Jess and I met with a mortgage broker last night and now I realize that I'm in over my head. He seemed like a nice guy. Unfortunately, he had a weird way of talking in circles around my questions. For instance, I told him that I didn't know how much house I could afford and that I had guessed at $150,000. I told him that I'd like a rough estimate regarding what that would amount to in out-of-pocket expenses every month so that I could decide if that was a good price point for us. Instead of answering my question, he simply told me that, based on my salary, debt, and credit rating, I could afford a lot more home. Regardless of how I posed the question, I was met with the same answer. However, as we went further into our talk, he eventually showed me a piece of paper (a "Good Faith estimate", I believe it was called) that showed a $150,000 house at 6.25% interest for about $1,450/mo (which included home owners insurance, and property taxes).
He had us sign about 30 sheets of paper. It seemed a bit odd to me, because all of the pages that required a property address had "TBD" written in. I didn't understand why he would have us sign paperwork that would eventually have to be reprinted and resigned.
The issue of down payment was also a bit odd. After he factored in closing costs, his 1% loan origination fee, private mortgage insurance, and a down payment we were looking at just under $11,000. However, he then went on for about 15 minutes about how, because we were probably getting an FHA loan, the seller would be required to pay the "non-allowables". I asked him what would happen if the seller were unwilling to pay these costs and he told me that, in that case, I wouldn't be able to get an FHA loan. However, he also mentioned that, with this loan, the seller was allowed to pay $9,000. It was all a bit confusing to me. It seemed a lot like what car dealers do when you have a trade in. "Sure we'll give you more for your trade-in, as long as you pay more for this new car". Essentially, he was saying that, in many cases, the seller can, instead of selling me a house for, say, $100,000 and paying nothing, they will agree to sell me the house for $101,000 and pay $1,000. It just seemed silly. Then he mentioned that an "educated" seller might not be willing to do this, but I couldn't figure out why it really mattered and he couldn't explain it to me in a way that I understood.
He said that, if we were planning on ending our current lease on September 31st of this year, that we should plan on closing on the house around August 31st. This meant that somewhere between July 15th and July 31st, we should sign a contract. I had a hard time figuring out what this "contract" was, but I did understand that it is NOT the offer that we put on the house. The "contract" comes after we put in an offer and it is accepted. Then we sign a "contract". Then they work on getting the loan, then we close. According to him, the process between signing a contract and actually getting a loan takes about 30 days. He said that it'll take us a month or so to find the house we want, on average, and, therefore, we should start looking around June 1st. And, because of that, we need to sign the papers to get approved around May 15th. I'm not sure what the difference is between the stuff we sign on May 15th and the "contract", but, when we sign the stuff on May 15th, we have to bring W2s, and Tax returns, and paystubs, and a $99 loan commitment fee.
We signed all sorts of papers that all sorts of dollar amounts on them. Disclosure statements showing us other loans that were available. Disclosure statments about what the details of this particular loan are. Truth in Lending statements that show that our loan will be 6.25% fixed for 30 years and that the loan can (and will, in this case) be sold to other parties.
The biggest thing that I didn't understand was why we had to sign so many papers now if he wasn't even going to start the approval process until May 15th when we brought him all of the income proof and our $99. He said that the date sensitive paperwork is good for 90 days (not enough to last until May) and that some of the other stuff is good for longer and that, more than anything, he was making us familiar with the paperwork involved so that, when we were ready to go, he could simply mail us documents instead of requiring us to come in so he could explain them all. This seemed understandable, yet still a bit odd.
He did say that my credit looked pretty good. I wasn't good enough to get what he called an "a-paper loan", but he felt that if I fixed one small bug in my credit, that it would put my score over 620, which, then, would be good enough for this "a-paper loan". Experian is what he pulled (and the only one I had a hard time pulling myself). Apparently, Sprint PCS thinks I owe them $170 from a million years ago. He said clearing that off my credit report will help a lot.
So, all in all, I'm optimistic. $1,450/mo is a good price point for us. We could even go a bit higher, which means that we can be a little more flexible in what we are looking for. I'm going to need the $11,000 worth of stuff explained to me again. And I'm going to need to understand this business with the "seller" paying part of the cost of the house. He also mentioned that, if I didn't like the 1% loan origination fee, that could be done away with by simply increasing the interest rate. If the loan origination fee is what HE gets paid for brokering the mortgage, I'm not sure I understand how a higher interest rate will get him his money. Additionally, there were long lists of fees that were incorporated into the $11,000. Most of which he claimed were charged by others (title company, appraisal company, etc) and were not charged by him or the lender. But, I had to take his word on that.
So, at this point, we've signed a bunch of paper work, and spent 2 hours in a mortgage broker's office just to find out three simple facts: 1) my credit is good, but not great. 2) We can get an interest rate of 6.25%. 3) A $150,000 house will cost us roughly $1,450/mo with $4,500 down and the seller paying about $1,200 (which doesn't add up to $11,000… but… whatever).
