Finding the Right Mortgage

It shouldn’t be a secret for too many of you.  After nearly a year of marriage and our desire to wait as long as possible to purchase a house, my wife and I are now actively searching for our first home.  We have toured over a dozen houses within the last two weeks and we have not found one that we like enough yet to make the plunge.  It may be another three years before we find one that checks all of our boxes at this rate.  This will be a long process and I’ll have a lot of different topics to write about along this journey.  So today, I wanted to write about my recent process for finding the perfect mortgage and finally getting our pre-approval.

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First, I need to start by thanking everyone out there who provided me with some great advice about this process when I wrote an article asking for the communities’ opinion on the home buying experience.  Those words have been influential in helping us in the process and honing in on the five most important factors for the search.

With all the advice in hand and the endless information on the internet at my disposal, I began the search to find a bank or mortgage broker that would provide us with the best deal and all around package.  Entering the search, I wanted to find a place that would provide me with the LOWEST interest rate, LOWEST down payment required to avoid PMI, and the LOWEST fees.  Seems pretty obvious, right?  Who wouldn’t want all of that?   On top of that, I was going to be the expert negotiator.  I was going to be the tough customer that would play each of the lenders against each other in a battle to drive the cost down.

So I started down the journey of calling Capital One, the bank my wife and I use exclusively for finances.  At the end of the year, my wife and I consolidated our finances and now hold all of our accounts in one bank.  In my mind, if I could make it work, I was going to try to also get my mortgage through Capital One.  I thought this would be perfect and would help keep my finances simple.  All banking under one virtual roof.  Man that would be nice.   I gave Capital One a call and through Capital One, I could receive a 30 year fixed mortgage with a market interest rate that would require a down payment of 20% to avoid PMI.  They did offer a promotion of $500 in your checking account with $500 off of lending fees, which was above and beyond what most banks would offer.  I left excited and the bank ended the call by saying they would match any bank that offered a lower interest rate.  I felt very excited, especially considering this was m first call with a bank.

Then, I had this same conversation with nearly every bank that offered nearly identical terms.  Capital One was always ahead of those other banks in my mind because of the simplification factor I mentioned earlier.  I proceeded with a pre-approval and was excited to have one in my pocket.  With our fast real estate market, we had to have a pre-approval in hand in the event we needed to place an offer that day.  Yes, the area we are looking at is that crazy. There have been several instances where we viewed a house that was placed on the market the day before and already had two offers in hand by the time we stepped in the door.  If we would have liked the house enough, we could have tossed our hat in the ring and entered the crazy bidding war.  But luckily we have been pretty conservative so far.   To me, if all the terms were close between the banks, I would opt with Capital One, even if it would have costed me a few extra dollars.

I was excited because I thought I was done.  After all the phone calls, emails, and tedious tasks that come with hunting down a mortgage, I was done.  Well what do you know, another option at a local Savings and Loan popped in front of my eyes.   After a phone call with a mortgage originator, I was shocked by what they were offering.  An interest rate that was 25 basis points below the current market rate, $750 off of closing fees at the bank, AND only 15% down to avoid PMI.  How? There has to be a catch, I thought.  When I asked what the catch was, there was one caveat…I had to open a checking account there.  I knew it, I would have to ditch my one banking model in favor of better terms for a mortgage.  What a trade off!  The originator assured me that the checking account was free and the only activity that was needed was a direct deposit for the exact amount of my payment each month and the funds would automatically be withdrawn from my account.  Not an ideal situation, but I was willing to tolerate a second bank account of that nature if I could score a sweet deal.

Leaving that call excited, I had one more phone call to make.  I picked up my phone and called my mortgage originator for Capital One and asked if he could possibly match the terms of this new place.  When I explained the terms to him, his response was “Wow…that place must not sell their loans like we do.”  As an auditor of banks, I probably found that comment funnier that many others our there and I definitely laughed out loud while talking to this guy.  Because yes, many of our banks sell their loans and are trying to avoid holding long-term, fixed rate loans at these current rates.   This is where the conversation became interesting.  The originator said matching interest rates and the closing cost deal would be no problem.  What became more complicated was finding a way to offset the difference between their banks 20% down payment requirement versus the 15% offered by the competitor.  For a $200,000 house, that is a $10,000 difference in cash out the door.  I asked him for a $10,000 deposit in my checking account and while he laughed, he quickly said no.

The only way for him to match the competitor would require some lever pulling.  With less that 20%, he would require lenders insurance for the loan, which is an extra cost.  He would have to reduce the rate to a level far below the rate the bank was offering to reduce the monthly payment enough to match the competitor.  This rate would require special approval by a manager at the time of the purchase.  Knowing how this works, the guy would have to find the lowest interest rate possible that he could offer for the loan that would still allow Capital One to sell the mortgage.  He has done this before and it has worked; however, he could not provide me with a guarantee ahead of time that the bank would be able to match the terms of this other bank because he needs an accepted offer to try to make the numbers work.

Without a guarantee that Capital One would be able to match the terms of the Savings and Loan, I decided it was probably best to take the guaranteed option.  I will be using the bank that only requires a 15% down payment, an interest rate 25 basis points below competitors, and $750 off of closing costs without having to pull levers and find ways to make the deal work.  Sure I have to open a second bank account, but it seems worth it to me.

This process taught me two things.  First, don’t accept the first offer and make sure you shop around.  There are so many options out there for a mortgage and there are great deals to be had.  If you only talk to one lender, you aren’t doing yourself justice and you may be spending WAY more than you need to.  Houses are expensive enough, you don’t need to spend any more money than you need to with this process.  Second, make sure you negotiate.  Throughout this process, I was always playing the banks off of each other and trying to get them to match the best terms available.  I happened to find one that offered the best terms with their current package, but I didn’t just blindly accept that.  I took their offer back to Capital One to see if they could match and potentially beat their terms.  It turns out that they couldn’t beat the offer, but at least I gave them a shot.  I left this process feeling like my wife and I found the right mortgage for us.  That’s what is important to me and now I cannot wait to keep looking at houses!

What are your thoughts on my experience?  Have you had a similar experience when you shopped mortgages?  Do you have any great stories for me?  Looking forward to your comments!

-Bert

 

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17 thoughts on “Finding the Right Mortgage

  1. Your negotiations skills are pretty good! Well done Bert, seems like you got as good of a deal as currently possible. We did about the same, albeit ended up with our own bank because their markup system worked in our favor. I.e. the interest rate drops with a lower LTV ratio. Every 5% drop in LTV is a reduction in interest rate. This beat the competition and avoided having to get another bank account. We are down to 2.09%, with another drop expected by the end of the year to 2.04%.

    • This is very interesting, I thought the rate drops at most banks here are only with the big chunks of 15-20% drop in LTV… Sounds like a great deal, Team CF!

      @Bert, great way of negation indeed. I must say that i have no idea what PMI, means. Care to elaborate a bit? It’s very interesting to see how it works with others. We might be one of the few that didn’t shopped for mortgages. We had a great deal with our current bank (-1% of market interest rate), which made it an easy choice for us.

      • Thanks Divnomics. PMI is basically insurance through the bank that the borrower is required to pay until their LTV is below 80%. So basically, you pay a premium each month until you have 20% equity. That’s why most people put the smallest amount down to avoid this sunk PMI cost. The concept is that the PMI allows the banks to offer loans to people with less money down but protecting their behinds from the additional risk incurred. I don’t see any value in paying this and am pumped I found someone who is willing to allow me to put 15% down versus the typical 20%. Most banks cannot sell loans to people with less than 20% down anyway, so that is a reason why banks will require you to put 20% down. So they can bundle the loans up and get them off the books!

        Bert

        • Thanks for the explanation! Learned something new. Also understand the impact of a lower down payment much better now. Concept is still very different then we are used to here, but agree that paying a premium only to reduce some risks for the banks isn’t really attractive.

    • Thanks Team CF! I tried my best to negotiate and drive the cost of homeownership down. You pay enough over the life of the mortgage anyway, so you might as well make it as cost effective as possible. That’s a smart idea, reward a lower LTV with a lower interest rate. Less risk of the bank losing money if something unfortunate happens and that have to quickly sell the property. Very intriguing idea and I like how it is different. I wonder what bank loss rates are in your country!

      Bert

  2. Don’t get lulled into the one bank for everything option as (as you know) there is an active secondary market for mortgages. Even the CU may sell the mortgage but retain servicing rights. It seems like every mortgage I’ve had ultimately gets sold to WFC.

    • Right – that’s exactly why I called a ton of different banks and was scouring the internet for all available information. I checked CU and they still couldn’t beat the rates I received. But yes, the majority of the banks are selling loans these days and WFC and the other large banks have the capacity to continue to buy the properties.

      Bert

  3. Bert,
    We are in the same boat… My wife and I are about to start looking at places. We are using USAA (Credit Union open to the Armed Forces and related descendants), they will give us straight cash back on our mortgage if we go through them and use their realtor service (happens to be free). Plus bundling all of our future insurance will save us cash on both. In terms of basis points, we are looking to be on par or better than the market.
    I do agree with you though. It is nice to have it all under one roof, just for convenience sake, and its annoying to have it other ways. Oh well, save dat $.
    -Gremlin

    • Gremlin,

      That’s a great side advantage of using USAA. Hmm, just checked my insurance company and their rates are still higher. That was a great thought though and it would be nice to save on insurance or one of the other costs. We know how much insurance companies love bundling policies. Great idea and hopefully that can benefit me and some other readers as well!

      Bert

  4. I bought my first place using Box Home Loans – it was a great experience. I only paid a few hundred bucks out of pocket for fees including in addition to the 5% I put down. Within a year I decided I would shop around to refinance and ended up using Box Home Loans again to get down from a 4.15% to 3.5% loan for no out of pocket cost – it was great. The other perk was that the appraisal put my equity > 20% of loan without having put any additional money down during the refinance which knocked off the PMI requirement saving me another $100+ bucks a month. Working with the company to get through the underwriting process was great too – I was able to upload all required docs to their website without having to visit anyone in person. When it came to signing, they sent a person to my house to gather the signatures.

    • Jason – I just stopped by their website. What’s the catch haha Would be interested in reading some articles on Box Home Loans. That sounds like an amazing deal and that you were able to kick your borrowing costs to the curb. Is your mortgage a 30 year or 15 year mortgage? May have to give this website a hard look here!

      Bert

      • No catch. I was a little skeptical at first too, but both times turned out to be great experiences. My first experience was back in 2011 and at that time they were only operating in a few west coast states and they have since expanded to most states, including Ohio 🙂

        I believe they business model is based on lending to top credit borrowers and once loans are funded, they will make some money selling your loan to another bank. My purchase loan was sold to Wells a few months after I bought my house. Then when I later refinanced, my loan was sold to Provident Funding. Not having my mortgage with my primary bank (Chase) has had no impact on me. I have auto payment for my mortgage and only have to log onto the Privident sight once a year to retrieve my tax forms earlier than I would otherwise receive via mail.

        Give it closer look.

        • To answer your question, I have 30 year loan. If interest rates would have been higher than 6 or 7 percent, I would have considered a shorter loan period and/or larger down pmt. Since rates have been low, I figured I could get a better return on my money if I put it elsewhere. My mortgage is the only debt I carry.

  5. Very nice. Here in Australia our housing prices are quite high compared to salaries, especially in places like Sydney and Melbourne. The lowest loan rate is roughly 4% around here but we do have an interesting concept which I am unsure if it is in America too. It’s called an Offset Account.

    • BHL,

      4% is still a pretty darn low rate. Most places offer rates around 4.1% and 4.2% here, so that isn’t far off! Do you mind explaining the offset account? I’ve read about it on a few different blogs, but I cannot remember the exact definition of it or how it functions!

      Bert

  6. Hey Bert Congrats! sounds like you did a great job. Awhile back banks werent competitive with their mortgage rates here in Canada. Seems like they are now. I used to deal with a broker but at a recent meeting with my bank to switch an account to direct investing he pointed out their current mortgage rate for me. 2.59 5 yr fixed vs my current 2.8 5 yr fixed. They would pay almost all the fees to transfer to them and give us 500$ for our business. Another perk since we use rbc exclussively for banking they would lower our banking fees from 10.95 per month to 5$. We are in the process of refinancing to take advantage of the lower rates.
    cheers good luck with the house hunt

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