Last October, I mentioned that I had finally hit a net worth of zero, celebrating the occasion of being officially worthless. At that point I mentioned that my next step was to buy a house. I can now say that I finally did get down and buy a house, closing a few months ago on June 13th. I started looking in November just to see what was out there but didn’t seriously crack down and take it seriously until about April. I plan on writing a four-part series about my experience with the mortgage process and some of the hilarious and depressing encounters with the various people along the way.
Part 2: Realtors Bite
Part 3: The Long and Winding Road
Part 4: Thank You for Selling
From the very start of the process of looking for a home to closing on the house took about four months. A lot of this time was on my own end searching for a home and preparing my documents for a mortgage but the mortgage process itself was close to two months. As I’m sure most readers are aware, obtaining a mortgage is a long, onerous project subject to financial strip searches and fumbled documents. I have never refinanced but I can only imaginebased off of stories that obtaining a refinance is as enjoyable as a proctology exam.
I signed a purchase agreement on May 2nd. The sellers said that they required closing by June 15th so that they would avoid another mortgage payment. That leaves 44 days for closing. I obtained my prequalification through Chase Home Mortgage and they were unable to get back to me until May 3rd letting me know that they are unable to agree to a purchase agreement with less than 45 days closing. This is despite the fact that I was already pre-approved: I had already gone through the longer process of having my documentation and assets fact-checked, which is a bit more intensive than just a basic prequalification. From my standpoint, the only steps left would be to obtain an appraisal and get PMI and home insurance. Apparently, Chase was steadfast in their inability to sign on less than 45 days but “assured” me that they would do everything they can do to get the mortgage finished by June 15th.
Can't I take Chase solely on their word?
To me, this is unacceptable. I know little about contract law but what I do know is that if Chase is able to close the loan by June 17th (45 days) and the seller backs out because I did not honor the contract, then I am on hook for the earnest money, despite how much Chase is able to assure me they will work “as hard as they can”. I immediately called up three other mortgage originator and was able to find that all three are willing to sign on contracts up to 35-40 days so I selected the lowest rate/points combination and moved on it.
The Chase servicer that I had been working with for three weeks was furious with me but I had already made my move and it wasn’t personal: simply business. It turns out that I locked my rate on May 6th. Looking at the thirty-year rate following my lock, it appears the market moved in opposition to me finally locking in. The rate spiked about 0.80% in the few weeks afterward and I snuck into my rate just in time. Pure luck although I prefer to think I timed it perfectly with my brilliant insight.
Why don't more people take large financial decisions seriously?
I work at a company that is related to the mortgage origination industry and one of the takeaways is the concept of ‘stickiness’. The term is usually applied to checking accounts: once somebody locks into a checking account it is extremely difficult for the customer to change banks. If a new bank opens with 0.10% higher APR on their checking account, the inertia in the market makes it extremely difficult for the money to move quickly from one bank to another. Banks take advantage of this to fleece their customers: Bank of America has made a practice of it over the past decade yet they are still #1 or #2 in domestic deposits, barely decreasing since their PR disasters (charging $5 debit card fee?).
Mortgages: An Inefficient Process
This concept also applies to the mortgage process. Since the application is such a lengthy process, minor quirks or kinks in the system are not properly calibrated or optimized. For example, if my originator has an appraisal fee of $395 instead of $345, I will probably just ignore it because I am far into the process. This is true of signing on 40- or 45- day closing, true of finding the lowest rate, true of being forced into higher points than expected. The Chase servicer was just not used to somebody walking away late enough in the process and I think I surprised him with my willingness to jump ship. Not only did it turn out to close the loan much easier, but I also got a much lower rate.
Long story short: be willing to shop around for a mortgage even late in the process, it could save you thousands of dollars and a headache if it ensures that you close.