Tuesday, September 27, 2005

Getting prequalified - Part 1

Well, I did it. I got prequalified and I put down the 10% on my condo. My savings account looks horribly deflated. You can just see it trying to cover itself up with the less than 10k remaining in an effort to still look marginally respectable. The poor thing.

On the other hand I am now the proud owner of something called a Purchase Agreement. I have 15 days to make trouble if I want to back out but since I can't make much sense of the fine print I don't see how I can do that. Good news is that I am done paying for now. I was told it would be 10% now and then 5% in 12 months and the remaining 5% at closing but I guess I got my wires crossed somewhere because turns out it is 10% now and 10% at preparation. Good because I don't think I can write another big check like that anytime soon without having a heart attack.

Going through the pre-qual process was interesting though. I knew it wouldn't exactly be as simple as walking into a bank and asking them to hand over $320k (maybe if I had a gun? just kidding) but I didn't anticipate how many things I would need. Employment history, financial statements, income vs expense breakdowns. Credit report and FICO score I expected but paystubs? Thankfully, I had a great mortgage broker who helped me make a list of things I needed and didn't even bat an eyelash (I am guessing from the calmness of her voice) when I called her up at 11pm last night frantic that I couldn't locate my checkbook.


At 9/27/2005 5:56 PM, Blogger Money Turtle said...

I need to learn more about preconstruction loans available. Do you have some kind of rate lock during the construction? When I checked, the only type of loans available with a lock feature were ARMS.

At 9/28/2005 9:39 AM, Blogger mmb said...

Oh yes. You can lock in the rate. The pre-qual is all you need to sign the purchase agreement (at least here) but you can go ahead and get your mortgage selection over with and get a rate lock.

I had the option to do fixed but I decided to go with an ARM. With the fixed I was getting a rate of 5.75 and with a 5/1 ARM I am getting 4.86. I am still paying down the same amount in principal but paying almost 12k less in interest over the 5 years which I can invest instead. And since I plan on selling or refinancing in 5 years anyway the ARM was the better choice for me.

You should talk to a mortgage broker and spend some time understanding all your options. Whatever you do though don't take out an interest-only mortgage or an options one. Interest-only mortgage will make your payments lower but you are not paying down any principal so all you are doing is giving the mortgage company an interest-free cash gift from your own pocket. As for options, if you can make sense for it and it's a smart idea then that's different. It was too difficult for me to understand in 2 days and the risks outweighed the potential rewards so I passed on it.

Not sure if any of that helps. Only thing I can say is do your research and make sure you understand which option is best for you.


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