We were literally holding our breath waiting to hear the news that the seller accepted our offer and move forward with the process to buying our first home. And finally, after the back and forth of counter offers it came and we were under contract! This was all with the stipulation that we would close by the 15th of November which was just three weeks away.
Being new to the buying game that was definitely a learning curve and there are things we learned that I want to share here that may help you if you're looking to buy a home too! Keep in mind, I'm not a banker or a financial adviser, I'm just sharing our experience! As a design professional I'll stress to you as well, always consult a professional to see what your financing options are and for advice specific to your situation.
A typical first time home buyer that puts down less than 20% down on their mortgage is required to pay mortgage insurance. When we were getting pre-approved with our loan officer he told us of a conventional loan option we hadn't heard of before that would allow us to put less than 20% down and not pay the added mortgage insurance every month. It was called a CRA Loan.
Community Renewal Act The Community Reinvestment Act (CRA), enacted in 1977, requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods. (Federalreserve.gov)
The stipulations were stricter to get this type of loan but we were on board with the savings if it all worked out! After they received all of our paperwork it was time to look at the interest rates.
Within a few months leading up to finding this home the interest rates had doubled from 2.5% to 5% and then 6%. That was a difference of thousands of dollars every year and hundreds each monthly mortgage payment. We were anxious to get locked into an interest rate before it jumped even higher. There was talk that the Federal Reserve was going to hike interest rates again at the beginning of November.
With our loan officer we watched for a few days as the trend appeared to be going higher and then lower. We had a decision to make and it was a guessing game day to day to know what would be the best rate. Our advisor told us to wait one more day and sure enough the next day the rates were a touch lower than the day before! We thought we'd take the risk and wait one more day to see if it would lower a little more but instead it rose slightly so we locked in the rate. It was still better than when we initially looked at the rates a few days before so we were grateful for the timing.
Something we didn't know at the time, when we locked in a rate it wasn't tied to us for whatever kind of loan we wanted to get for this house, it was tied to that specific loan type we were seeking. And so, if we weren't approved for a conventional CRA loan then we would have to lock in a new rate which would potentially be higher.
As we moved further along in the process it became apparent that would be trickier than we thought. Our home was located in a middle income neighborhood. If the home was located in a lower income neighborhood then approval wouldn't have been based on our income but because its classification was middle income we had more steps in the approval process. We were right on the boarder of making too much to qualify for this kind of loan. Our income is also not clear cut on a yearly basis so it was up to the underwriter to make the decision.
And so the stress and drama of getting financing began. It seemed like every other day there was something. Word that we would most likely not be approved or word that we would. We had a home inspection and found a number of things from a leaky chimney to ceiling heat that didn't work in a few of the rooms but we were still set to move forward. The appraisel came back for $50k higher than the price we were set to pay for our home which was a relief. But the question still remained if we would be approved for our loan.
It all laid in the hands of our underwriter to make the decision. Luckily, we had complete trust in our loan officer to plead our case and help us in the process. We prayed everything would work out, it had to...we got an email saying "we would most likely not be approved for the CRA loan" and what we would need to do next if that was the case. The interest rates at this point had risen another percentage point which was a big deal in the affordability of our home. We would have to look at paying a higher rate and mortgage insurance as well.
Then, a miracle happened. Another underwriter looked at our application a few hours after we received that email and WE WERE APPROVED!
But, it wasn't over yet...
When they reassessed the property taxes for our home they came back at $1500/year higher than anticipated which put our debt to income ratio too high. So our options were paying more towards buying down the interest rate, we were already paying $8k to get to a 6.125% interest rate or negotiating a lower price for our home owners insurance to make up the difference. We weren't going to compromise on our home insurance so another $3k brought our interest rate down to 5.75% and we were set to move forward.
We had everything processed and approved and we were ready for closing. We could have closed a few days before the 15th but the seller wanted the weekend to finish cleaning out their things. (After our arrival we learned it was just to take down the pool and they left a frozen lake of water on our lawn and cabinets throughout the home filled with things. But that's a story for Part 3). We had hoped to have the extra weekend to begin painting and getting our house ready to move in the following week but it would have to wait the weekend. We were able to go in and measure for carpet and look at paint swatches so we'd be ready to go which was a blessing!
And so, the date was set! We would close on the 15th after a roller coaster of emotions and the unknown of being approved for financing or not the day was here and we were ready to close!
As always, thank you for reading and I hope you gleaned some knowledge from my experience!