end of the houses we are looking at. But we will do an FHA/HUD loan and pay pmi (which I've incorporated into my calculations). I also planned to pay 15 payments a year.


Yeah, I think 3.6x is reasonable in the circumstances.  I bought at ~3x my pre-tax income (when I was single) which was pretty risky.  Dual incomes help. 


I think this is where:

2x income if you make $100k is a lot better than if you make $30k, spending $18k/year.

Using a random multiplier without any context is pointless.

becomes important. Your income is really high and provides a large buffer in the event of <life problems>.

We have no idea what OP's combined incomes are, other than a fairly confident statement about being able to support the mortgage on the lower income earner. But that does suggest that they have pretty significant incomes.

Significant for a large part of the country, but not for where we live. We're just pretty frugal and still have a lot of fat that we could trim if need be (and side jobs that could be significantly ramped up if need be--not included in calculations).

randommadness

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Re: How do I get a mortgage?
« Reply #10 on: June 23, 2016, 12:22:00 PM »
Any way you can get out of Chicago? I keep looking at properties here and damn they are such a bad deal, lol.

So many of these places, even on the lowest ends, you're paying $500-600 just for HOA and taxes.

mtn

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Re: How do I get a mortgage?
« Reply #11 on: June 23, 2016, 12:31:33 PM »
Any way you can get out of Chicago? I keep looking at properties here and damn they are such a bad deal, lol.

So many of these places, even on the lowest ends, you're paying $500-600 just for HOA and taxes.

We won't be paying HOA fees, and taxes... well we can't avoid them. We won't be leaving the area for at least 6 years, and even then I don't see it happening for at least 15-20 years.

dpfromva

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Re: How do I get a mortgage?
« Reply #12 on: June 23, 2016, 03:48:59 PM »
Yeah, the blogs always recommend to shop around with several lenders but easier said than done, ha.
Here's what I did for my refi (admittedly easier than a purchase) and it worked out OK -- I applied to a local S&L, a remote bank with a good rate on Bankrate, and a local mortgage co. that was well-reviewed on Consumer Checkbook. It was work and a big investment of my time but I got the rate I wanted.
Get one pre-approval, your pre-approval company doesn't have to be your ultimate lender, then shop lenders. A real estate agent you trust will have a recommendation. They rely on repeat business and hopefully won't recommend someone who will piss you off. Plus they want that commission. So they'll likely recommend someone who is fast and accurate and will get the deal done, but not necessarily at the absolute best rate.
Of course, the various lenders will all require slightly different piles o' (electronic or actual) paper. You will start running out of time and stamina as settlement approaches. Especially if you are in sellers' market bid situation for multiple houses. Do some diligence and stay away from processors who have lots of Yelp or whatever complaints about lost submissions, errors, and foot-dragging. Good chance your loan will be sold and you'll end up with a different lender regardless. And make sure you do all your apps in the same 30 day timeframe so you only get one hard credit inquiry hit on your credit score. (While you're house-hunting, and working, and generally trying to live your life . . .)
So why do people do less comparison shopping for a mortgage than a sofa? 1. Overwhelmed time and energy constraints to do multiple lengthy application processes. 2. Salespeople (lenders or brokers) of course don't want you to shop, they want to engage you and establish that personal relationship so you'll go with them. 3. Information friction. For those who are not financially-inclined, mortgages are big, hairy and scary. It's like shopping for a surgeon when you are not a medical expert. You are looking for someone you can trust to guide you through.
I found the new closing paperwork to be clearer and more informative than in the past (I work in the regulatory area, however, so that's my perspective), particularly where it flags what you can shop around for rather than relying on the lender's recommendation (title company, etc.)
There are also web sources that will tell you average cost in your neck of the woods for settlement fees. Don't hesitate to question the fees. The worst outcome is they will say no, and you have the ultimate weapon of whatever rescission rights are in your State. It can be a good tactic to ask lots of stupid questions. "I just don't understand this, can you go over with me again why there is a document transfer fee AND a messenger service fee? Isn't it the messenger's job to transfer the documents?"
Finally, both for my refi and a recent rental property purchase, I found errors on the settlement sheets, that, go figure, were NOT in my favor. If your eyes start to glaze over, have a math-savvy friend review the docs or even go with you to closing.

GrOW

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Re: How do I get a mortgage?
« Reply #13 on: June 23, 2016, 04:13:47 PM »
Be ruthless on loan fees including closing costs. You don't owe the bank, banker, broker, etc a penny more than you can negotiate down to. Every fee is negotiable - well don't count government fees - no matter what they tell you. I promise you that a borrower is getting lower fees from your lender, whoever it will be. They asked, they pushed, they showed that they had to have it.

Also, don't rush to closing. Tell your lender that you require a closing statement or HUD closing statement one day before closing. Then review it with a fine tooth comb for errors, changes, anything different than you expect. Most things can be corrected within a day. Very few things can be corrected when everyone is at the closing table.
« Last Edit: June 23, 2016, 06:29:23 PM by GrOW »

opnfld

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Re: How do I get a mortgage?
« Reply #14 on: June 23, 2016, 04:19:59 PM »
Step 1: get pre-approved by any lender, doesn't matter which.  Once you figure out how much you want to spend, shop other lenders while you are also shopping for a house. 

We got a sense of what it would be like working with specific lenders when we started making offers.  We stopped working with one when we couldn't get a timely edit to a pre-approval letter for the amount we wanted to offer...something our agent strenuously suggested.

By the time we bought our house this spring, I had approved applications with 5 different lenders (big bank, smaller bank, credit union, and two mortgage brokers) - the big bank ended up giving us the best rate.  I had begun looking into Sofi, but didn't get the impression they could beat the rate we had with Wells Fargo.

One helpful tip: each lender will quote you a rate and an APR.  The APR includes the closing costs and fees and allows you to compare apples-to-apples in terms of total cost to you.

Lmoot

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Re: How do I get a mortgage?
« Reply #15 on: July 04, 2016, 09:25:01 PM »
I'd be worried about only $15k in cash. There are closing costs, and taxes/insurance is usually required 1 year in full, at closing. Plus you don't want to end up with no cash right after you buy a house, so that $15k for a DP can quickly get chopped down to only $10k or less for a DP. Get the cash savings up until you have a healthy efund, and can put $15k down AFTER including costs at closing.

Future Lazy

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Re: How do I get a mortgage?
« Reply #16 on: July 06, 2016, 02:33:57 PM »
Late to the party on this thread, so apologies if I repeat anything already said above.

To find a mortgage:
Shop around for mortgages that fit your needs. I would recommend talking to a lot of loan officers at different banks or credit unions. In other words, don't pay a mortgage broker, be your own. In my case, we went with a conventional portfolio loan, a "0 down" loan from KeyBank called Key Community. This program allows us to offer less than 3.5% down and use our capital (about 22k for us) towards repairs, inspections, closing costs. It's not the only program out there like it, but you have to go into the lenders and see what products they offer. Don't apply for anything you're not sold on - apply for pre-qualification only after you're confident with the loan product you've chosen.

How you handle the price tag of your new house is up to you. My husband and I went for a larger, nicer house, but also plan on renting out the bedrooms to supplement the cost of the mortgage, which allows us to have more house/bigger "forced savings account"/more appreciation, and allows us to save a lot more of our monthly income.

Remember that the cost of your home purchase is more than the down payment. Our house purchase (Closing on 8/1, woohoo!) has turned up the following math

Starting Amt         $22,000.00   
Closing Costs         $10,000.00   (Bank fees, insurance, taxes, etc - on ~$280k mortgage in HCOL area)
Earnest Money            $2,500.00
Cash At Closing         $2,500.00   (Down payment is earnest + cash at closing)
Auto Insurance         $900.64    (Decided to buy a full year of auto ins in addition to our ho's ins purchase, represented in closing costs)
Lawyer Retainer         $750.00   (Payment to draft lease for renting out spare rooms)
Electrical Panel      $3,000.00   (Unsafe panel requires replacing, buying house knowing it needs this repair.)
Homebuying Class      $75.00    (required by our lender)
Inspection         $665.00   
Wiggle Room         $1,109.36   (Leftovers for painting, new appliance, etc)

When it comes to credit stuff, I found our loan officer at KeyBank to be very supportive. We first contacted KeyBank in Feb 2014 looking to qualify, and the loan officer in our area did a great job of helping us shore up our credit, understand the costs we could expect, and getting us on the right track to qualify for their low down program. It was mostly advice I already knew (thanks, Mustachians!) but helpful to have it reinforced by the loan officer. I guess you could say that's how I knew he was "good". :)

Good luck with your house hunt! 
Kayla

EDIT REASON: realized my math was lazy and wanted to fix it. :0
« Last Edit: July 06, 2016, 02:44:22 PM by KaylaEM »