The Pre-Approval Aeneid

Well!

It's been a while, hasn't it?  I apologize.  For a long time, nothing much was happening on the condo front.  Then, too much was happening.  I'll try and work through the backlog here, in roughly chronological order, to the best of my recollection.

First topic: financing!

I previously described getting pre-approved for a mortgage.  You can get pre-approved from any lender at all; you aren't obligated to get a loan from them, and in fact, many people will get pre-approved from a traditional bank or broker that gives them great service, and then get their final loan from a cheaper source.  However, I wanted to go ahead and get pre-approved from the lender I was most likely to close with, so I shopped rates for two weeks, and ended up with San Mateo Credit Union.

Because this is the first time I had gotten pre-approved, I assumed that my experiences were typical.  In particular, I was surprised that, contrary to my expectations, they asked for a deposit and would only pre-approve me for a specific amount, one I had to guess myself.  Well, it turns out that that isn't the way everyone operates!

A pre-approval is only good for a certain time, in my case 2-3 months.  After that, you should renew it.  In my case, though, I really didn't want to.  Every time you renew a pre-approval, the lender pulls your credit again, which causes your credit score to drop a little more, which makes it harder for you to get a loan.  Yeah, I know, crazy, right?  As a result, I let my pre-approval lapse a few times, only renewing it when I thought there was a good chance that I would be making an offer soon.

Most recently, that was in early May.  I had decided to slightly change the range of properties I was looking at, which required a bump up in my pre-approval limit.  I felt comfortable going above it; I had chosen the original amount more or less at random, based on my comfort level at the time and expecting that my lender would automatically adjust it up or down to the "real" limit.  Since then, I had just been refreshing the same amount, but now I wanted to hit a specific target; my finances have improved since my first round, and I felt comfortable with a bigger figure.

Since it had been so long since my original submission, the folks at the credit union asked me to start my application over again.  Which was fine; because I was asking for more, I wanted to be sure that they saw my most recent paycheck, bank statements, etc.  I got to the end of the application, and came to an ugly realization - they were asking me for a $250 deposit, but unlike the last time, this was non-refundable.  If I went ahead with a loan, they would apply it to my closing costs, but otherwise, they would just keep it.

Needless to say, I was peeved.  This was a pre-approval!  I understand that they incur a cost to pull my credit, but even so, if they're going to charge me for it they should just charge for the pull.  And really, this should just be part of the cost of them doing business.  "Is this customary?" I wondered, and I dusted off my old list of links from summer 2009 when I first went shopping rates.

Well, well, well... turns out that things can change in a year!  In 2009, San Mateo Credit Union was hands-down the best lender for my type of loan (conforming mortgage on a condo, 20% down).  Both their fees and their rate were lower than anyone else, across the multiple weeks that I monitored things.  Now, though, Provident Credit Union had come roaring back.  Provident is another regional credit union, although they cover the entire Bay Area and not just the Peninsula.  Their fees were now just a little larger than SMCU's, where before they were about $5000 more expensive.  And, their rates were .15% less... not huge, but enough to make a difference.  I did some quick calculations, and realized that Provident's rates would more than make up for their higher fees in the first year.

I dug a little more.  Both Provident and SMCU use the same back-end service for loan application/pre-approval, but Provident doesn't charge a bogus $250 deposit.  Score!  I happily took my business elsewhere.  The process was a breeze, and unlike my initial SMCU experience, they completed the whole thing online and furnished me with an initial pre-approval letter in my browser.  Success!

The good times didn't end there, though.  I was soon contacted by a loan officer from Provident who asked me to send him my proof of income and assets.  I complied - I already had my letter, but would need to do all that stuff if I went ahead with the loan anyways, so why not get it over with?  He was great, keeping in touch via email, and went ahead and told me the maximum I qualified for, without me even asking.  He even sent me an Excel spreadsheet, personalized for my type of loan, where I could play with different figures to see what my monthly payments would be.  That's the sort of thing you can find online, but still, it was a great convenience, a nifty use of technology combined with a personal touch.  He also went out of his way to tell me that he could re-generate a loan approval letter for me when I'm ready to make an offer (to avoid tipping my hand in negotiations).

As you can probably tell, I'm now a fan of Provident.  I went ahead and became a member, and, assuming that their rates stay at about the same spot relative to their competitors, will most likely take my final mortgage from them.  The whole thing is kind of funny - because San Mateo Credit Union tried to get $250 out of me, they'll end up missing out on hundreds of thousands of dollars in interest that they could have collected out of the life of my loan.  I suppose a business person could draw some sort of conclusion from that.