Ask anyone who’s ever bought a house before: The home-buying process can be pretty stressful. Talk about unknowns galore. There’s the search for the right broker and the right home, the back and forth with the seller on price, the inspection that reveals your dream home is really a fixer-upper (and not in a cute HGTV way) — oh, and the mortgage.
Getting a mortgage involves a lot of variables, some expected and some downright frustrating. It’s understandable that your salary, assets, debt, and credit score play a role in the decision process when you apply for a mortgage. What’s a tougher pill to swallow is that your gender can be a factor when lenders review your application.
I wish I were joking.
According to a recent study by the Urban Institute, women, on average, pay higher rates for mortgages than men. Ok, lower credit scores and more instances of high-interest subprime lending — especially among non-white women for the latter — help explain part of that. But women default on mortgages less than men do, so there’s a discrepancy between what the credit score tells the lender about a female applicant and what the data suggests she’ll actually do.
Let’s really think about this: Lenders want borrowers who are likely to pay off their loans. The research shows that women, on average, are those borrowers, yet the industry is sticking with an approach that fails to take a nuanced view of the situation. End result? Women are stuck at a financial disadvantage. Sounds familiar ...
Even when credit scores are taken out of the equation, women can still be treated differently than men. Despite the fact that single women are buying homes at the highest rate in five years, the Woodstock Institute found that, in Chicago, mortgage applications from either single women or women with co-applicants were, in most cases, less likely to be approved than applications from single men or men with co-applicants.
The kicker? This happened when women and men had the same loan-to-income ratio.
So now that you know about these biases, what can you do to set yourself up to get a better mortgage?
Aim For That 20%
Start by saving for as big a down payment as possible. The ideal number here is actually a percentage: 20% of your dream home’s cost.
One of the biggest benefits of making a 20% down payment is kissing private mortgage insurance (PMI) goodbye. Mortgage lenders can require you to take out PMI — which protects them from losing money in case you default — if you make a down payment that’s less than 20%. PMI typically costs between 0.5% and 1.5% of your loan balance annually, and it isn’t always tax-deductible.
Now, if you’re looking at a house in the very near future, it’s easy to calculate how much a 20% down payment will cost you. But if you’re years away from buying, it’s harder to figure out what 20% looks like. You have to consider how much money you could be making during that time, how much more you’d be able to save because of your increased salary...it’s a lot to think about.
Ellevest is here to help. When you choose our home goal, we recommend — in dollars — how much you should aim for with your down payment. Our recommendation is based on how much we believe a lender is likely to lend you (given your salary) and your timeline. We also factor inflation into our calculations to make sure you get as much home for your buck as possible when you decide to go for it.
Who doesn’t love a deal? Well, according to a report from the Consumer Financial Protection Bureau (CFPB), nearly half of all home buyers with mortgages don’t — because they only seriously looked at one lender before applying for a mortgage.
That’s a problem. Especially when you consider how lenders, on average, treat women vs. men. It’s an even bigger problem because, as the CFPB report shows, most borrowers get their mortgage information from their lender or broker. Let’s be clear: The person lending you money is the one telling you what you need to know about borrowing money. Yikes.
Thankfully, online mortgage brokers are making it easier than ever to compare mortgages. Sites like Morty allow users to see mortgages from different lenders, mortgages with different rates, and different types of mortgages in one place. They also have educational resources, so you can learn what to look out for when you’re considering a mortgage. Given these options, there’s no reason why you shouldn’t consider several lenders before you sign on the dotted line.
Don’t Settle. Negotiate
Getting approved for a mortgage is a big deal, and it’s easy to get excited and just accept what the lender offers you. Don’t look a gift horse in the mouth, beggars can’t be choosers, etc.
The thing is, the terms of that mortgage, while great for the lender, may not be as good as they can be for you. Once you get your loan estimates from lenders (because by this point, you’ve shopped around, right?), look — and I mean really look — at the fees listed in the document, especially those associated with closing costs and processing the mortgage. These can add up, and because they’re set by the lender, they’re the easiest to negotiate.
It’s no beach read that’s for sure, but this is the only way to verify that your lender isn’t adding unnecessary expenses or double billing you for a single service. Here’s an example of something to watch out for: processing fees and underwriting fees in your estimate. They actually refer to the same thing — the costs associated with creating and processing your mortgage.
There are a fair amount of monthly mortgage payments on the horizon for you, future home buyer. Luckily, there are ways to get a mortgage that works in your favor, not just the bank’s. Having a smaller bill makes the saving, shopping around, and negotiating more than worth it — and having more money to spend on that arc floor lamp for your new house certainly doesn’t hurt.
Now that you have a strategy for getting a better mortgage, read up on “Four Steps to Take Before Buying a Home.”
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