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I bought my first home this month. While getting a mortgage wasn’t my first time applying for a loan, it was my first time getting a mortgage. The process looked very different from other loans I’ve gotten over the years, and a lot of things about it surprised me.
While I had lots of help along the way, it was a little bit more challenging than I expected. Here’s what surprised me most throughout the process.
Mortgages require years of income and financial verification
I had no idea how much verification getting a mortgage would require. On everything from my income to my investing accounts, I was constantly looking for statements and stubs.
I needed verification of all of my income for the past two years, and then some. Since I worked as a freelancer for a number of companies, I needed to find 1099s and W-2 tax forms from all of those gigs. That’s not including the verification I had to gather for my current job. I also needed to go back to an old employer where I worked between 2017 and 2018 for a tax form.
Mainly, it was my freelance income that complicated things. I estimate that I spent upwards of three hours gathering W-2 forms, 1099s, and paycheck stubs. Even though I try to keep those things organized, I had a lot to gather up.
It took several months to finish the whole home-buying process and get the loan
I started the process of getting a mortgage around the same time the coronavirus pandemic began. While it was inconvenient timing for sure, I also didn’t realize how long getting a mortgage would take.
I started the pre-approval process back in March. I shopped around to find the best rates and closing costs, which took a little while on its own. The applications were long, and it took me about a week to gather about five mortgage pre-approvals to compare.
By the time I finally found the house I wanted and put in an offer, it was nearing August. I was still working with the mortgage lender well through that month, and didn’t finish the closing process until September.
While navigating a very busy Ohio housing market during the pandemic complicated things, it also just took a long time to get it all done.
I thought the process would be like getting my student loans, but they were vastly different
Throughout this process, I kept thinking back to my first time borrowing money: getting student loans.
When I got my first student loan, I was 17, had no real income, and no idea how much I’d eventually earn. My mom and I sat down at the kitchen table to take out my first federal student loan and in an hour, I had money to cover the cost of tuition after scholarships at my private college. By the time I graduated at 20, I had a debt similar to that of a modest Midwestern mortgage. But, unlike in my mortgage process, student loans never required any proof that I’d be able to repay it.
I was surprised by how different the processes were for getting these two loans, considering that it’s not uncommon for a student loan to total that of a small mortgage.
Compare my $160,000 mortgage to the cost of attending a four-year private college or university, for example. The average college tuition during the 2018-2019 school year at a public school was $36,880. Over four years, that totals $147,520 without tuition discounts or scholarships, not including interest accruing on loans during school or tuition increases. While my student loans didn’t add up to that much, it’s possible to borrow this much in student loans — and likely would involve much less documentation than it would for a mortgage.
Unlike my student loans, I had to prove more for my mortgage. I had to verify my income for the past several years, have my employment checked, and get the house inspected to assure the lender that it would be a good investment. The student loan process was far less involved.
Borrowing $1,500 from my parents meant my mom had to do some paperwork, too
As I got closer to my home purchase, I realized I was $1,500 short of having a full 20% down payment — the house was less than I’d expected to spend. Having a full 20% down payment would mean that I’d save between $50 and $100 per month on private mortgage insurance, or PMI.
When my parents offered to loan me the money until I got my next paycheck, I jumped at the chance. But, it meant more verification.
Even though I planned to repay it, the $1,500 was considered a gift. That meant that the mortgage lender would have to trace and verify the money from my mom’s bank account. My mom also had to sign a gift letter, and they needed a month of her bank statements to prove that the money was hers.
It meant extra work for my mom. I felt bad that she had to do all of that, especially since I was borrowing her money.
I was surprised by how much the pandemic impacted my home-buying process
In April, the lender I was planning on working with tightened its standards. It announced that it would require buyers to have a 20% down payment, and increased the credit score requirement for approval, too. These tightened standards were a response to the coronavirus pandemic and increasing unemployment, as well as higher demands for low-interest loans. At the time, I planned to put down less than 20%. I had to do more research and find another lender who would still work with me.
Later, the pandemic almost had another impact on my closing process. The bank where I was keeping my down payment money doesn’t offer wire transfers, and I was told that my only option was to receive the money as a check. The person from the bank explained that the check would be slower to arrive because of coronavirus’ impact on the mail system. While I eventually figured out a way to make automatic transfers, a delayed check in the mail would have meant pushing back my closing.
The coronavirus also complicated communications with some banks and lenders. Hold times on the phone were longer with banks than I expected. When we went to schedule the closing, my real estate agent said that the closing company was swamped, which complicated scheduling.
That’s not accounting for the fact that the pandemic made finding a home harder. As many more people were buying homes in the market where I was searching, there were bidding wars and houses flying off the market as soon as they were listed.