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I bought my first home this month. While get a mortgage wasn’t the first time I applied for a loan, it was the first time I got a loan mortgage. The process looked very different from any other loan I’ve received over the years, and a lot has surprised me.
While I had a lot of help along the way, it was a bit more difficult than I expected. This is what surprised me the most during the whole process.
Mortgages require years of income and financial verification
Little did I know how much verification it would take to get a mortgage. For everything from my income to my investment accounts, I kept looking for statements and deductions.
I needed a review of my total earnings for the past two years and more. As a freelancer for a number of companies, I had to find 1099s and W-2 tax forms from all of those gigs. This does not include the confirmation that I had to obtain for my current job. I also had to go back to an old employer where I worked on a tax form between 2017 and 2018.
Mainly, it was my freelance income that made things complicated. I estimate I spent over three hours collecting W-2 forms, 1099s, and pay slips. Although I try to organize these things, I had a lot to collect.
It took several months to complete the entire property buying process and obtain the loan
I started taking out a mortgage around the same time the coronavirus pandemic started. While it was sure to be an inopportune time, I also didn’t know how long it would take to get a mortgage.
I started the pre-approval process in March. I rummaged around for the best prices and closing costswhat took a while on its own. The applications were long, and it took me about a week to get about five mortgage pre-approvals for comparison.
When I finally found my dream home and made an offer, it was already August. I still worked well with the mortgage lender that month and didn’t finish the closing process until September.
While navigating a very busy Ohio real estate market during the pandemic made things complicated, it also took a long time to get it all taken care of.
I thought the process was like getting my student loans, but they were very different
During this process, I kept thinking back to the first time I borrowed money: Get student loans.
When I got my first student loan, I was 17 with no real income and no idea how much I was going to make later. My mom and I sat at the kitchen table to take out my first state student loan, and in an hour I had cash to cover tuition after scholarships at my private college. By the time I graduated at 20, I had debts similar to a modest Midwestern mortgage. But unlike my mortgage process, student loans never required proof that I would be able to repay them.
I was surprised at how different the processes were to get these two loans, considering that not infrequently a student loan is the sum of a small mortgage.
For example, compare my $ 160,000 mortgage to the cost of attending a four-year private college or university. the average tuition fees during the 2018-2019 school year at a public school $ 36,880. Over a four-year period, that’s $ 147,520 with no student discounts or scholarships, no interest on loans during school or tuition increases. While my student loans didn’t mind that much, it’s possible to get that much out in student loan form – and would likely require a lot less documentation than it would for a mortgage.
Unlike my student loans, I had more to prove for my mortgage. I had to have my income checked over the past few years, my employment checked, and the house checked to reassure the lender that it was a good investment. The student loan process was far less involved.
When I borrowed $ 1,500 from my parents, my mother also had paperwork to do
As I got closer to buying my home, I found that I was still $ 1,500 missing to pay a full 20% down payment – the home was less than I expected. A full 20% deposit would mean I’d save between $ 50 and $ 100 per month private mortgage insurance or PMI.
When my parents offered to lend me the money until my next paycheck, I took the chance. But it meant more scrutiny.
Although I intended to repay it, the $ 1,500 was considered a gift. That meant the mortgage lender had to track and verify the money in my mother’s bank account. My mother also had to sign a gift letter, and it took them a month of their bank statements to prove the money was hers.
It meant extra work for my mother. I felt bad that she had to do all of this, especially since I borrowed her money.
I was surprised how much the pandemic affected my home buying process
In April, the lender I wanted to work with tightened their standards. It announced that buyers would require a 20% deposit and also increased the creditworthiness requirements for approval. These tightened standards were a response to the coronavirus pandemic and rising unemployment, as well as higher demands for low-interest loans. At the time, I planned to spend less than 20%. I had to do more research and find another lender who would still work with me.
Later on, the pandemic almost had one more impact on my graduation process. The bank where I kept my deposit doesn’t offer wire transfers and I’ve been told my only option is to get the money as a check. The person at the bank stated that the check would arrive more slowly due to the impact of the coronavirus on the postal system. Although I eventually figured out a way to make automatic transfers, a late check in the mail would have meant I would have postponed my graduation.
The coronavirus has also complicated Communicate with some banks and lenders. Waiting times on the phone at banks were longer than expected. When we were about to plan the deal, my real estate agent said the closing company was overworked, which made scheduling difficult.
That’s not the fact that the pandemic has made it difficult to find accommodation. Since many more people bought houses in the market I was looking for, bidding wars took place and houses were expelled from the market as soon as they were listed.