My fiance and I are “this close“ to closing on a new condo in Brooklyn. We’ve spent several weeks at the beck and call of our prospective lender and have, along the way, discovered some new changes and requirements in the mortgage world that I think are worth sharing, as it could save you time, money and the risk of rejection.
1. You Need 6 Months Living Expenses In the Bank. The cash can’t be tied up in the stock market or bonds, either. You need to prove that you have six months of liquid cash in a standard bank account—on top of the down payment.
2. Business Owners: You Need Your Accountant on Board. If you’re self-employed and plan on allocating any money in your business accounts towards the down payment of the mortgage, you will most likely need a letter from your accountant stating that you will not jeopardize your business by doing so. While I was shocked by this, my accountant says this is pretty standard practice these days.
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3. You Can Negotiate Broker Fees. Before choosing a bank or a broker (who will shop around at various banks on your behalf) ask each for a Good Faith Estimate of your fees and closing costs. Jump to the section titled “origination fees.” That’s often where prices vary and where you may be able to haggle the most.
4. Banks Are Still Pushing the Envelope. When we were trying to get pre-approved, we were shocked at how some lenders came back with mortgage limits that were quadruple our incomes. “I think a good rule of thumb is to make sure mortgage and monthly housing expenses do not exceed 25% of total income,” says Doug Heddings, President of Heddings Property Group in New York. Beyond that, “you’re stepping into less frugal waters,” he says, and keep in mind, “monthly housing costs won’t remain fixed.”
[Related article: 8 Tips for Making Your Mortgage Process Easier]
5. Read the Financing Contingency Clearly. What happens if you can’t secure financing? Will you get your deposit back? Read the fine print. Prior to signing our contract with the seller, our attorney brought up the fact that if we didn’t work with one of the seller’s “preferred” lenders and instead went with a different bank or broker, and for some reason couldn’t secure financing within 60 days, we would lose our 10% deposit. Talk about shady. This really puts the buyer at a disadvantage because you don’t have the freedom to shop around for the best rate without the risk of losing a chunk of money.
6. Bad Credit? Bad Luck. “Credit score requirements are significantly more stringent now than ever,” says Mike Raimi, Managing Director at WCS Lending. “Protect your score by limiting inquiries, keeping balances at 25% or less of the limit and avoid opening new accounts within 3 months of applying for a mortgage,” he says.