Now that everyone is up to speed on the fact that we’ve moved recently, let me share the saga of buying a house in the new city and selling one in the old.
Before I get into the details, let me start with how naive I was about the mortgage process these days.
It had been a long time since I had a mortgage (almost two decades) and there was a major real estate meltdown and banking crisis between then and when I needed to borrow.
I knew things had changed, but had no clue it was this bad.
Background
Just so everyone’s on the same page:
- We lived in OK.
- We had a house there which had no mortgage — we owned it 100%.
- We were moving to CO and needed a home here.
- During the job transition, we looked at over 50 homes, finally found one we liked, put an offer on it, and it was accepted.
Which brings up the following scenario:
- The CO home cost $370k (which is a middle class/upper middle class home — we could have afforded much more), roughly the same cost as the OK home.
- It was clear the OK home was not going to sell before we purchased the CO home.
- We had $200k cash available to put on the CO home, but that left us $170k short.
The Options
We had a few options, but none of them really panned out. The ideas from our real estate broker:
- Get a HELOC on the OK house. This would have been a good idea but the law doesn’t allow a HELOC on a home that’s been on the market within the past six months (I believe that’s the time frame). Since our home was currently on the market, it ruled out this option.
- Sell investments and get cash. Uh, no. This would have resulted in large capital gains taxes and was just not a smart idea.
- Use my relationship with Chase to get a special loan. They have been hounding me for years to become a “Private Client” which supposedly opens me up to a wide range of special services (which I’m guessing is how they can manage my money better than I can), so I could call them and see what they could offer. I did this, but they couldn’t really put anything together quickly enough. They talked about a loan backed up with my index funds as collateral, but nothing came of it.
We also talked about a bridge loan, but since we didn’t know when the OK house would sell, that wasn’t an option. So we were left with a conventional mortgage.
I bid out the mortgage between Quicken Loans and my realtor’s suggested bank (the advantage of working with the latter is that the realtor works with them and certain processes/document transfers are sped up.) In the end the price was tied, but since the realtor’s banker was here (plus had the other benefits), I went with them.
The Inquisition Begins
Now let’s review some financial facts before we get into the loan nightmare:
- We were buying a house for $370k.
- We were putting $200k down on it.
With these two points alone, the deal would seem pretty safe for the bank, right? The house could lose half its value and they could still sell it and get their money back if need be.
Plus we had so many other financial positives:
- We owned another house free and clear in OK.
- I not only had a job that paid well but also income properties which generated a good amount of cash each year.
- We had a ton of money invested in mutual funds, much more than the cost of the house.
- Both of our credit scores were over 800.
Roll all these together and you would think this would be the easiest loan in America to grant. But it was not.
They sent me a laundry list of documents they wanted. I spent two weeks digging up every trivial piece of information you could think of. There was the expected documentation like past tax returns, but they wanted things like a copy of the association dues bill from our house in OK.
They questioned why my properties didn’t file a separate tax return (duh, because it’s part of my personal tax return). They wanted this document and that document and more and more and more. It was a process more difficult than doing my taxes.
And mind you this was going on while many of our records were in OK, my wife was in OK, I was in CO, and I was learning a new job. Ugh!
Furthermore, they told me early on that they weren’t sure I’d qualify for a loan. Uh, excuse me? Really? Eventually as the paperwork came in, they became more and more confident we’d get the loan.
I asked them along the way why it seemed so difficult to get a loan and why the documentation list was so large. They told me this was required as part of the new government regulations enacted after the economic collapse of 2008. What a pain for sure.
It All Came Together
In the end, we did get the loan and got the house. Some details:
- The loan was a 30-year mortgage (a better-priced option than other loans) at a bit over 4% (I can’t remember the exact rate).
- I had to make six payments before I could pay it off completely, but after that I could pay it off without penalty.
- The OK house sold a month later and I paid the principal on the CO loan down to virtually nothing immediately.
- I paid the six payments as agreed and earlier this month paid off the entire loan. I am again debt free!
Other Options
We did consider other options besides buying a house in CO. These included:
- Renting an apartment or townhouse. This would allow us to be flexible and get to know the area a bit before buying a home. But the costs were pretty high (nice apartments with three bedrooms and one parking space were approaching $2,000 a month) and the concessions (limited parking and space, the fact that we’d have to move again once we found a place, etc.) were too.
- Buying a townhouse. We thought about simply downsizing into a townhouse or condo. The problem was that we are still a family of four, need the room, and townhouses often had constraints like limited parking, high monthly fees, and so forth.
- Buying a smaller home. We looked at homes in the $200k range as well but couldn’t find any in neighborhoods where we’d want to live.
If our kids had been out of the house (which is just a couple years away), we would have probably gone in a different direction.
In the end we ended up with a GREAT house, probably my favorite hove we’ve been in since we’ve been married.
So that’s the saga. Reading back over this post I see that I’ve gotten nowhere close to communicating what a painful process it was. But trust me, it was agonizing! And this was for a pretty qualified borrower. I wonder how people with questionable finances even get close to having a mortgage these days.
Anyone else out there had to deal with the mortgage process within the past five years or so? Was it difficult for you?
Seems like the government is trying to help bankers do their job….
We last took out a mortgage in 1993 and it was easy. We only had 5% down (we used the equity from the previous house sale to pay off graduate school student loans) but no problem. We also took out a mortgage in 1988, with 20% down, and that was easy as can be. It certainly sounds like the process has changed.
I know selling a house has become much more complicated as well, at least in Maryland. Potential buyers want places to look like they’re out of a magazine. People spend lots of time and money preparing to list their homes.
I’m glad you have a house you love, after this grueling process.
Sounds similar to when I bought my first home in 1986. If they had found out I had a car payment to my dad for $150 a month I would not have qualified for my home loan ( too much debt to income level by $20 a month) which was for a whopping $46,500 loan…. The BS I had to put up with was huge but worth it in the end.
It also sounds like they have finally tightened up the rules that were way to lax and probably a little overboard on that tightening. Yet the stories out there of the lose money are freighting.
A friends 75 year old father ( can’t discriminate because of age) on SS and no other income having a 30 year $155k loan on a condo. When he died the kids let the condo go to the bank as he had no assets to speak of and no will.
A 30 year old divorced woman at my work who had a $250K house no money down no closing cost and an income of $15 a hour. When she lost her job she just walked away form the house she could no longer afford.
Our next door neighbor who took all the equity out of his house and “invested” in this business scheme only to fail and having to sell his house in a short sale.
Yep.. they were stupid times 8 years ago and you are paying the price for those stupid times making your life harder.
I wonder if it would have been this difficult if you didn’t still own an existing home and didn’t have rental properties. I know people that are getting their first home in CA and had none of these obstacles. They simply had the 20% down and decent jobs and I assume decent credit scores.
I don’t know. But the fact that we put so much down just by itself make it seem like it should have been a lot easier.
Hmmm I refinanced our home at the end of 2012 to take advantage of the low rates…2.75%
I was expecting all sorts of grief as you describe but was essentially rubber stamped.
This may be because the economy was in recovery, i have a good credit score, loan to value etc.
The rental market in the north west is very tight rents can easily increase 30% in a matter of weeks. Imagine being priced out of the unit you previously were able to afford. This is a real problem for a lot of folks. Sorry that’s a bit off topic.
Our housing crunch makes owning a house a no brainer even with the maintenance costs taken into consideration.
I’m wondering if it’s the difference between a new purchase and a refi?
Or maybe my bank/realtor just don’t know how to manage the system?
Maybe the area of the country?
Within the last month I just closed on a refinance to a 15-year at 2.75%, no points or closing costs other than the cost of a new lender’s title policy, appraisal and recording costs. I have exactly 80% LTV (by choice). They did ask for a lot of information (I also have rental real estate), but I think it is just a required part of the underwriting process now. I never doubted that it would close, and if the bank had tried to increase the rate or closing costs I just wouldn’t have closed. Maybe borrowers have more leverage with a refinance? Or maybe the underwriter’s checklist of documents they need to paper their files have grown, but for qualified borrowers, once you jump through all the hoops, it’s still relatively smooth?
It would be great if a reader from the banking industry could fill in the blanks for us!
I don’t work at a bank in OK, but in IA, if there is any self-employment income, it is very difficult to get a real estate loan. I’m sure they needed 2 years of tax returns with all of the supporting schedules, and since you own rental properties, they would need all of the taxes and insurance so they could calculate a reserve amount you would need since you have more than one property financed (even though you own your home free and clear). Also, you better hope that there has not been a decline in your self-employment/rental income in your taxes or the income may not be allowed.
In the past 6 years they have been implementing the Dodd-Frank Act and that has caused the amount of paperwork we need to fill out to double if not more. We now have to show the ability to repay for all of our borrowers, and so the documentation that is needed is almost absurd. Also, just since October 2, 2015 we got a whole new set of rules that put up new timelines on when we need paperwork out. It has created a monster – and although I feel that getting paperwork to the consumer earlier is benefiting the customer, I don’t always feel that the customer cares about the paperwork/deadlines (they usually just want their house, or their cash if they are refinancing).
There are definite advantages towards a refi versus a purchase as they have already held the loan with you and should have a good chunk of the information ESI would have had to provide.
Anyways, I believe this would be the time to say that it is not exactly fun being a mortgage originator anymore…
Very helpful. Thanks.
I wonder if being new to your job had something to do with it, especially since you weren’t at your previous job for more than a couple of years. Still, as you point our, you put down more than 50%, were in the process of selling a fully-paid for house, and have a ton of assets. An eye opening post.
Typically, you only need to have one month of paystubs from a new job for it not to be an issue. There may have been a small hiccup due to the fact that you had a couple months off, but in all actuality, the down payment far outweighs a few months of unemployment.
Just last week, Freedom Mortgage Corp. paid $113 million to the government to settle claims that it certified loans to the FHA for underwriting that did not meet underwriting requirements–only the latest settlement in a long list of similar actions. (Read or watch The Big Short for more stories.) The deep problem leading up to 2008 was that the banks and mortgage companies did not fully document the loans they made — not even to their own fiduciary satisfaction; they just made loans and quickly sold off the mortgages to bond consolidators. The pendulum swing from that is what you are suffering from; now they have decided to document-proof themselves again every possible error. Consider your aggravation through all of this as your own personal contribution to prevent another 2008 for the rest of us.
So… thanks…?
Ha! You’re welcome! 馃檪
We bought houses and had mortgages in 2006, 2009 and 2014.
In 2006 it was about 2 sheets of paper, wink and a nod. We put $150k down on a $250k house.
In 2009, we were moved by my wife’s company (grandfathered in on purchasing our old home too, so we had cash on hand already), it was 3 weeks of needing every single piece of paper imaginable. We were putting down $170k on a $235k house. Pain, pain, pain.
In 2014, we moved on our own. Still had the old house, but it was under contract. We put down 20%, got a 5/1 ARM at 2.75% and it was easier than 2009, but not by much. Old house sold and we put the proceeds to the new house. We have about $35k left on the mortgage.
So yes, it is a regulatory over reaction the other way, they probably have to do all the paperwork and treat every applicant the same regardless of their situation.
Interesting to say the least.
Our experience is with Navy Federal Credit Union, Pentagon Federal, and USAA.
House purchased in 1996, sold 1998. (Small profit, despite short ownership time)
Current house purchased in 2006, refi in 2009. Transitioned from active duty with new jobs for wife and I. Maybe this transaction could have been troublesome with new jobs and not a great income to house debt ratio if we were a few years later. No doubt the house would have been 30% less too. Ugh.
Vacation house purchased in 2013.
Non of those were particularly painful. Not sure if it is the credit union variable. I think we are minimal credit risks similar to our author here.
Maybe the financial institution thought our author was not worth the trouble, with a history of so little debt. Ha.
Congratulations on your new job and house!
We bought a house in 2013 and they needed a lot of paperwork. Pulling together the paperwork wasn’t a big deal – it involved a few hours of work, but we were able to track everything down. The problem was that our mortgage broker asked us to email the files to him. We’d just gotten married and I’d changed my name, as well as my email address. My husband used my new email address, but left out one of my initials, so the email went to someone else. Suddenly a stranger–with my name–had access to all of my information about everything in my life (or at least it felt that way).
We immediately began to take steps to protect my identity, but that caused yet another headache because the lender needed documentation of any changes in our accounts.
The lesson for me was to always insist on using a secure method of sending personally identifiable or financial information. We should have thought of it earlier, but we were so eager to get the house that we weren’t thinking clearly. In looking back on the incident, I am also surprised that the broker/lender wasn’t on the hook to ensure a secure transmission. Thankfully nothing bad has happened to me, but I wanted to share the story in case it helps anyone else remember to be cautious since there is so much sensitive information involved in the transaction!
Wow. I never would have thought of that.
Thanks for sharing!! This advice could save someone a ton of trouble.
We tried to get a mortgage for another rental property last year and finally gave up. We have a paid off home (our first home and now rental property) as well as 35-40% equity in our current home. But because all of our income is self-employment income and it fluctuates, it became impossible for anyone to approve us. We finally gave up after 6 months and opened a SEP IRA to go along with our two Roth IRA’s. If we have extra cash after those three are fully funded each year, we’ll just pay off our current home faster (though we weren’t planning on it before). Probably not going to pursue any more property any time soon. But we should be really prepared for retirement, lol.
Bought a home in 2013. Citimorgage had issues with the fact that the statement for my checking account was generated on the 1st and the statement for my savings account on the 15th (both at the same bank) and that I could not “reconcile” $75 bi-weekly transfers (payday) between the two that had been occurring for years. I also had to resend the justification for the $1,500 my tenant sent me at least twice since I got two rent checks during the closing process. Oh yeah followed by the fact that I got a call 4 days before closing where they threatened not to close because the notes from the finished appraisal (new build) said the poach columns weren’t painted yet (February in the upper Midwest).
I found it a bit strange that you had $200,000.00 tied up in cash, presumably earning next to no interest. This is, again presumably, on top of your 6 months worth of expenses that you keep on hand. (I am guessing you keep more than 6 months worth as you are a pretty conservative and cautious person.) Did you simply have a recent windfall or do you always keep that much of your assets liquid?
No, we don’t always keep that much, but there are times (during a transition, when investments look expensive, when we’re saving for a larger investment, etc.) that we let cash build up.