It’s official! I am now one of the 75 million Americans who own a home. We had a closing Wednesday at 4PM, which for those of you out there who don’t know, can be quite a draining experience in itself. We bought this great little garden home FSBO (For Sale By Owner) near the edge of East Baton Rouge Parish. Mignon and I are both first-time home buyers, but since we’re a bit older and wiser we figured that we could get through the experience without getting taken advantage of by the various predators in the housing world. As it turns out, we were wrong.
For 25 years my mother was an agent of the lending system as a loan officer, an underwriter and now as a loan auditor. She knows the industry inside and out and has been like my mentor throughout this process. She taught me to closely monitor and protect my credit report/score at all cost, to shop around, compare rates and to closely examine good faith estimates. She prepared me to be on the lookout for pitfalls such as PMI, trumped up closing costs and, of course, the hidden Yield Spread Premium. She made me aware of the plethora of programs out there to choose from, both on the conforming and non-conforming sides of lending.
Not to brag, but my wife and I have outstanding credit scores, and until we closed on the house we had a substantial combined savings and no real debt to speak of. We were a slam dunk for any lender except for this one minute detail- employment history. I’ve been a self-employed musician as a subsidy to my main income since 2005. In the fall of last year I turned my side business into a full-time job and have since enjoyed legitimate success. Mignon had held the same position in the school system for several years, however in January 2008 she completely changed fields so that she could relocate and marry me. There have been no lapses in our employment but the changes in field alone were enough to hurt us. Our employment status combined with the crisis currently unfolding in the mortgage and real estate industries created a mountain between us and the prospect of buying a home. So now that I’ve set the stage, let me take you back to the beginning.
Friday, June 6th, 2008 Prairieville, La
After we settled on a house that we wanted to pursue we began going down the list of so-called reputable lenders. Sallie Mae/Quicken Loans, the first lender that we dealt with, pre-approved us for a seemingly great loan and issued us a pre-approval letter within a few hours of the initial call. Thrilled, and a little dazed, we approached the seller and set up a time to see the house. They seemed like very nice people and when they showed us the property it was everything the photos had indicated and more. Mignon and I were a bit nervous to meet the sellers but excited about the condition and layout of the house. We immediately consulted a real estate agent in the family to start preparing an offer. Just a little reminder: the home was FSBO and help we received from Kim (the agent) was merely out of the goodness of her heart.
A quick glance at the comps suggested that the house could appraise for as much as $170,000 but it was listed for only $162,900. We figured that, pending an appraisal, we could make the seller a fair offer and still wrap our closing costs and a carpet allowance into our loan. This was important to us, being that there was yet so many other things we needed to buy like furniture and appliances, not to mention that Mignon and I are privately funding my college education. We were jazzed about the house and ready to order an appraisal to see where we landed, which brought us back to the lender.
Upon reviewing the GFE (Good Faith Estimate) from Sallie Mae we realized that they were charging us a substantial fee to “buy down” our rate. For us this basically meant paying more money up front and a reduced monthly note in the long run. The fees seemed excessive, though, and the entire GFE just seemed suspect to us so we began to shop around. At this point Sallie Mae started applying pressure for us to send in documentation of income, employment history, assets, etc and close the loan before rates went up any higher, which really meant that they didn’t want us to have any time for due diligence. Buying a home is no different than walking into a car dealership when it comes to dealing with aggressive and deceitful people.
Confident in the strength of our credit histories and income, while not so confident in Sallie Mae, we began shopping around to let the lenders compete for our business. This seemed to be going well because not only were other lenders that we talked to able to pre-approve us, but also their GFE’s seemed to be a bit more straight forward than Sallie Mae. This seemed promising so I began to compare these lenders’ offers only to awaken to the fact that this was a lot more complicated than I anticipated. It truly is like comparing apples and oranges and you have to know exactly what’s best for your individual situation before you can compare loans. This is when all Hell broke loose. There are a lot of questions to consider.
Have you saved up a large enough down payment so that you can avoid excessive fees paid out over life of your loan? Is fear of being able to make higher monthly payments a good reason to empty out your savings account now? Do you anticipate a significant increase in income down the line that would make higher monthly payments more comfortably affordable? How long are you planning to stay in the home? Do you need to set aside funds in your budget to pay extra toward the principle? And is paying down the principle better as a long-term or a short-term strategy? Are you going to accept the terms of a deal only because you plan to refinance within the first few years? If so, can you really gamble based on what you project the market is going to do 2, 3 or 5 years from now? Don’t forget that your monthly note is more than just principle and interest. How much is your escrow going to increase your mortgage payment?
If these questions seem overwhelming to you and your chest is tightening up, you may not want to read on. As if being blindsided by unanswered questions about our mortgage needs wasn’t enough, our biggest obstacle was waiting around the next bend. As it turns out, all of the pre-approvals we’d received from lenders did not take into account the fact that my wife and I had both recently started down new career paths. The loan officers started asking for details about the employment information we had provided them, and as each one of them discovered that we didn’t have at least 2 years on our jobs, respectively, we were immediately disqualified from every program they had to offer.
Each one of them gave us the same speech about how the mortgage industry was in the midst of an upheaval and that the rules were changing overnight determining how to qualify someone for a loan. I wish I had a nickel for every time I heard the words, “If this were 6 months ago we wouldn’t even be having this conversation. You’d be approved already.” One thing that seemed funny to me was that my wife’s small but steady W2 income carried so much more weight to these lenders than my ample 1099 wages, and had her salary been just a bit higher they could have approved her independently. However, one by one every hot lead that we had on a mortgage loan went cold and we were back to square one, sans optimism. Without a consistent employment history we were dead in the water.
There were many times throughout this process that we wanted to quit, and this was the first. The only thing I could do was to sit down and make a list of all the reason why I dreaded the thought of living in an apartment complex. My wife was even less hopeful and began preparing herself to let go of that wonderful house we’d become so fond of. I was so sick over the whole thing and I just couldn’t help but think that there had to be something out there for us. How could two people with credit scores in the mid 700′s and so much in savings not qualify for a home loan? I didn’t know what to think. I had no reason to hold out hope, yet I just couldn’t accept that it was over. Well one of the lenders we’d dealt with was a friend of my mother’s who works for the lending behemoth Countrywide, and this woman seemed to think she might have one last program that she could get us into despite our employment problem.
Monday, June 16th, 2008 Lafayette, LA
As Mignon and I tried to enjoy a belated Father’s Day dinner with my in-laws, I anxiously awaited the call from Countrywide. Naturally my mind was racing and I was not much for socializing. After 10 days of huge build-ups and crushing defeats, I was desperate for a victory. The phone rang and I quickly excused myself from the table and darted off to a bedroom to take the call. Time slowed almost to a stop in those first few seconds as I tried to read the tone of the woman’s voice as she greeted me. Sure enough she was calling to tell me that due to the current climate of the mortgage lending world, even her last ditch effort to qualify us had failed. She suggested at that point that we consult a mortgage broker. Brokers exist to serve one basic function, to shop around and find what the client is looking for. For some qualifying borrowers a broker is simply shopping around for the lowest interest rate. In many cases, however, the broker is looking around for the right program to qualify those of us out there who have a hard time documenting income – the Self-employed.
The woman at Countrywide seemed to think she knew someone who could help us so she gave me his contact information and suggested I contact him immediately. She swore up and down over this man’s character and expertise and went on at great length to assure me that she never takes referrals lightly, that if ever she were to send her clients to someone, Mel Harris at Regency Mortgage was the only man for the job. Reluctant to hold out too much hope, I decided to call him first thing the next morning and give this another shot.
