Financing My Condo, Grandma Style (part 2 of 2)

This is last of a two-part miniseries about my adventures in condo financing. If you haven’t read it yet, check out Part 1.

When we left off, I’d just left the mortgage broker’s office in San Francisco, flying high with aspirations of wheeling and dealing in real estate. There was just one fly in the ointment that I couldn’t ignore. When the broker had run through the numbers on this $400,000 condo, he showed me the projected monthly payment. The payment was nearly as much as my take-home pay. (Remember, we were acting as though I’d gotten a promotion and 30% raise, which had not yet materialized.)

The Big Mighty Bank seemed a powerful institution, and if they said I could afford this place, who was I to argue? And yet…..I didn’t want to be responsible for that huge monthly payment. It just didn’t sit right with me, even if a Bank said it was ok.

My mom even offered to co-buy the place, and we’d split the payment. But that didn’t sit right, either. I wanted to buy a Rebecca-sized condo at a Rebecca-sized price that would belong to Rebecca and only Rebecca. This was important to me.

So back to Portland I went. I once again toured the condo building I’d fallen in love with. Since the condo sale was part of a development project, the developer had already found a mortgage lender that would work with future buyers (this is common in condo developments–having a preestablished relationship with a lender speeds along the approval process). In my case, the lender was Wells Fargo. A bank, not a broker this time.

I sat down with the Wells Fargo representative and reviewed my numbers. The rep did not even mention an ARM. Instead, she talked about a special financing option the state of Oregon offers to people below a certain income level, called the Oregon Bond. The Bond enables you to put only 10% down and receive below-market interest rates on a 30-year fixed mortgage. That seemed ok to me, but where was the flash, the pizazz? I didn’t feel like a high flying real estate maven with this provincial-sounding Oregon Bond thing. And a 30-year fixed mortgage? Isn’t that what old people get?

Because I’d been pre-conditioned by the mortgage broker in San Francisco, I was not ready to accept the reality that the best mortgage to get is an old-fashioned 30-year fixed mortgage. I asked the Wells Fargo rep about something more “creative.” She was not enthused.

Ultimately, it became clear that I’d need to go with the 30-year fixed mortgage via the Oregon Bond, which would get me a rate of 5.1%. At the time, that was a fantastic interest rate (it still is, though it’s become much easier to get).

I did my pre-approval, gathered my documents, and started the loan process. It wasn’t until months after I’d closed that I noticed news reports of people getting slammed with balloon payments and resetting interest rates. Reading their stories, I began to really appreciate the wisdom of locking in a single, low interest rate. I know what my payment will be this month, next year, in 10 years, and in 30 years. No surprises.

I also realized how terrifyingly close I’d come to running myself off a financial cliff with a “creative” loan. Those people in the news truly could have been me had I not trusted my instincts and gone with the stodgy 30-year fixed grandma loan. It wasn’t new and shiny, but it has become the standard for a reason–it is reliable and predictable. Life is unpredictable, but at least my mortgage is a constant.