This is the sixth installment in Luneray‘s homebuying adventure. In the first part, she looked at houses. She made an offer in part two. Next, she meditated on coming face-to-face with a lifetime of debt. She worried that things were going a little too smoothly, but then last week she prepared to close. This week, things turn ugly. (Bold emphasis added by J.D.)
Today is one of those days that Oscar and I will look back and laugh about. Eventually. I hope. But not now. Right now I am sulking. This is an improvement. A few hours ago I was seething.
Tomorrow [Sept. 28] is the closing date, which means we had to sign our papers today (or, at the very latest, tomorrow morning). Ideally (I gather), the paperwork is signed at least 24 hours in advance of closing, and we should have signed our paperwork this morning. No go. Yesterday I had three frantic calls from the escrow officer. Today she called me every two hours, nearly hysterical that the documents hadn’t been sent to her. She wanted us to sign first thing this morning, which turned into just before lunch, which turned into 3pm.
Meanwhile, at 12:05 I received a call from the Insurance Agency: “I have your mortgage broker on the line and we just need to verify that you are going to use this Agency for your Homeowner’s insurance.” I had called the insurance agency THREE WEEKS AGO! It’s 12:05 on the day we are supposed to sign our papers — why are there still so many loose ends?
At 2pm, I got The Call.
Escrow officer: “Be here by three. If you can be here by 2:45, that’s even better because then we can make the 4:15 FedEx courier service! Oh, and I haven’t received the Good Faith Estimate so I don’t know how much you will have to bring to escrow.”
Me: “I don’t believe we will owe anything. According to our Good Faith Estimate, we should get several hundred dollars back.”
So we drove to the escrow company. As we turned off the freeway, my cell phone rang.
Escrow officer: “I just got the Good Faith Estimate. You will need to bring a cashier’s check for $213.02 made out to us.”
Me: “Um, that’s kind of a surprise. We’ve just turned off the freeway. Do you know the nearest Bank of America to your office?”
Escrow officer: “No, hold on and I will ask. [shouts through office] Anyone know where the nearest BofA branch is? No, I don’t know!! They’ve just turned of the freeway. They are almost here!!”
We found a BofA and went inside to get the cashier’s check. We were at the head of the line when my cell phone rang again.
Escrow officer: “We checked over the paperwork and realized there was an error. You need to bring a cashier’s check for only $11.84.”
Me (waving patrons to move ahead of me): “$11.84?”
Escrow officer: “Yes, $11.84, made out to the escrow company.”
This made me unhappy because we were in Bank of America, whose unofficial motto is: “We charge you for breathing.” I had cash, so I gave the teller $20. She told us that cashier’s checks are free to Gold Account holders. But for us, it would be $6. Oh, it hurt to pay $6 for a cashier’s check for $11.84. It really hurt. I knew they would charge us (“We charge you for breathing”), but I thought that was a bit excessive.
At 3pm we entered the escrow office. The escrow officer came out, greeted us, led us to her office, sat us down, looked at her computer monitor, and then completely freaked out. Remember, she had already called me several times today to express her concern that the documents hadn’t arrived in a timely manner. And she was really concerned about meeting the deadline. So there we were, one hour and fifteen minutes before the documents must go out the door, and she freaked out about another client: “Oh my god! I just got this information released from the wire! It was supposed to be done by 3:00! Give me five minutes!!”
I don’t know what the actual problem was, but it was obvious that she was Really Upset. She frantically called several parties to release some info, but it all ended up falling apart in the end. She went from Really Upset to Angry.
We sat there, biding our time. Finally, at about 3:20, she got to our paperwork.
Several friends had joked that we would need to limber up our wrists before we started signing papers in order to prevent a cramp. They were right. Doubly so. See, we actually have two mortgages. We didn’t have a 20% down payment so our “down payment” amount was financed as a second mortgage. We had two giant stacks of mortgage papers to sign.
First, we handed over the cashier’s check. The escrow officer said that she hated asking people to bring in cashier’s checks for such small amounts. I mentioned that the check cost us $6 and that I wished we could have just paid cash. “Oh, you could have paid cash! I should have told you!”
The first stack of papers went okay. I made a mistake on one piece of paper by forgetting to include my middle initial in my signature, so I had to correct that. (The IRS and Immigration department aren’t this anal!)
Then, at approximately 3:50, we started signing the paperwork for the second mortgage. Most of the paperwork was identical to the first set (lots and lots of disclosure statements!), so she didn’t have to go over all of them in the same detail. But when we got to the actual loan paperwork, my eyes focused on two words that made me nearly pop a vein in my head: BALLOON PAYMENT.
What. the. %*#&???
Me: “Excuse me. This isn’t the loan that we agreed to.”
I am an intelligent person. I’ve read several books about the home-buying process. I’m aware of that there are several different financing strategies. But Oscar and I are first-time homebuyers. Unfortunately, the mortgage broker must have assumed that I knew a lot more about mortgages than I actually do. Things apparently weren’t made crystal clear because I guess they figured I knew enough not to be a total n00b, but obviously not enough to ask proper questions. I had brought copies of all the paperwork for the loan and there was NOTHING about balloon payment.
The mortgage broker never mentioned that the second mortgage was a balloon loan. We never signed a Good Faith Estimate for the second mortgage. Never having gone through the mortgage process, I thought the GFE was for both (since the payment info for both was included on the same sheet). I knew that we would have two mortgages. I knew that they were different interest rates. But this took me completely by surprise because all the documentation we had for the second loan gave repayment info based on a 360-month repayment plan. That’s a 30-year mortgage — fairly standard.
What is a balloon loan? It is a 15-year loan with monthly payments based on a 30-year repayment plan. This is done to lower the monthly payments. But the kicker is that at the end of 15 years, the balance comes due as a single payment, which in our case would be about $33,000. The justification behind these is that most people don’t stay in one place for 15 years. Also, people can always refinance the loan.
Why didn’t I catch that it was a balloon loan? Because the mortgage broker didn’t give us a GFE for the second loan, where the term BALLOON payment is clearly noted. And all the repayment info is based on a 360-month repayment plan. Why amortize a loan for 30 years if it’s due in 15???
I am a half-empty person in terms of finance. There’s no guarantee that interest rates won’t rise into the double digits like they did in the late 1980s. There’s no guarantee that eventually refinancing this loan would make things better.
I was not pleased. Not pleased at all. I sat there for about five minutes debating what to do. Perhaps I’m excessively cautious, but I didn’t want to sign to anything that I knew I couldn’t meet. I seriously considered walking out. The terms of the loan were not made clear to us. Two things I wanted to avoid were “variable interest rate” and “balloon payment”.
The escrow officer called the mortgage broker, who swore up and down that he had explained to me what this kind of loan was. I swore up and down that I didn’t know it was a 15-year loan, and that I was really upset. He said this is the first time in his 21 years that a customer found out loan details during loan closing. I told him the repayment strategy was not explained to me. Both he and the escrow officer explained that these were pretty common terms, that they didn’t know any lender that would finance a second mortgage with 30-year terms. The escrow officer tried to make us feel better by saying that her own home loan is interest-only, that this was the only option she could afford. (Okay, but interest only is another thing I wanted to avoid.)
Perhaps this was the best way to go, perhaps it was the only option that was available to us — BUT WE WEREN’T MADE AWARE OF IT BEFOREHAND!!!
I asked Oscar what he thought. He is a half-full person — he felt it was worth it. I sat and stewed for several minutes. Could we do it? I’d already set up an elaborate plan for paying off our debts using the snowball method, so I knew we could put a few hundred dollars more into the payments each month. I knew we could pay off the mortgage in 15 years. But I didn’t like having to be locked into it.
What to do, what to do. Are the gains worth the risks? Could we live with this? Could we do this?
We signed. It was 4:10, and I was signing the paperwork so quickly that my signature was an illegible scrawl. There could have been a murder confession in the fine print and I wouldn’t have seen it.
We made deadline. But I am not happy. I also thought we would get the house keys after we signed the papers, but we didn’t. That would have made things a bit better. After signing the paperwork, I expected to feel elated, anxious, even worried. But all I am is angry.
What happens next? How does Luneray feel after actually getting the keys? Tune in next week to find out! Thanks to Luneray for sharing her home-buying adventure with GRS readers. Please keep comments constructive.