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Looking back, I still can’t believe that a bank granted me and my husband a mortgage in the midst of a global pandemic. My husband had just seen his salary cut by 50% and we were living with my parents in Westchester County, New York because we could no longer afford the rent on our apartment in Brooklyn. But the house we were bidding on in Savannah (my husband grew up there), which we had only seen online, was within our budget – in the end we paid it $ 340,000 and got a rate interest of 3.25%. (This week, mortgage rates hit their lowest level since the winter. Compare the best mortgage rates here.)
Now our monthly mortgage payment is $ 1,500 less than our rent in Brooklyn. In New York City, some parking spaces are reserved for the purchase of an entire home in Savannah. Our real estate agent gave us a tour of the house on FaceTime before presenting our offer.
However, the mortgage approval process was so stressful that I lost weight. But we left him more educated on mortgages and so incredibly grateful for our home and much less stressful life in Savannah. Here’s what we learned about getting a mortgage. (You can find the lenders with the best rates here.)
1. I didn’t need as much savings for the down payment as I thought I would.
I always thought no one would give you a house unless you saved 20% of the cost of the house as a down payment. As creative professionals living in New York for twenty years, we could barely afford a babysitter – forget the tens of thousands of dollars. I didn’t realize, however, that if you’re a first-time homeowner with a credit score of 580 or higher, you qualify for a Federal Housing Administration (FHA) loan with only a 3.5% down payment. In our case, it was $ 11,900, which we had, but barely. (Need to save for your down payment? These are some of the best savings accounts.)
2. Mortgage APRs vary a lot
Before buying a home, I thought mortgage rates were pretty much fixed. But when I started to look around I saw rates that ranged up to 1%. This explains why it is worth shopping around for the best quote. (You can find the lenders with the best rates here.) That’s because mortgage rates change every day, and finding the best rate can mean thousands and thousands of dollars in savings over the life of the loan.
3. Getting pre-approved is easy. Getting the actual mortgage isn’t.
Most of the sellers we met wanted us to be pre-approved for a mortgage before considering an offer. Getting pre-approved, at least for us, was very easy – the lender checked our credit score and monthly income – and gave us a pre-approval letter.
Getting the actual mortgage, however, was a whole different story. We had to provide our tax returns for the past two years, as well as supporting income and information about our assets. We also had to let the lender have access to our daily transactions in our bank accounts. It made my husband so nervous that he was afraid to buy even basic groceries for fear that a stray purchase would force insurers to deny our loan. That said, it was all worth it (have you seen how cute my house is ?!). (You can find the lenders with the best rates here.)
4. Our lender gave us a financial literacy course
While they guaranteed our loan, our lenders gave us a financial literacy course from Freddie Mac that included tips on how to create a budget, as well as suggestions on how much income to allocate each year to home improvements in order to maintain the value of the house. At the end, we had to take a test. My husband actually enjoyed this aspect of the process, even though the course lasted for many hours – he had never taken 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 a 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. This is apparently quite normal. Our loan terms haven’t changed – the only thing that has changed is who we send the money to.
At the end of the line : A year later, and we are incredibly grateful. Even despite the loss of employment and various other difficulties, we never had a problem paying our mortgage. And every day this house that we found online looks more and more like our house. (You can find the lenders with the best mortgage rates here.)
Also see: Consider These 8 Things Before You Refinance Your Mortgage