So Katie and I decided to buy our first home (a condo) in California last year. From our first house (in Minneapolis) the lessons we learned was to have your 20% saved up ahead of time before taking the plunge. We’re fans of traditional 30-year loans (or 15 year loans if you can swing it) as they are fairly predictable and 20% will buy your way out of mortgage insurance.
20% seems like a lot, and it is, but that seemed to be the least of our problems. Here’s some more advice:
- Maintain a separate account for funding your laon. Have a separate account for funding your loan. Temporarily have your paychecks go there, have your gift money go there, stock sales, etc. This way you can build up your 20% without having to worry about miscellaneous income. E.g. I had some small amounts of money enter my account due to expenses that I filed with my employer. I had to paper-trail those.
- Get your funding in advance. If you can have the aforementioned account fully funded with your 20% a few months before you seek a loan, you could save a lot of trouble. Our mortgage officer seemed to only care about 2 months of history. However, this is hard since in a down economy having a large chunk of change just sitting there isn’t always a great idea.
- Link your accounts. Link all your accounts to the source account for your mortgage. If you have stocks, savings or other checking accounts make sure that you can quickly transfer money into your source account. Closing costs, interest rates and other seemingly minor details can force you to quickly sell something (like stock) and fund an account. I didn’t have my accounts linked, and I think I managed on funding from an unlinked source at the last minute. It was very tense.
- Know your transfer times. I’d give everything about a week to clear. It usually takes a few days, but every now and then it takes much longer for money to clear out of one account and into another. Keep a calendar open.
- Have everything ready to go a few weeks early. The tenseness of waiting for banks and fiduciary firms to get their acts together will give you endless migraines. Also, if everything is ready in advance, you may get your closing date moved up.
- Paper trail everything. If you don’t need the money to make closing, don’t put it in your source account. If you do need the money, show a paper trail.
- Have your loan officer make a schedule for you. Our loan officer was horrible since we had no idea what needed to be done when. So we would frantically get things together for her, and realize it was all for naught. Once you have a desired closing date, tell them to give you deadlines for having things.
While I wish I had this advice when I bought our place, we did manage to get all our ducks in a row and close without delay.
Update: A translation in Belorussian (not sure why).