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.
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