Getting a Mortgage: The Inside Story

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In January 2009, having been laid off from my job at a flailing start up, I decided to buy an apartment. It was not as crazy a decision as it may sound. I had just been downsized again. My husband Ben and I had already had to move several times for reasons beyond our control and were about to move again. My dad had cancer — again. I desperately wanted some stability, and I was willing to pay through the nose for it.

There were practical realities to consider, too. The economy had belly-flopped, meaning interest rates were close to zero. We knew we wanted to stay in New York for enough time to make purchasing real estate a good investment. And I felt like we were pretty good candidates for a loan. Despite my spotty employment record, I had no debt and some savings; my credit score was 720; and the well-located, if small, one-bedroom co-op that I found for sale on Craigslist was modestly priced and required only 10% down. Besides, my husband Ben was a fancy corporate lawyer in Manhattan. Surely between the two of us we would be considered a safe bet.

I didn’t use a mortgage broker; I didn’t even shop around for options. I simply called our major international bank (MIB), because that was where we banked, and chatted with a nice fellow named Brian. “We’re thinking of making an offer on this apartment,” I told Brian, once he had our financials. “Do you think we can get pre-approved?”

“Totally,” he told me. “Go ahead and make the offer, and I’ll call you once you get the official OK.”

We made an offer, which was accepted. Time passed. Then more time. We could feel ourselves getting older and our seller getting less patient. When Brian finally called back, he sounded like he had limped home from a battlefield.

We qualified for the loan from the bank, but because we were only putting 10% down, we had to get private insurance; and the private insurance people, all hungover because this, 2009, was their long post-bubble morning after, required a steep income-to-debt ratio. For that ratio, they only considered income, not savings. That meant that, factoring in Ben’s remaining law school loans and my lack of immediate income, we came within two percentage points of making the cut — but did not.

How to prepare for — and what to expect from — the mortgage application process

In 2011, we tried again.

Keeping in mind our first-attempt fiasco, we spent the intervening years paying off Ben’s law school loans until we had wiped them out; then, having exorcised that particular demon, we saved like fiends. I got a new job and wrapped myself around it, refusing to let go. By the time 2011 came around, no one could find fault with our debt-to-income ratio, and besides, we had enough cash to put down 20% or more on an apartment within our budget.

Once again we decided to proceed without spending money on a mortgage broker or real estate agent. I knew we could get burned again but figured we could apply the lessons we previously learned and save money by doing legwork and research ourselves. Sure enough, within a couple of months, we found a two-bedroom we liked in our price range in a well-situated co-op with healthy financials: its underlying mortgage had been paid off and it had over $50,000 in the bank, which meant our monthly maintenance fee would be under $500. We had gotten approved by MIB, because no hard feelings, for a standard 30-year mortgage with 20% down. So we made an offer, letter in hand.

Our offer was accepted! Our inspection went fine! We hired a smart real estate lawyer! And then!

We got an email from the lawyer:

your approval is from MIB. I have a few questions about MIB. Are you sure that MIB will give a loan to a 5 unit building? (Did you get your loan before the property was identified?) There appears to be another apartment with an MIB loan, on Unit 1 , which may not be conducive for the bank to close the loan.

I am asking these questions to make sure you will be successful in the purchase. You may need to consider another bank

The lawyer was entirely correct. MIB holds by the 20% rule: it will not finance more than 20% of any building, and one unit of a five unit coop = 20%. Because another unit in the building had gotten their loan from MIB, we were SOL. Once again, a bureaucratic representative nearly shed tears while on the phone with me, pledging any action short of seppuku.

This time, though, there was a happy ending. After some scrambling on our part, and with help from our lawyer, we found a new lender that could approve us speedily. As it happened, they even offered a better deal than the one we had agreed to with MIB: a 7/1 adjustable rate mortgage at an interest rate of below 3%.

It took us two years longer than we planned to buy an apartment but the delay turned out to be beneficial. We were able to save more in the meantime and, our second time around, get a larger place — one that could accommodate the baby we made shortly after signing the papers. We became homeowners and almost immediately we became parents. Though if we had had to get pre-approval for the latter, I can’t pretend I know how well we would have fared.

Image: Flickr user Steve

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