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Looking back, I still can’t believe a bank gave me and my husband a mortgage amid a global pandemic. My husband had just cut his salary 50% and we were living with my parents in Westchester County, New York because we could no longer afford the rent on our Brooklyn apartment. But the house we bid on in Savannah (my husband grew up there) that we’d only seen online was on our budget – we ended up paying $ 340,000 for it and getting an interest rate of 3.25%. (This week, mortgage rates hit their lowest level since winter. Compare the best mortgage rates here.)
Now our monthly mortgage payment is $ 1,500 less than our Brooklyn rent. In New York City, some parking spaces are going for what we bought a whole house for in Savannah. Our real estate agent showed us around the house on FaceTime before we submitted our offer.
However, the mortgage approval process was so stressful that I lost weight. But we’ve got them better informed about mortgages and we’re so incredibly grateful for our home and the far less stressful life in Savannah. Here’s what we learned about getting a mortgage. (Here you can find the lenders with the best terms.)
1. I didn’t save as much for the deposit as I thought
I always thought that unless you had saved 20% of the cost of the house as a down payment, no one would give you a home. As creative professionals living in New York City for twenty years, we could hardly afford a babysitter – forget tens of thousands of dollars. Little did I know, however, that as a first time home owner with a credit score of 580 or greater, you could get a Federal Housing Administration (FHA) loan with just a 3.5% down payment. In our case, that was $ 11,900 that we had, if barely. (Do you need to save for your deposit? These are some of the best savings accounts out there.)
2. The APR on mortgages vary widely
Before we bought a house, I thought the mortgage rates were pretty tight. But when I started looking around, I saw rates that fluctuated up to 1%. That explains why it’s worth looking around for the best deal. (Here you can find the lenders with the best terms.) In fact, mortgage rates change every day, and finding the best rate can mean thousands and thousands of dollars that you will save over the life of the loan.
3. Getting pre-approved is easy. Getting the actual mortgage isn’t.
Most of the sellers we encountered wanted us to pre-approve a mortgage before considering an offer. Pre-approval was very simple, at least for us, – the lender checked our creditworthiness and monthly income – and gave us a pre-approval letter.
Getting the actual mortgage, however, was a whole different story. We had to submit our tax returns for the past two years along with proof of income and information about our assets. We also had to give the lender access to our daily transactions on our bank accounts. This made my husband so nervous that he was afraid to buy staple groceries himself for fear that a failed purchase would result in the underwriters rejecting our loan. That said, it was worth it (did you see how cute my house is ?!). (Here you can find the lenders with the best terms.)
4. Our lender got us to take a financial education course
While they were signing our loan, our lenders had us take a financial education course from Freddie Mac that included advice on how to budget, as well as suggestions on how much income to devote each year to home improvements to maintain the value of the house. In the end we had to pass an exam. My husband really appreciated this aspect of the process, even though the course took many hours – he had never had any financial literacy training before.
5. Our mortgage was sold before we made our first monthly payment.
Before we even paid our first monthly mortgage payment, our loan was sold to another bank. We found out when we received an account statement in the mail from a bank that was completely unknown to us. I almost threw the statement in the trash – luckily I had the foresight to open it. Apparently this is completely normal. The terms of our loan haven’t changed – the only thing that has changed is who we’re sending the money to.
Bottom line: A year later, and we’re incredibly grateful. Despite job losses and various other troubles, we never struggled to pay our mortgage. And every day this house that we found online feels more and more like our home. (Find the lenders with the best mortgage rates here.)