Mortgage with Honors

This post is all about the utter trouble it's become for poor people like me to get a mortgage these days. Economic stimulus be damned, the hoops required to jump through are staggering. However, even if you lost $30k in the stock market and have hardly any assets left, you can still get a loan fairly easily if you can provide documentation that you're stable and responsible. Caveat emptor, this post refers exclusively to Massachusetts as a first time home buyer'. I would imagine they do things similarly in other states, but I can't vouch for it.

The first step, in my opinion, is to pre-qualify for a certain amount. The best place to get started is right at the website called MassHousing.com. With a salary of about $60k you'll be able to secure a pre-approval for about $300k. There are income limitations for a MassHousing loan, but unless you're making like $90k per year you won't have to worry about that. Also, they won't offer any loans that qualify as "jumbo loans" so you should look elsewhere if you're expecting to purchase for more than $480k.

Once you know the loan you can get, you should think about what kind of downpayment you can afford. Figure your current assets minus $5k in closing costs plusIn my whatever your family can give you (as much as $10k). In my case, this number was actually pretty low but I negotiated the seller to pay the closing costs so I was able to get up to level of a 5% down payment. If you can swing that, it's good. Otherwise, you might still be in business if you qualify for the "public transportation program", if you're a veteran, or if you can take a first time home buyer class then you can qualify for a downpayment of either 0% (in rare cases) or 3%.

Once you've figured out these critical aspects of your finances, you can forge ahead to figuring out what house you want to buy and making offers on it. If your offer gets accepted, you put down a deposit, and sign the purchase & sale agreement, the hard work begins. The following basically chronicles the basic information that my loan officer needed from me to secure the MassHousing loan.

1. 2 recent paystub
2. W-2 08 & 07
3. Most recent copy of your bank statement
4. Signed P&S contract
5. Copy of canceled check put on deposit/contract

With this documentation, I was able to turn my pre-approval into a conditional approval... meaning that there was a laundry list of conditions that I had to provide additional information for.

1. Borrower must contribute at least $xxxx of his own saved funds to this transaction.
2. Borrower to explain why bank statements and checks have his address in NJ.
3. Borrower to provide 2008, 2007, and 2006 federal tax returns to evidence first time homebuyer status. Borrower to sign tax returns.
4. Credit documentation begins to expire 07/15/09. If loan does not close by this date, the loan will be subject to review with a re-underwriting with updated credit documentation.
5. Documentation to verify the source of the following large deposits to HSBC Bank: $xxxx deposit on 04/20/09, and the $xxxx deposit on 04/20/09.
6. Fully executed MHFA Borrowers Affidavit and Notice of Federal Subsidy Recapture. Form must be complete and signed by the borrower and MLO.
7. Fully executed Mortgage Insurance Disclosure.
8. Most recent monthly or quarterly 401k account statement to support assets of $14,000.
9. Master Hazard, Liability, and Fidelity Bond Insurance Policy for the subject project. Policy must include HO-6 "wall-in" coverage.
10. Gift Letter signed and dated by an acceptable source in the amount of $xxxx.
11. Satisfactory verification of gift funds in the amount of $xxxx have been transferred from the donor to the borrower(s).
12. Satisfactory verification the availability of $xxxx in the gift donor's asset account(s).

You can ask me to go into detail on any of these, but the troublesome ones were the combination of 5/10/11/12 and then conditions 6 and 8. For these, the condition 5+ there was a certain level of documentation that needed to be achieved for it be qualify as "satisfactory". They basically scrutinized all deposits into my bank account that were greater than $1000 for the statement I had given during the pre-approval phase. They wanted to see statements from the source accounts, which was kind of annoying considering how poorly they communicated that with me. For condition 6, they seriously dropped the ball. I should have been asked to arrange a face-to-face meeting with the loan officer in April to take care of signing this. Instead, they waited until the day before I was supposed to close to let me know that I needed to meet with the loan officer because original signatures were needed on this documentation and not merely faxed versions of the equivalent. For condition 8, at the last minute they asked for evidence that I could withdraw money from my retirement account, and I lucked out that I was able to get a Human Resources guy at Draper to produce a letter that said I had funds available despite the fact that the main portion of my retirement account is included in the vesting employer plan which can't be withdrawn against. Seriously, if I hadn't moved money from my 401(k) from my previous employer into the new one I'm not sure I would have gotten the final approval.

Anyway... the final obstacle for me was driving 150 miles to my bank the day before my closing to get a cashier's check to bring to the closing. It turns out that when you're getting a mortgage that it's best to fund it through a local bank. The extra legwork to get the cashier's check at the zero hour is a big hassle, even if you do get to see the brand new Performing Arts Center they built at your college since you've graduated.

And then you meet the lawyers at the closing, sign your name 25 times, and get the keys. After that the only remaining step is moving in, and except for any steps that I may have left out... that's all there is too it.