6 Mistakes I Made When Getting My First Mortgage
I almost lost my first house and my deposit.
After working one and half years, I decided to buy my first house. I was working in the mortgage industry so had the basic knowledge of how to get a mortgage. But I still made quite a few mistakes and I almost lost my first house and deposit.
Like most home buyers, I went straight to Zillow and Redfin to look for houses. Every day after work I spent hours looking at houses online.
I had no idea what I wanted. I went from condo to townhouses to single family houses and to million dollar houses. My budget went from 100k to millions!
Finally I stopped myself and went back to looking only for a 100k condo.
That was my Mistake #1: I didn’t talk to a loan officer first to find out my borrowing limit. I had wasted my time browsing houses online.
What I should have done: Talk a loan officer and get an estimate of my borrowing limit. A responsible loan officer would ask to see my pay stub/ tax return and pull my credit report to give me an accurate number.
After days of researching online, I had my eye on some 100k to 200k condos. I knew if I put a 20% down payment, I would need 20k to 40k cash.
That was my Mistake # 2: I didn’t even consider putting 3% down payment instead of 20%.
With knowledge from my mortgage job, I knew if I put less than 20% down payment I would have to pay mortgage insurance. But I didn’t know how much my mortgage insurance payment would be each month.
What I should have done : Ask a loan officer to give me a breakdown of scenarios of 3% down payment vs 20% down payment so I could better assess which one would work better for me.
Pro of 3% down payment: Fast/easy to save for down payment.
Con of 3%: PMI each month until I accumulate 20% equity (how to get rid of PMI) causing a higher mortgage payment each month. Also, I may not qualify for 3% down payment because of DTI rule (What is DTI)
Pro of 20%: no PMI, lower mortgage payment.
Con of 20%: Slow/hard to save for down payment. Tie too much cash in house while I could use it to pay off debt or invest.
One weekend I went to visit an open house by myself. There I met the listing agent and he became my realtor later on. A week later, I put an offer on a 100k+ condo and the seller accepted my offer. It was after the 2008 financial crisis so the seller was happy to receive any offer.
In the following 10+ years, I bought another 6 houses. I also became a Realtor and helped friends sell and buy houses. Now thinking back, I made some mistakes when buying my first condo. There was information I wish I had known that my realtor should have told me . That will be in another blog.
I used the loan officer my realtor recommended to me and submitted my application.
That was my mistake #3: I didn’t even shop for interest rates!! I’m a thrifty person and I compare prices even when buying toothpaste! However, for the biggest purchase I ever made I didn’t even get another interest rate quote from another lender.
What I should have done : I should have asked at least 3 brokers or correspondent mortgage lenders for their interest rate and origination fee.
I wouldn’t bother to ask banks because my loan amount was small (less than jumbo loan limit 822k) . I know banks can’t give me competitive rates like brokers. But if you are buying a million dollar house, you should definitively ask banks instead of brokers.
Now I use the website MRateQuote.com to shop for the best interest rates. According to the information I fill out on this website, it will connect me with 3-5 loan officers who offer competitive mortgage rates. It is the most reliable way to compare interest rates fast and easily.
My loan officer asked me for more documentation about my graduate school.
That was my mistake #4: I didn’t have 2 years work history. It was required to have a minimum history of two years of employment income. But luckily my graduate school experience was used to justify that my employment was stable.
Also my mistake #5: I had just changed jobs. Changing jobs right before applying for a mortgage could be tricky. But luckily I was still in the same financial industry and I was still getting paid by salary (I hadn’t changed to contractor), so that didn’t cause me any issue.
After back and forth for weeks, my loan was finally approved!
I consider myself lucky and I also had a good loan officer. If the lender had been a little pickier, I could have lost my earnest money because by that time my finance contingency in the contract had expired. (I didn’t even know that I was risking losing my earnest money.)
Ok. There was one more mistake I made.
My mistake #6: I didn’t count closing costs when I budgeted for buying a house! But during the time I was house hunting, I was saving most of my salary. So I was able to pay the extra few thousand dollars closing cost.
What I should have done : I should have researched how much closing costs I needed. Also, in my offer I could have asked the seller to cover part of my closing costs. I wish my Realtor had told me.
In today’s market, buyers can’t even think about having the seller cover their closing costs. You should be happy that the seller didn’t ask you to cover their cost! But, keep this option in mind, because who knows how the market may change in the next 10 years.
Those were the mistakes I made when buying my first house.
Today I see many buyers still making the same mistakes I did. And they are at risk of losing money or wasting money when they make their biggest purchase in life.
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