The last thing I had to do before getting my keys was conduct the final walkthrough. It's generally a formality. The idea is to check and make sure that the property is still in the same condition as when you agreed to buy it: you can check and make sure that the owner didn't tear out the stove, or knock a hole in the closet, or whatever.
In my case, because the loan was funding on the 9th, I had to do the walkthrough before then, even though the tenant wouldn't be moved out yet. This isn't ideal, but is better than the alternative of finding out too late about something bad which had happened. We eventually scheduled it for the Tuesday after Labor Day.
I showed up at 9AM to find Matt in an animated conversation with the tenant. Apparently, the listing agent or someone had failed to notify her about the walkthrough, and she was kind of freaking out. She didn't want to let us in, because she was in the middle of moving, and had so many boxes out that you couldn't even walk around.
Matt and I huddled; he said he'd contact Regina, who would get in touch with the listing agent and work it out. We were running short on time, and while the walkthrough shouldn't be a big deal, I still wanted to check on the property.
Before heading in to work, I swung by Provident's Millbrae branch. It's tiny, but pleasant. The teller gave me another wire form, which I filled out with Kathy's instructions. Her information didn't completely line up with all of the boxes on the form, so I filled it out the best I could, repeating some information in multiple places. I felt just a little nervous - after all, I was moving a LOT of money, and hated the idea of it disappearing into someone else's bank account by mistake.
Later in the day, I got an email from Kathy, who said that the sellers had indicated while signing that they would be doing a 1031 tax exchange. I was already very familiar with this - several properties I'd been interested in earlier on had been 1031-ing properties, so I had already done all my research on what that meant - but it was still amusing and pretty unsurprising that they hadn't mentioned it before now. I signed the form, sent it back, and asked Kathy if she could check on my fund deposit. She confirmed that the monies (I love that word!) had arrived safe and sound, and I breathed a deep sigh of relief.
The walkthrough got squared away, and we rescheduled for the next day at 11:30AM. The tenant was present, and this time was all smiles and friendly. The condo was almost exactly the same as before, just very obviously in the middle of moving; I did see some scratched paint in the bathroom, but it didn't seem worth making a fuss over. The tenant talked a bit about how nice the unit was, how she wanted me to like it, and asked if I wouldn't mind holding on to a package that she would be receiving in a few weeks.
We walked out, I signed the walkthrough form, and Matt and I shook hands. He mentioned that it hadn't taken too long for me to find what I wanted. I agreed, and pointed out that Redfin really shines in that regard - their awesome website had done a lot to help me narrow down what I was interested in, and combined with my own side research (walking tours of neighborhoods, demographic research, etc.), I had an excellent idea of what I wanted before I even started touring. All in all, a pleasant experience, bumps in the road notwithstanding.
Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts
Friday, December 17, 2010
Friday, December 10, 2010
Default Title
California is a very chill state. They're very libertarian, live-and-let-live folks, where people just kind of do their own thing and everyone else thinks that's great.
That same philosophy applies to closing. In other states, closing is a bit of a theatrical production: all the actors assemble in one room, walk through a ritual of signing, papers are passed back and forth, checks are written, and at the end you own a home. In California, it's way more relaxed. In the Bay Area, title companies also handle escrow duties. I could show up whenever I wanted, sign my papers, and be done with it.
We were with Fidelity National Title company. I'm still not clear on exactly how we ended up with them, whether it's the seller's choice, the lender's, or some other decision. Their office was in Burlingame, decently close to the property in question, and also within easy walking distance of the Burlingame train station. I had dropped by there earlier to drop off a check for my 3% earnest money deposit. Now, I ambled over about a week before closing to take care of signing.
There were a ton of documents, but according to my escrow officer, it's actually quite a bit less than normal - apparently Provident isn't as paper-happy as other lenders. We sat down in a conference room and went through it. For each page, Kathy described what it was about and pointed out the most important points, then indicated where I should sign or initial. In a few cases I had questions or scanned to make sure the numbers were right, but for the most part everything was really straightforward. It definitely helped that I had seen a lot of the important documents before, like the appraisal, the Truth-In-Lending disclosure, and so on. A lot of the other stuff was more or less boilerplate: I agreed to pay back the lender, I agreed to keep the property in good condition, I agreed to notify the lender if any adverse action affected the property, and so on.
I initially blanched when I saw some of the fees, but upon further reflection, I realized that they were actually lower than the initial estimates I had received. I don't remember the exact figures, but I think that the lender's title insurance had been estimated at $2100 and my title insurance at $1900; the actual figures were more like $1800 and $1700. There's a lot of dumb stuff in there, like an "email doc fee" of $50, but even with those I was coming in under budget. I'd read earlier that, with the recent financial reform laws and improved truth-in-lending laws, stated fees were increasing because lenders no longer have the leeway to jack them up at closing. Which works for me - under-promise and over-deliver is one of the very best policies there is.
The whole process took less than half an hour. The sellers would be signing their own documents at some other time. The lender would sign the funding documents on the 9th. Everything is written to be contingent on everything else, so once everyone has signed off, stuff just triggers, and the deal is done. Less dramatic, but way more relaxing, just the way I like it.
I asked Kathy about the closing costs. There was a sum - yes, a pretty large sum - that I still had to pay, which would cover the remainder of my down payment and all the fees. This needs to be paid in "ready money", and I had just learned that Provident does not offer cashier's checks. They do offer "corporate checks" and money orders, but Kathy said that neither would work for this transaction. Therefore, I would have to wire.
I've received wires before - it's how Apress handles advances and royalties - but hadn't sent one. Provident has an excellent online banking system, and I tried to use their "Contact Us" section - which includes a helpful option called "Wire Transfers" - to schedule one. They politely wrote back, included a form that I would need to fax or fill out and bring in. Wires over $50k need to be done in person, so that's what I would be doing.
That same philosophy applies to closing. In other states, closing is a bit of a theatrical production: all the actors assemble in one room, walk through a ritual of signing, papers are passed back and forth, checks are written, and at the end you own a home. In California, it's way more relaxed. In the Bay Area, title companies also handle escrow duties. I could show up whenever I wanted, sign my papers, and be done with it.
We were with Fidelity National Title company. I'm still not clear on exactly how we ended up with them, whether it's the seller's choice, the lender's, or some other decision. Their office was in Burlingame, decently close to the property in question, and also within easy walking distance of the Burlingame train station. I had dropped by there earlier to drop off a check for my 3% earnest money deposit. Now, I ambled over about a week before closing to take care of signing.
There were a ton of documents, but according to my escrow officer, it's actually quite a bit less than normal - apparently Provident isn't as paper-happy as other lenders. We sat down in a conference room and went through it. For each page, Kathy described what it was about and pointed out the most important points, then indicated where I should sign or initial. In a few cases I had questions or scanned to make sure the numbers were right, but for the most part everything was really straightforward. It definitely helped that I had seen a lot of the important documents before, like the appraisal, the Truth-In-Lending disclosure, and so on. A lot of the other stuff was more or less boilerplate: I agreed to pay back the lender, I agreed to keep the property in good condition, I agreed to notify the lender if any adverse action affected the property, and so on.
I initially blanched when I saw some of the fees, but upon further reflection, I realized that they were actually lower than the initial estimates I had received. I don't remember the exact figures, but I think that the lender's title insurance had been estimated at $2100 and my title insurance at $1900; the actual figures were more like $1800 and $1700. There's a lot of dumb stuff in there, like an "email doc fee" of $50, but even with those I was coming in under budget. I'd read earlier that, with the recent financial reform laws and improved truth-in-lending laws, stated fees were increasing because lenders no longer have the leeway to jack them up at closing. Which works for me - under-promise and over-deliver is one of the very best policies there is.
The whole process took less than half an hour. The sellers would be signing their own documents at some other time. The lender would sign the funding documents on the 9th. Everything is written to be contingent on everything else, so once everyone has signed off, stuff just triggers, and the deal is done. Less dramatic, but way more relaxing, just the way I like it.
I asked Kathy about the closing costs. There was a sum - yes, a pretty large sum - that I still had to pay, which would cover the remainder of my down payment and all the fees. This needs to be paid in "ready money", and I had just learned that Provident does not offer cashier's checks. They do offer "corporate checks" and money orders, but Kathy said that neither would work for this transaction. Therefore, I would have to wire.
I've received wires before - it's how Apress handles advances and royalties - but hadn't sent one. Provident has an excellent online banking system, and I tried to use their "Contact Us" section - which includes a helpful option called "Wire Transfers" - to schedule one. They politely wrote back, included a form that I would need to fax or fill out and bring in. Wires over $50k need to be done in person, so that's what I would be doing.
Friday, December 3, 2010
We're in the Money
The loan approval came back thumbs-up: I was funded!
By now we were less than a week away from my originally scheduled closing date of September 2nd. Due to all the uncertainty around the deal, the tenant had not yet started moving out. The sellers asked if I could push back the closing date to September 10th so she would have time to relocate. I agreed - I was happier with closing later in the month anyways, and in any case, I was willing to do whatever it took to avoid needing to deal with an eviction.
At last, I let myself exhale and started to believe that this was actually happening. I began taking care of all the little stuff in life that would need to happen as part of my move.
I switched over my electrical utilities. This was all quite easy to do online - it took a little while to find the right options on the PG&E website, but once I did, it was pretty automatic. One oddity was that, while I was turning on the power in my new place on 9/10, they wouldn't let me keep power in my old place later than 9/23. I'm not sure if this is because they don't allow more than a 2-week overlap between services, or if it was because of the date when I was submitting the request. In any case, while I still would have my apartment until 9/30, I was planning on being all moved out by then, so didn't see a problem even if they cut the power early.
Next up was Internet. Again, Comcast lets you shop for stuff and schedule it online, but requires you to complete the order with a chatroom-esque customer service rep. Once again, I was blown away by how positive the experience is. I know that everyone loves to hate Comcast, but they really do have great customer service. They let me order my internet-only package at the promotional price even though I was a current customer and wasn't getting any of the bundled services; and, the rep even knocked my installation fee in half without any prompting. Good stuff. (All their goodwill would be promptly annihilated a few weeks later when I met the Incompetent Install Technician from Hell.)
I'd decided that I would switch over insurance agents as part of the move. For some reason my lender doesn't require HO-6 insurance, but I wanted to get it anyways, because, y'know, it's smart. I scouted for local agents in Millbrae, found one I liked, and started moving stuff over. This turned out to actually be the single most difficult of my various transactions, because my previous agent did not want to let me go. I think it's actually easier to switch between different insurance companies than to switch between different agents in the same company. It took a couple of phone calls and a firm written letter until I got my policies set up with my new agent. (If I had to do it again, I probably wouldn't have bothered. One of the funny things about all this is that, in the more than five years I've been with my agent, this is the first time we've ever actually talked; previously everything was handled through his staff or online.)
Last but not least: the move. I'd thought for a while that I would pay for a moving company. I used to move myself, but it was always incredibly stressful. The last time I moved was from Kansas City to San Jose, and hiring professionals (Allied, in that case) was so great that I decided it would be well worth doing again. Unfortunately, all of my friends and relatives move themselves, so I didn't have any good referrals. Instead I hit up the online review sites (Yelp, Angie's List, Google Local, etc), scouted out a few places, followed up with three (Go Pro Moving, Lunardi Moving, and one other whose name escapes me at the moment), and eventually decided to go with Go Pro. None of the companies was willing to do an an-person binding estimate, which I kind of understand - especially for a 1-bedroom single guy like me who is packing himself, they aren't making a lot of money on me anyways, and so the time it takes to drive out and do the estimate isn't worth it for them.
I decided to wait until later for a few other things - updating the Post Office and my magazine subscriptions, for example. I was now more or less set, and coming down the home stretch.
By now we were less than a week away from my originally scheduled closing date of September 2nd. Due to all the uncertainty around the deal, the tenant had not yet started moving out. The sellers asked if I could push back the closing date to September 10th so she would have time to relocate. I agreed - I was happier with closing later in the month anyways, and in any case, I was willing to do whatever it took to avoid needing to deal with an eviction.
At last, I let myself exhale and started to believe that this was actually happening. I began taking care of all the little stuff in life that would need to happen as part of my move.
I switched over my electrical utilities. This was all quite easy to do online - it took a little while to find the right options on the PG&E website, but once I did, it was pretty automatic. One oddity was that, while I was turning on the power in my new place on 9/10, they wouldn't let me keep power in my old place later than 9/23. I'm not sure if this is because they don't allow more than a 2-week overlap between services, or if it was because of the date when I was submitting the request. In any case, while I still would have my apartment until 9/30, I was planning on being all moved out by then, so didn't see a problem even if they cut the power early.
Next up was Internet. Again, Comcast lets you shop for stuff and schedule it online, but requires you to complete the order with a chatroom-esque customer service rep. Once again, I was blown away by how positive the experience is. I know that everyone loves to hate Comcast, but they really do have great customer service. They let me order my internet-only package at the promotional price even though I was a current customer and wasn't getting any of the bundled services; and, the rep even knocked my installation fee in half without any prompting. Good stuff. (All their goodwill would be promptly annihilated a few weeks later when I met the Incompetent Install Technician from Hell.)
I'd decided that I would switch over insurance agents as part of the move. For some reason my lender doesn't require HO-6 insurance, but I wanted to get it anyways, because, y'know, it's smart. I scouted for local agents in Millbrae, found one I liked, and started moving stuff over. This turned out to actually be the single most difficult of my various transactions, because my previous agent did not want to let me go. I think it's actually easier to switch between different insurance companies than to switch between different agents in the same company. It took a couple of phone calls and a firm written letter until I got my policies set up with my new agent. (If I had to do it again, I probably wouldn't have bothered. One of the funny things about all this is that, in the more than five years I've been with my agent, this is the first time we've ever actually talked; previously everything was handled through his staff or online.)
Last but not least: the move. I'd thought for a while that I would pay for a moving company. I used to move myself, but it was always incredibly stressful. The last time I moved was from Kansas City to San Jose, and hiring professionals (Allied, in that case) was so great that I decided it would be well worth doing again. Unfortunately, all of my friends and relatives move themselves, so I didn't have any good referrals. Instead I hit up the online review sites (Yelp, Angie's List, Google Local, etc), scouted out a few places, followed up with three (Go Pro Moving, Lunardi Moving, and one other whose name escapes me at the moment), and eventually decided to go with Go Pro. None of the companies was willing to do an an-person binding estimate, which I kind of understand - especially for a 1-bedroom single guy like me who is packing himself, they aren't making a lot of money on me anyways, and so the time it takes to drive out and do the estimate isn't worth it for them.
I decided to wait until later for a few other things - updating the Post Office and my magazine subscriptions, for example. I was now more or less set, and coming down the home stretch.
Tuesday, May 11, 2010
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.
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.
Thursday, July 16, 2009
The Pre-Approval Odyssey
In keeping with my 12-month plan for condo capture, I recently went through the mortgage pre-approval process. I wanted to share the account here while memories are still fresh.
In the Bay Area, most people recommend that buyers get pre-approved before they even start hunting for a house. I think a big part of the reason why is because housing is (still) incredibly expensive here. Going through this process serves as a reality check early on. It would really suck to spend months finding the right property, go through the hassle of negotiating a great price, only to find out that nobody will lend you money to close the deal.
A pre-approval means that you go through all the steps you would take when actually applying for a loan. The lender will pull your credit, verify your assets and income, and see whether you can afford the loan. If you pass all these tests, they give you the thumbs-up in the form of a pre-approval letter. You can show this to potential agents (it shows you're a serious buyer) and sellers (it shows that you can close the deal).
There are some disadvantages to pre-approval:
If you aren't planning on buying in the near future (for example, you might be thinking of buying between 1 and 2 years from now), it may make more sense to get pre-qualified. Pre-qualification involves you telling a lender how much you have, how much you make, etc., and then having them tell you how much they would be willing to lend you. Importantly, the lender in this case does not verify what you've told them. As a result, it's considered weaker than a pre-approval. It won't carry the same weight with a buyer, but it could be a useful tool for estimating how much you can afford.
An important note: as people keep on saying, only YOU can REALLY know how much you can afford. The lender may estimate that you can pay, say, up to $2000 a month on your mortgage, but they don't know what your lifestyle is or what other non-loan obligations you have. I'm trying to play it conservatively, resisting the temptation to lend as much as I can possibly get, and instead making sure that I can comfortably maintain my lifestyle even in a new place.
Anyways. You can get pre-approved from any place where you would get an actual loan. I decided that I would scope out a few representative samples from different classes of lenders (local banks, national banks, credit unions), except for mortgage brokers. I'll admit that I've been a little worried by the stories I've heard of hard-riding mortgage brokers... even if they didn't act unethically like many did during the boom years, their incentive structure pushes them to lead people into the loans that give them the best profits, which aren't necessarily the best loans for me. My plan has been to get pre-approved by a more conventional lender, and then when the time comes to actually apply for a loan on a specific property, I'll use that lender's rates to shop around the mortgage brokers to see if any of them actually can get me an absolutely better deal.
Now, theoretically, I could just pick any old bank or whatever to get pre-approved. I decided, though, that I wanted to get pre-approved with the lender that I'd be most likely to actually use... it seemed like a good idea to get comfortable with them, experience the process the way they did it, and hopefully cut down on the volume of work that I'd need to do when the real deal came along. So, in essence, I started doing the process of applying for a loan, just half a year before I find a condo.
To make a real apples-to-apples comparison, you need to contact all prospective lenders on the same day - rates fluctuate on a daily basis, or even more often. So I spent some time collecting prospective lenders. This mainly involved Google searches and Google maps, along with a few things that just occurred to me. My final set of candidates was:
Credit Unions
Provident Credit Union
San Mateo Credit Union
Technology Credit Union (disqualified since they currently don't make condo loans)
Regional Banks
First Republic
California Bank & Trust
Union Bank of California
Borel Private Bank & Trust
National Banks
Wells Fargo
Chase
Fortunately, most banks have online forms that you can fill out to get customized rate quotes. This is much better than a static web page, which probably just lists the most common rates (likely the 15 and 30 year fixed for SFDs). The web sites should also show what your closing costs can be, which vary drastically - even at 0 points, they varied from about $2000 to more than $7000. So don't just look at the rate - the closing costs can drastically raise the total price. This is to some extent reflected in the APR, as opposed to the rate, but the translation is complicated... if you divide the closing costs over 30 years of the loan, it may look reasonable, but if you sell in 5 years, it will look much worse.
I compared all the rates I could get within 1 day. I found that the credit unions were the cheapest. Some regional banks were nearly as good, while others had the highest rates of all. The national banks tended to be high. I checked again about 10 days later, this time just focusing on the top contenders from the first round. In both cases, San Mateo Credit Union had the best rate AND the best closing costs. I decided to make my move.
I'm not a member of SMCU, but I am a big fan of credit unions - I've belonged to one particular credit union for over a decade, and have been extremely pleased at their service. SMCU has a web portal that you can use to apply for pre-approval. This appears to be a service that they've acquired, rather than something built in-house, because Provident Credit Union seems to have the same system.
The online application was pretty good to use. There are really helpful FAQs that display while you're filling it out. It lets you save your progress and return later, which is great - it takes time to fill out, and I needed to occasionally wait so I could look up an old pay stub or something. One thing that confused me a little bit was a by-product of the fact that the exact same form is used for pre-approval as for regular approval. Based on what I had read, I had imagined that I would just supply my financial data, and it would spit out a number for me. Instead, they wanted to know how much the property would be worth and what size of a down payment I would make on it. I put in a number that I considered to be at the high end of what I would spend. Then I filled out the remainder of the form, including all my assets. Then I went back and adjusted downward my down payment and purchase price. I'd realized that my documented assets would just barely cover the down payment and closing costs, not leaving any cushion for reserves. In practice, I would be OK with this - I have funds in retirement accounts and personal stocks and such that I could tap for reserves in an emergency - but I knew that I didn't want to stretch that far, and in any case, I was started to get worried and confused about the whole pre-approval process. Would they give me the "magic number", in which case it didn't matter what I put down here? Or would they only give me a thumbs-up or thumbs-down, in which case I'd want to be careful to ensure that I selected a reasonable value?
After a couple of days, it was all filled out and ready to go. I was surprised to note that Firefox, which had been great up until now, wasn't working on the page where I was supposed to read and acknowledge all their disclosures. Or, to be more accurate, their site wasn't working right. I viewed the page source and checked out the javascript, for old time's sake. My hunch is that they hadn't re-worked it yet for Firefox 3, which probably has a different ECMAScript engine. Anyways, I had to wait a while longer, then I did it again in Safari, and this time it went through.
At the start of the process, the page had said that they use an automated underwriting system that is capable of making many decisions automatically online, in which case they would just produce a pre-approval letter that I could print. They also warned that in some cases, their system can't handle it, and a person needs to finalize it. I fell into the second category. They gave a nice, descriptive message, and told me to expect a call soon.
I was contacted the next Tuesday by SMCU. She noticed that I wasn't an SMCU member and said that I'd need to join. I'd been surprised before that they didn't ask about this in the online form. The entrance requirements for SMCU are stricter than for Provident, and while I knew what I'd need to do to join, I hadn't wanted to set up an account until I was sure I'd be going with them. In the back of my mind, I thought that since I was applying for a property in San Mateo County, that would make me eligible right away. That isn't the case. We chatted about that a little, and I filled out an application and sent it in.
She also asked me to send in some documentation. I'm still not totally clear on the automated underwriting system, but I suspect that for borrowers getting very conventional loans with very high credit scores, those borrowers are statistically far more likely to be financially sound, and so those people wouldn't need to furnish actual proof of their finances. For whatever reason, I didn't fall into that category - I suspect that it has become much harder since the credit bubble burst. She asked me to send in my previous 2 years W2s, my 2 most recent pay stubs, and the most recent bank statements from the accounts I'd be tapping for my down payment. I also needed to sign several forms - one acknowledging my right to a copy of any appraisal report, another authorizing anyone to release my financial info to SMCU, and a copy of the Fair Lending Notice.
I'm Generation Y (or whatever they're calling us now), and do everything online. I've long stopped receiving paper copies of bank statements, bills, and so on. I hoped that printouts for everything (including my pay stubs) would be acceptable. They were.
She also asked me to send in a $275 good faith deposit. That threw me for a loop. In all the dozens of books and articles I'd read advising my to get pre-approved, none of them had mentioned that you'd need to pay hundreds of dollars for it. In fact, many touted the fact that it was free. We went back and forth on this a little bit until I understood it. It wasn't an application fee - they wouldn't cash it, and would just hold it until an eventual application. If I ended up deciding not to buy a property or went with another lender, I'd get it back, minus a $10 charge for a credit check. That seemed way more reasonable. Also, she clarified that I would still be free to apply for a slightly different form of mortgage - even though I applied for a 0-point version, I'll probably try and buy a discount point if I can on the actual property.
Everything was kind of staggered - I gathered the documentation, signed the forms, and faxed everything in the next week. I also mailed in the check around the same time. Then I played the waiting game. Then I played Hungry Hungry Hippos.
Finally, a call at work: my mortgage was approved! I felt very happy. She asked if I would like her to mail me the pre-approval letter; I said yes. She reminded me that I still needed to become a SMCU member and send in the good faith deposit; I told her that both were already on their way.
I got the actual pre-approval letter in the mail the next day. It looks like they didn't need to wait for my check or membership to issue it, although both would be required to actually apply for the loan. It's a simple, one-page document that lists the type of loan and the amount. Interestingly, it just listed the loan amount, not the purchase amount, which means that buyers would need to trust that I do actually have the down payment for cash that I said I did. Also, I was disappointed to see that the letter was for the exact amount that I had put down in my application. I had really hoped that they would calculate an upper maximum for me, but it looks like they just run the numbers for what you submit. If I had realized that, I would probably have tried for the original, higher amount that I was considering, just since it feels like that's probably closer to my maximum.
This letter is good for 60 days, so it will certainly expire before I buy a property. Depending on the status of my search, I might renew when it expires, or may wait a bit longer until I'm closer to searching in earnest. The next time, I'll almost certainly put in the higher amount... not that I'm planning on borrowing more, but that should let me know just how much flexibility I have, and may reassure sellers about my resources.
All in all, it's been a good experience. I've definitely learned a lot - going through this process is quite a bit different from the breezy paragraph-long exhortations that everyone writes about. Most importantly, I feel like I now have an actual, official green light to move forward with condo capture.
In the Bay Area, most people recommend that buyers get pre-approved before they even start hunting for a house. I think a big part of the reason why is because housing is (still) incredibly expensive here. Going through this process serves as a reality check early on. It would really suck to spend months finding the right property, go through the hassle of negotiating a great price, only to find out that nobody will lend you money to close the deal.
A pre-approval means that you go through all the steps you would take when actually applying for a loan. The lender will pull your credit, verify your assets and income, and see whether you can afford the loan. If you pass all these tests, they give you the thumbs-up in the form of a pre-approval letter. You can show this to potential agents (it shows you're a serious buyer) and sellers (it shows that you can close the deal).
There are some disadvantages to pre-approval:
- Because the lender is checking your credit, it counts as a loan application to your credit score. As a result, your credit will drop. I'm not sure yet how by much.
- There can be some fees involved (more on this later).
- It's relatively time-consuming.
- A pre-approval is only "good" for a certain period of time, typically 3 months or so. You'll need to re-pre-apply to extend it.
If you aren't planning on buying in the near future (for example, you might be thinking of buying between 1 and 2 years from now), it may make more sense to get pre-qualified. Pre-qualification involves you telling a lender how much you have, how much you make, etc., and then having them tell you how much they would be willing to lend you. Importantly, the lender in this case does not verify what you've told them. As a result, it's considered weaker than a pre-approval. It won't carry the same weight with a buyer, but it could be a useful tool for estimating how much you can afford.
An important note: as people keep on saying, only YOU can REALLY know how much you can afford. The lender may estimate that you can pay, say, up to $2000 a month on your mortgage, but they don't know what your lifestyle is or what other non-loan obligations you have. I'm trying to play it conservatively, resisting the temptation to lend as much as I can possibly get, and instead making sure that I can comfortably maintain my lifestyle even in a new place.
Anyways. You can get pre-approved from any place where you would get an actual loan. I decided that I would scope out a few representative samples from different classes of lenders (local banks, national banks, credit unions), except for mortgage brokers. I'll admit that I've been a little worried by the stories I've heard of hard-riding mortgage brokers... even if they didn't act unethically like many did during the boom years, their incentive structure pushes them to lead people into the loans that give them the best profits, which aren't necessarily the best loans for me. My plan has been to get pre-approved by a more conventional lender, and then when the time comes to actually apply for a loan on a specific property, I'll use that lender's rates to shop around the mortgage brokers to see if any of them actually can get me an absolutely better deal.
Now, theoretically, I could just pick any old bank or whatever to get pre-approved. I decided, though, that I wanted to get pre-approved with the lender that I'd be most likely to actually use... it seemed like a good idea to get comfortable with them, experience the process the way they did it, and hopefully cut down on the volume of work that I'd need to do when the real deal came along. So, in essence, I started doing the process of applying for a loan, just half a year before I find a condo.
To make a real apples-to-apples comparison, you need to contact all prospective lenders on the same day - rates fluctuate on a daily basis, or even more often. So I spent some time collecting prospective lenders. This mainly involved Google searches and Google maps, along with a few things that just occurred to me. My final set of candidates was:
Credit Unions
Provident Credit Union
San Mateo Credit Union
Technology Credit Union (disqualified since they currently don't make condo loans)
Regional Banks
First Republic
California Bank & Trust
Union Bank of California
Borel Private Bank & Trust
National Banks
Wells Fargo
Chase
Fortunately, most banks have online forms that you can fill out to get customized rate quotes. This is much better than a static web page, which probably just lists the most common rates (likely the 15 and 30 year fixed for SFDs). The web sites should also show what your closing costs can be, which vary drastically - even at 0 points, they varied from about $2000 to more than $7000. So don't just look at the rate - the closing costs can drastically raise the total price. This is to some extent reflected in the APR, as opposed to the rate, but the translation is complicated... if you divide the closing costs over 30 years of the loan, it may look reasonable, but if you sell in 5 years, it will look much worse.
I compared all the rates I could get within 1 day. I found that the credit unions were the cheapest. Some regional banks were nearly as good, while others had the highest rates of all. The national banks tended to be high. I checked again about 10 days later, this time just focusing on the top contenders from the first round. In both cases, San Mateo Credit Union had the best rate AND the best closing costs. I decided to make my move.
I'm not a member of SMCU, but I am a big fan of credit unions - I've belonged to one particular credit union for over a decade, and have been extremely pleased at their service. SMCU has a web portal that you can use to apply for pre-approval. This appears to be a service that they've acquired, rather than something built in-house, because Provident Credit Union seems to have the same system.
The online application was pretty good to use. There are really helpful FAQs that display while you're filling it out. It lets you save your progress and return later, which is great - it takes time to fill out, and I needed to occasionally wait so I could look up an old pay stub or something. One thing that confused me a little bit was a by-product of the fact that the exact same form is used for pre-approval as for regular approval. Based on what I had read, I had imagined that I would just supply my financial data, and it would spit out a number for me. Instead, they wanted to know how much the property would be worth and what size of a down payment I would make on it. I put in a number that I considered to be at the high end of what I would spend. Then I filled out the remainder of the form, including all my assets. Then I went back and adjusted downward my down payment and purchase price. I'd realized that my documented assets would just barely cover the down payment and closing costs, not leaving any cushion for reserves. In practice, I would be OK with this - I have funds in retirement accounts and personal stocks and such that I could tap for reserves in an emergency - but I knew that I didn't want to stretch that far, and in any case, I was started to get worried and confused about the whole pre-approval process. Would they give me the "magic number", in which case it didn't matter what I put down here? Or would they only give me a thumbs-up or thumbs-down, in which case I'd want to be careful to ensure that I selected a reasonable value?
After a couple of days, it was all filled out and ready to go. I was surprised to note that Firefox, which had been great up until now, wasn't working on the page where I was supposed to read and acknowledge all their disclosures. Or, to be more accurate, their site wasn't working right. I viewed the page source and checked out the javascript, for old time's sake. My hunch is that they hadn't re-worked it yet for Firefox 3, which probably has a different ECMAScript engine. Anyways, I had to wait a while longer, then I did it again in Safari, and this time it went through.
At the start of the process, the page had said that they use an automated underwriting system that is capable of making many decisions automatically online, in which case they would just produce a pre-approval letter that I could print. They also warned that in some cases, their system can't handle it, and a person needs to finalize it. I fell into the second category. They gave a nice, descriptive message, and told me to expect a call soon.
I was contacted the next Tuesday by SMCU. She noticed that I wasn't an SMCU member and said that I'd need to join. I'd been surprised before that they didn't ask about this in the online form. The entrance requirements for SMCU are stricter than for Provident, and while I knew what I'd need to do to join, I hadn't wanted to set up an account until I was sure I'd be going with them. In the back of my mind, I thought that since I was applying for a property in San Mateo County, that would make me eligible right away. That isn't the case. We chatted about that a little, and I filled out an application and sent it in.
She also asked me to send in some documentation. I'm still not totally clear on the automated underwriting system, but I suspect that for borrowers getting very conventional loans with very high credit scores, those borrowers are statistically far more likely to be financially sound, and so those people wouldn't need to furnish actual proof of their finances. For whatever reason, I didn't fall into that category - I suspect that it has become much harder since the credit bubble burst. She asked me to send in my previous 2 years W2s, my 2 most recent pay stubs, and the most recent bank statements from the accounts I'd be tapping for my down payment. I also needed to sign several forms - one acknowledging my right to a copy of any appraisal report, another authorizing anyone to release my financial info to SMCU, and a copy of the Fair Lending Notice.
I'm Generation Y (or whatever they're calling us now), and do everything online. I've long stopped receiving paper copies of bank statements, bills, and so on. I hoped that printouts for everything (including my pay stubs) would be acceptable. They were.
She also asked me to send in a $275 good faith deposit. That threw me for a loop. In all the dozens of books and articles I'd read advising my to get pre-approved, none of them had mentioned that you'd need to pay hundreds of dollars for it. In fact, many touted the fact that it was free. We went back and forth on this a little bit until I understood it. It wasn't an application fee - they wouldn't cash it, and would just hold it until an eventual application. If I ended up deciding not to buy a property or went with another lender, I'd get it back, minus a $10 charge for a credit check. That seemed way more reasonable. Also, she clarified that I would still be free to apply for a slightly different form of mortgage - even though I applied for a 0-point version, I'll probably try and buy a discount point if I can on the actual property.
Everything was kind of staggered - I gathered the documentation, signed the forms, and faxed everything in the next week. I also mailed in the check around the same time. Then I played the waiting game. Then I played Hungry Hungry Hippos.
Finally, a call at work: my mortgage was approved! I felt very happy. She asked if I would like her to mail me the pre-approval letter; I said yes. She reminded me that I still needed to become a SMCU member and send in the good faith deposit; I told her that both were already on their way.
I got the actual pre-approval letter in the mail the next day. It looks like they didn't need to wait for my check or membership to issue it, although both would be required to actually apply for the loan. It's a simple, one-page document that lists the type of loan and the amount. Interestingly, it just listed the loan amount, not the purchase amount, which means that buyers would need to trust that I do actually have the down payment for cash that I said I did. Also, I was disappointed to see that the letter was for the exact amount that I had put down in my application. I had really hoped that they would calculate an upper maximum for me, but it looks like they just run the numbers for what you submit. If I had realized that, I would probably have tried for the original, higher amount that I was considering, just since it feels like that's probably closer to my maximum.
This letter is good for 60 days, so it will certainly expire before I buy a property. Depending on the status of my search, I might renew when it expires, or may wait a bit longer until I'm closer to searching in earnest. The next time, I'll almost certainly put in the higher amount... not that I'm planning on borrowing more, but that should let me know just how much flexibility I have, and may reassure sellers about my resources.
All in all, it's been a good experience. I've definitely learned a lot - going through this process is quite a bit different from the breezy paragraph-long exhortations that everyone writes about. Most importantly, I feel like I now have an actual, official green light to move forward with condo capture.
Thursday, June 25, 2009
FICO Psycho
While I won't promise to do TOTAL disclosure, I do want to document all stages and aspects of the condo hunt. I'm now approaching my originally scheduled time for mortgage pre-approval, and before I started shopping around I wanted to find out my FICO score. I know that, in general, my credit is good, but I wanted to be armed with my specific figures so I could make educated estimates about my likely treatment, and push back if I happened to run into a lender who tries to railroad me.
There are multiple types of credit scores out there, but FICO remains the gold standard - it is used by most lenders, and is the only score that is consistent across all three bureaus. (At least in theory - more on this later.) What sucks is that you have to pay to see them. You're entitled to a free annual credit report from each bureau - and should take advantage of it - but there's no law which says that they have to share your actual score.
Currently, the place to go to buy scores is myfico.com. You used to be able to buy all three here; Experian pulled out, and there currently is no way for a consumer to directly find their Experian score. Boo! The scores are also kind of expensive, over $15 each. Double boo!
On the plus side, there is a coupon code you can enter for a discount. Do a google search and one will pop up. I saved 20%.
You enter your SSN, address, and answer some very basic credit questions. In my case, they weren't able to verify me on the website, so I had to call their number to complete it. This was a pretty fast process - I wasn't on hold for more than a few seconds. There was some back-and-forth due to minor errors on my file - TransUnion apparently doesn't know the difference between Kansas City Missouri and Kansas City Kansas, and is incapable of looking up ZIP codes to determine what state an address is located in. But the operator was reasonable and figured out that I was who I said, so she freed me up. After that I could just log in to the web site and view everything - perfect. The whole call from start to finish was less than 5 minutes.
The presentation on the web is good, well organized and colorful, with an easy printable version. Once you purchase it, your report stays available online for about a month. I believe that it's still frozen to the date you ordered, though - I don't think it's updated during that time.
Now, for the actual content....
I've been warned before that scores almost always vary between bureaus. People explain this by saying that, while the FICO formula is constant, each bureau has access to slightly different information about you, so the inputs to that formula are different. For example, if an account doesn't appear on one report, that will affect your corresponding score. In general, scores are usually in the same ballpark as one another, unless there are any significant problems.
In my case, I was surprised by, first of all, how big the difference was between the two. 24 points isn't huge, but it isn't a rounding error either. Even more perplexing, though, why the two would be different. I've spent more time than I should looking over the two, and every time I find a discrepancy, it seems like the lower (TransUnion) score has the more favorable information. The specific differences that I noticed are:
Other than that, the two reports are virtually identical, listing the exact same dollar amounts for my revolving accounts and installment accounts. So where's that 24 points coming from? Again, I shouldn't be obsessing about it, but I am.
Now, on to detailed results.
Full disclosure: my current TransUnion score is 764, Equifax is 788. The maximum possible score is 850. According to them, anything over a 760 is eligible for the best rates; further improvements won't affect lenders' decisions.
So I'm above the cut-off, which is awesome. The TransUnion number is closer than I would usually feel comfortable with. I'm guessing that most lenders simply pull all three reports and average the results. I don't know what my Experian number is, but I imagine it's in that zone - I do the free credit report every year (at staggered 4-month intervals), and on the last few cycles there haven't been any major discrepancies between them.
That said, because this is a Big Deal, I probably will go ahead with my plan for Extreme Credit Awesomeness. The basic idea is this - I already pay off my credit card in full each month, but lenders don't really know that, since they just see the balance in each monthly statement. Since paying online is so easy, when I know that lenders will be pulling my score I plan to start paying my bill BEFORE the statement is generated - basically, stop taking advantage of the free float that the card gives me, and instead make earlier payments so that the actual statement balance is close to 0. This will probably have a decent impact on the credit utilization area of the report. A little over a year ago, my apartment complex started letting us pay our rent online via credit card WITHOUT adding an extra charge, which is AWESOME with my 1% cash rewards. But that definitely inflates the amount I owe each month. Anyways, depending on how aggressive I get with this, I can probably get revolving credit utilization down close to 0%. Best of all, it doesn't require paying any more than I already do, just doing it a little earlier.
On a side note - one thing I am a little concerned about is what will happen if a lender closes one of my other cards. Right now I exclusively use a particular card, but the other cards still count towards my total available credit limit. Any of those cards could close at any time, instantly bumping up my utilization. Some advisors recommend that people place a small charge on each card every month to keep them active. I suppose I could do that, but... I dunno. I'd rather drive down balances than spread them around.
The second major thing I could do to improve my score is to accelerate payment of my student loans. I long ago paid off my standard education loans, so the ones that are left are the federally subsidized ones. I made the decision a while ago to keep them and pay the minimum over 10 years. At the time, I was earning several percentage points more in my online savings account than I was on the loans. Now that rates have crashed, that's no longer true, so it may make sense to pay them off more quickly. I'm a bit reluctant to do so - this would help my score, but would be directly debiting the amount I'm saving for a down payment on my condo. If I thought that taking this step would put me into a better mortgage rate bracket, I might go ahead and do so, but as it is I think I'll stick with the current plan and just keep an eye on it.
Speaking of rates... there is a lot of cool info that comes with your report, and one of the most helpful is a chart showing the average interest rates for various types of loans broken down by FICO score range. For a 30 year mortgage, on this day I could theoretically have gotten the best rate of 5.274%. (In reality, rates in California are always a bit more expensive, and as I've griped about before, rates on condos are more expensive still.) The next best set of rates (700-759) is 5.496%. The lowest (620-639) are 6.863%. They point out that, on a $250k mortgage, the difference between the highest and lowest score results in about $256 every month. Not a small amount of money! You could buy seven credit reports for that! A nifty online tool lets you put in your state and mortgage amount to get personalized payment estimates. (These exclude taxes and insurance, so they're beguilingly low.)
So, now that I have this wonderful raw data, how will it affect me? Not a whit! But it does give me more confidence as I go into the next stage. I feel like I have a game plan for how I can juice my stats a bit, and even better, a little serenity that I don't need to panic too much. Pre-approval, here I come!
There are multiple types of credit scores out there, but FICO remains the gold standard - it is used by most lenders, and is the only score that is consistent across all three bureaus. (At least in theory - more on this later.) What sucks is that you have to pay to see them. You're entitled to a free annual credit report from each bureau - and should take advantage of it - but there's no law which says that they have to share your actual score.
Currently, the place to go to buy scores is myfico.com. You used to be able to buy all three here; Experian pulled out, and there currently is no way for a consumer to directly find their Experian score. Boo! The scores are also kind of expensive, over $15 each. Double boo!
On the plus side, there is a coupon code you can enter for a discount. Do a google search and one will pop up. I saved 20%.
You enter your SSN, address, and answer some very basic credit questions. In my case, they weren't able to verify me on the website, so I had to call their number to complete it. This was a pretty fast process - I wasn't on hold for more than a few seconds. There was some back-and-forth due to minor errors on my file - TransUnion apparently doesn't know the difference between Kansas City Missouri and Kansas City Kansas, and is incapable of looking up ZIP codes to determine what state an address is located in. But the operator was reasonable and figured out that I was who I said, so she freed me up. After that I could just log in to the web site and view everything - perfect. The whole call from start to finish was less than 5 minutes.
The presentation on the web is good, well organized and colorful, with an easy printable version. Once you purchase it, your report stays available online for about a month. I believe that it's still frozen to the date you ordered, though - I don't think it's updated during that time.
Now, for the actual content....
I've been warned before that scores almost always vary between bureaus. People explain this by saying that, while the FICO formula is constant, each bureau has access to slightly different information about you, so the inputs to that formula are different. For example, if an account doesn't appear on one report, that will affect your corresponding score. In general, scores are usually in the same ballpark as one another, unless there are any significant problems.
In my case, I was surprised by, first of all, how big the difference was between the two. 24 points isn't huge, but it isn't a rounding error either. Even more perplexing, though, why the two would be different. I've spent more time than I should looking over the two, and every time I find a discrepancy, it seems like the lower (TransUnion) score has the more favorable information. The specific differences that I noticed are:
- TransUnion thinks that I'm using 15% of my available credit, while Equifax thinks I'm using 16%. Equifax lists that 16% as the single biggest factor hurting my score. My utilization is lower on TransUnion, but somehow my score is lower?
- TransUnion lists my oldest account, from a credit union, which is over 10 years old, in addition to a long-closed credit card from around the same time. Equifax just lists the credit card. Both reports say that having had credit longer helps my score; TransUnion has a longer history, but a lower score?
Other than that, the two reports are virtually identical, listing the exact same dollar amounts for my revolving accounts and installment accounts. So where's that 24 points coming from? Again, I shouldn't be obsessing about it, but I am.
Now, on to detailed results.
Full disclosure: my current TransUnion score is 764, Equifax is 788. The maximum possible score is 850. According to them, anything over a 760 is eligible for the best rates; further improvements won't affect lenders' decisions.
So I'm above the cut-off, which is awesome. The TransUnion number is closer than I would usually feel comfortable with. I'm guessing that most lenders simply pull all three reports and average the results. I don't know what my Experian number is, but I imagine it's in that zone - I do the free credit report every year (at staggered 4-month intervals), and on the last few cycles there haven't been any major discrepancies between them.
That said, because this is a Big Deal, I probably will go ahead with my plan for Extreme Credit Awesomeness. The basic idea is this - I already pay off my credit card in full each month, but lenders don't really know that, since they just see the balance in each monthly statement. Since paying online is so easy, when I know that lenders will be pulling my score I plan to start paying my bill BEFORE the statement is generated - basically, stop taking advantage of the free float that the card gives me, and instead make earlier payments so that the actual statement balance is close to 0. This will probably have a decent impact on the credit utilization area of the report. A little over a year ago, my apartment complex started letting us pay our rent online via credit card WITHOUT adding an extra charge, which is AWESOME with my 1% cash rewards. But that definitely inflates the amount I owe each month. Anyways, depending on how aggressive I get with this, I can probably get revolving credit utilization down close to 0%. Best of all, it doesn't require paying any more than I already do, just doing it a little earlier.
On a side note - one thing I am a little concerned about is what will happen if a lender closes one of my other cards. Right now I exclusively use a particular card, but the other cards still count towards my total available credit limit. Any of those cards could close at any time, instantly bumping up my utilization. Some advisors recommend that people place a small charge on each card every month to keep them active. I suppose I could do that, but... I dunno. I'd rather drive down balances than spread them around.
The second major thing I could do to improve my score is to accelerate payment of my student loans. I long ago paid off my standard education loans, so the ones that are left are the federally subsidized ones. I made the decision a while ago to keep them and pay the minimum over 10 years. At the time, I was earning several percentage points more in my online savings account than I was on the loans. Now that rates have crashed, that's no longer true, so it may make sense to pay them off more quickly. I'm a bit reluctant to do so - this would help my score, but would be directly debiting the amount I'm saving for a down payment on my condo. If I thought that taking this step would put me into a better mortgage rate bracket, I might go ahead and do so, but as it is I think I'll stick with the current plan and just keep an eye on it.
Speaking of rates... there is a lot of cool info that comes with your report, and one of the most helpful is a chart showing the average interest rates for various types of loans broken down by FICO score range. For a 30 year mortgage, on this day I could theoretically have gotten the best rate of 5.274%. (In reality, rates in California are always a bit more expensive, and as I've griped about before, rates on condos are more expensive still.) The next best set of rates (700-759) is 5.496%. The lowest (620-639) are 6.863%. They point out that, on a $250k mortgage, the difference between the highest and lowest score results in about $256 every month. Not a small amount of money! You could buy seven credit reports for that! A nifty online tool lets you put in your state and mortgage amount to get personalized payment estimates. (These exclude taxes and insurance, so they're beguilingly low.)
So, now that I have this wonderful raw data, how will it affect me? Not a whit! But it does give me more confidence as I go into the next stage. I feel like I have a game plan for how I can juice my stats a bit, and even better, a little serenity that I don't need to panic too much. Pre-approval, here I come!
Monday, June 8, 2009
So, rates jumped up last week. What does that mean?
It's potentially devastating to people who are in the middle of buying or selling a particular property. The impact of higher rates is that a monthly mortgage payment automatically gets higher, so people cannot afford as much as they used to. For buyers, that means that the house at the extreme of what they could afford is now beyond their means. For sellers, it means that a contract might fall through because the seller cannot find a mortgage they can afford; if they haven't signed a contract yet, fewer buyers will be available to buy at their desired price.
Over the long term, it tends to even out. Eventually, sellers need to drop their prices to attract buyers. Buyers end up with the same properties, paying the same monthly amounts, just with more going to interest and less to principal.
In my personal situation, one thing I've noted and complained about is that condo interest rates are always higher than traditional single family home rates. This past week seems to confirm that the rates move at the same time and in in about the same amount for both types of mortgage (both 30 year fixed, 20% down). Provident Credit Union, a local outfit in the Bay Area, features a really nifty online mortgage tool; one of the things they offer, that I've signed up for, is email notifications of the current rate for a type of mortgage you're interested in. For more than a month now my desired one has been a steady 5.25%; last Friday, it was 5.75%. (Update: As of June 9th, it's jumped to 6.125%! Ouch!)
Off mortgage, on to property:
I'm increasingly interested in the Millbrae area. If prices continue to fall, I think that's probably where I'll wind up. I've visited a few times on weeknights and weekends, and it feels right to me... there's a good scale to their downtown, large enough for variety and an interesting walk, but not too dense or overwhelming. Being close to the Millbrae BART/Caltrain station would help with the commute. The weather seems to be quite nice - I have the advantage of nearly a year's worth of observation on my daily Caltrain ride, and I can see that it tends to be quite sunny, especially compared to the section of the peninsula immediately north.
Current downsides that I see: Again, expense is huge; there have been some significant reductions in condo prices lately, but I think there's probably more movement to go. Demographically, it's a bit older than I would prefer. And, possibly on a related note, I don't see a lot of people walking around the residential part of town - there's lots of good foot traffic on Broadway, and the parks look fairly busy, but almost nothing once you get up into the hills. (Which, to be fair, may itself be the reason why - it may feel less like a neighborhood stroll than scaling a mountain. I love slopes, but many people don't.) Oh, and every time I've been there it's been quite windy, which doesn't exactly bother me but is interesting.
So, we'll see how that goes. Right now I have alerts set up at Zillow to email me when new condos are put on the market or sold. I'm currently looking at the area west of El Camino and within about a mile or so of the station; this includes both Millbrae and the northern part of Burlingame, though Burlingame can make Millbrae almost look cheap. I also have RSS feeds into Craigslist's real estate section, which also provides some insight into what's in the market.
So far, the thing that I've noticed the most is how few properties are moving. There are several units at 555 Palm that have been on sale for months, one of them for at least six months, and have been through a $100k price drop but still haven't sold. The cheapest option seems to be 300 Murchison (Windwater Mills, formerly an apartment complex known as Avalon), but I'm not crazy about the location - it's close to the high school, and even when I visit on weekends the traffic feels really heavy there; plus there's some pretty disturbing reviews online about living there. There are two new condo developments, 88 South Broadway and Park Broadway; as far as I can tell, they've hardly sold anything for months. Park Broadway has slashed prices; 88 South may have cut them, but it's hard to tell, since their web site is extremely out of date.
There's another property, originally called Belamor and now Millbrae Paradise (a name I like far less), which is scheduled to go on the market in August. We'll see how that affects things - I imagine that, unless the housing market has decisively turned around, it will probably drive down the other prices.
So, that's that. Fun times!
It's potentially devastating to people who are in the middle of buying or selling a particular property. The impact of higher rates is that a monthly mortgage payment automatically gets higher, so people cannot afford as much as they used to. For buyers, that means that the house at the extreme of what they could afford is now beyond their means. For sellers, it means that a contract might fall through because the seller cannot find a mortgage they can afford; if they haven't signed a contract yet, fewer buyers will be available to buy at their desired price.
Over the long term, it tends to even out. Eventually, sellers need to drop their prices to attract buyers. Buyers end up with the same properties, paying the same monthly amounts, just with more going to interest and less to principal.
In my personal situation, one thing I've noted and complained about is that condo interest rates are always higher than traditional single family home rates. This past week seems to confirm that the rates move at the same time and in in about the same amount for both types of mortgage (both 30 year fixed, 20% down). Provident Credit Union, a local outfit in the Bay Area, features a really nifty online mortgage tool; one of the things they offer, that I've signed up for, is email notifications of the current rate for a type of mortgage you're interested in. For more than a month now my desired one has been a steady 5.25%; last Friday, it was 5.75%. (Update: As of June 9th, it's jumped to 6.125%! Ouch!)
Off mortgage, on to property:
I'm increasingly interested in the Millbrae area. If prices continue to fall, I think that's probably where I'll wind up. I've visited a few times on weeknights and weekends, and it feels right to me... there's a good scale to their downtown, large enough for variety and an interesting walk, but not too dense or overwhelming. Being close to the Millbrae BART/Caltrain station would help with the commute. The weather seems to be quite nice - I have the advantage of nearly a year's worth of observation on my daily Caltrain ride, and I can see that it tends to be quite sunny, especially compared to the section of the peninsula immediately north.
Current downsides that I see: Again, expense is huge; there have been some significant reductions in condo prices lately, but I think there's probably more movement to go. Demographically, it's a bit older than I would prefer. And, possibly on a related note, I don't see a lot of people walking around the residential part of town - there's lots of good foot traffic on Broadway, and the parks look fairly busy, but almost nothing once you get up into the hills. (Which, to be fair, may itself be the reason why - it may feel less like a neighborhood stroll than scaling a mountain. I love slopes, but many people don't.) Oh, and every time I've been there it's been quite windy, which doesn't exactly bother me but is interesting.
So, we'll see how that goes. Right now I have alerts set up at Zillow to email me when new condos are put on the market or sold. I'm currently looking at the area west of El Camino and within about a mile or so of the station; this includes both Millbrae and the northern part of Burlingame, though Burlingame can make Millbrae almost look cheap. I also have RSS feeds into Craigslist's real estate section, which also provides some insight into what's in the market.
So far, the thing that I've noticed the most is how few properties are moving. There are several units at 555 Palm that have been on sale for months, one of them for at least six months, and have been through a $100k price drop but still haven't sold. The cheapest option seems to be 300 Murchison (Windwater Mills, formerly an apartment complex known as Avalon), but I'm not crazy about the location - it's close to the high school, and even when I visit on weekends the traffic feels really heavy there; plus there's some pretty disturbing reviews online about living there. There are two new condo developments, 88 South Broadway and Park Broadway; as far as I can tell, they've hardly sold anything for months. Park Broadway has slashed prices; 88 South may have cut them, but it's hard to tell, since their web site is extremely out of date.
There's another property, originally called Belamor and now Millbrae Paradise (a name I like far less), which is scheduled to go on the market in August. We'll see how that affects things - I imagine that, unless the housing market has decisively turned around, it will probably drive down the other prices.
So, that's that. Fun times!
Saturday, April 25, 2009
Fannie Mae and Condo Mortgage Rates
Well, my second post and I'm already off plan!
I wanted to step back briefly from my personal search and also share/vent about larger issues that will impact me. My current annoyance is the new financing rules from Fannie Mae.
Some background: most mortgage loans are made by banks, credit unions, or other organizations who typically keep the loan for a year or so, and then turn around and sell it to Fannie Mae or Freddie Mac. This system has been in place for decades, and may be changing thanks to the government takeover of these companies. Fannie and Freddie encourage loaning (and hence homeownership) by removing the risk of default from the people who make the mortgages. If it weren't for them, then after you made a loan, you'd spend the next 30 years worrying about whether the loanee would continue making payments. By selling the loan, you can clear your books and make a new loan.
Because of this power, Fannie and Freddie have enormous influence in how everyone else makes loans. They won't purchase certain loans, and hence these loans will be more expensive, due to the increased risk taken by lenders. The best example of this is the $417,000 limit in the size of a loan. Traditionally, if you needed more money than this, you'd need to get a "Jumbo" loan. "Jumbo" just meant "Too big for Fannie and Freddie."
Those of you who follow the news and/or listen to This American Life know that the loan-selling business is a big part of the reason why we got into the current housing mess. Banks were making crazy loans because they wouldn't need to worry about whether people could make their payments over the next 30 years. Fannie and Freddie's rules shielded them from the worst of this, but it was clear that they would need to be leaders on two fronts: on the one hand, continuing to purchase loans so the financial machinery that drives home-sales can continue; and, on the other hand, pushing out rules that will encourage more responsible loan origination.
In general, I'm fine with most of these changes. For example, it makes a lot of sense to increase the required minimum credit score - more responsible borrowers are more likely to pay off their obligations, and so they should get the lowest rates.
What really ticks me off, though, is that the latest set of rules are anti-condo. The single worst example: ANY condominium loan will AUTOMATICALLY be charged 0.75% more than a traditional single-family house. That means that a 5% loan would instead be a 5.75% loan. The rates climb even higher if you put down less than 30% (!!!) as a down payment. And they may refuse to buy a loan altogether if the building includes rental units, or if there are commercial tenants.
I can imagine how they justify these rules: more condos have gone into foreclosure than traditional homes. Once again, someone has forgotten a cardinal rule of statistics: correlation does not prove causation. There isn't some mystical material in condominium buildings that makes them inherently more likely to cause the owners to miss payments. No: they're more likely to be foreclosed upon because condos were the prime targets of the speculative boom. When people were buying homes as investment properties, condos, with more affordable price tags and locations in major metro areas, were the best game in town.
The RIGHT way to fix the problem would be to focus on the root cause of the problem. Make loans more stringent for people who are purchasing homes that will not serve as their primary residence. And, again, make sure that borrowers are responsible (by requiring a 20% down payment and possessing a good credit score). But don't take the lazy route of punishing all condos.
What is the effect of this change? It's most drastic for - surprise! - people like me who live in high-cost regions with little available land. A condo may be a lifestyle choice in a place like Chicago or Miami, but out here, it's the only game in town for people who can't slap down a cool million on a single-family detached home. Far from being speculative tools for irresponsible investors, condos are a practical and conservative choice for first-time home-buyers.
What does this mean for me, personally? First of all, I'm hoping that these rules change before I buy. There seems to be growing public anger about the changes at Fannie and Freddie - not specifically due to the condo rules, but if Congress steps in to correct some other problems, I hope they will sanitize these as well. Second, it means that I'll have to pay a higher rate, which means a less attractive home, or, in the worst case, no home at all. An extra 1% won't kill me, but it does have a pretty dramatic impact on how much I can afford. Third, over the long run, if it seems like these rule changes are here to stay, the net effect is that condos across the board will become less attractive. Fewer will be built, and the ones that already exist will fall in value. If I wait until after that finishes happening, then the net effect may be a wash for me - higher interest rate, but lower sales price, resulting in about the same total monthly mortgage check for the same unit.
I'll continue following this issue. I was upset enough to write my representative and senators about this issue - there's no chance that my letter alone will make a change, but if enough homebuyers complain, we may see some action. In the meantime, I'll continue my search, and hope for the best.
I wanted to step back briefly from my personal search and also share/vent about larger issues that will impact me. My current annoyance is the new financing rules from Fannie Mae.
Some background: most mortgage loans are made by banks, credit unions, or other organizations who typically keep the loan for a year or so, and then turn around and sell it to Fannie Mae or Freddie Mac. This system has been in place for decades, and may be changing thanks to the government takeover of these companies. Fannie and Freddie encourage loaning (and hence homeownership) by removing the risk of default from the people who make the mortgages. If it weren't for them, then after you made a loan, you'd spend the next 30 years worrying about whether the loanee would continue making payments. By selling the loan, you can clear your books and make a new loan.
Because of this power, Fannie and Freddie have enormous influence in how everyone else makes loans. They won't purchase certain loans, and hence these loans will be more expensive, due to the increased risk taken by lenders. The best example of this is the $417,000 limit in the size of a loan. Traditionally, if you needed more money than this, you'd need to get a "Jumbo" loan. "Jumbo" just meant "Too big for Fannie and Freddie."
Those of you who follow the news and/or listen to This American Life know that the loan-selling business is a big part of the reason why we got into the current housing mess. Banks were making crazy loans because they wouldn't need to worry about whether people could make their payments over the next 30 years. Fannie and Freddie's rules shielded them from the worst of this, but it was clear that they would need to be leaders on two fronts: on the one hand, continuing to purchase loans so the financial machinery that drives home-sales can continue; and, on the other hand, pushing out rules that will encourage more responsible loan origination.
In general, I'm fine with most of these changes. For example, it makes a lot of sense to increase the required minimum credit score - more responsible borrowers are more likely to pay off their obligations, and so they should get the lowest rates.
What really ticks me off, though, is that the latest set of rules are anti-condo. The single worst example: ANY condominium loan will AUTOMATICALLY be charged 0.75% more than a traditional single-family house. That means that a 5% loan would instead be a 5.75% loan. The rates climb even higher if you put down less than 30% (!!!) as a down payment. And they may refuse to buy a loan altogether if the building includes rental units, or if there are commercial tenants.
I can imagine how they justify these rules: more condos have gone into foreclosure than traditional homes. Once again, someone has forgotten a cardinal rule of statistics: correlation does not prove causation. There isn't some mystical material in condominium buildings that makes them inherently more likely to cause the owners to miss payments. No: they're more likely to be foreclosed upon because condos were the prime targets of the speculative boom. When people were buying homes as investment properties, condos, with more affordable price tags and locations in major metro areas, were the best game in town.
The RIGHT way to fix the problem would be to focus on the root cause of the problem. Make loans more stringent for people who are purchasing homes that will not serve as their primary residence. And, again, make sure that borrowers are responsible (by requiring a 20% down payment and possessing a good credit score). But don't take the lazy route of punishing all condos.
What is the effect of this change? It's most drastic for - surprise! - people like me who live in high-cost regions with little available land. A condo may be a lifestyle choice in a place like Chicago or Miami, but out here, it's the only game in town for people who can't slap down a cool million on a single-family detached home. Far from being speculative tools for irresponsible investors, condos are a practical and conservative choice for first-time home-buyers.
What does this mean for me, personally? First of all, I'm hoping that these rules change before I buy. There seems to be growing public anger about the changes at Fannie and Freddie - not specifically due to the condo rules, but if Congress steps in to correct some other problems, I hope they will sanitize these as well. Second, it means that I'll have to pay a higher rate, which means a less attractive home, or, in the worst case, no home at all. An extra 1% won't kill me, but it does have a pretty dramatic impact on how much I can afford. Third, over the long run, if it seems like these rule changes are here to stay, the net effect is that condos across the board will become less attractive. Fewer will be built, and the ones that already exist will fall in value. If I wait until after that finishes happening, then the net effect may be a wash for me - higher interest rate, but lower sales price, resulting in about the same total monthly mortgage check for the same unit.
I'll continue following this issue. I was upset enough to write my representative and senators about this issue - there's no chance that my letter alone will make a change, but if enough homebuyers complain, we may see some action. In the meantime, I'll continue my search, and hope for the best.
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