Purchasing a home: BoFa home loans, follow-up questions

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ThisJustIn
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Purchasing a home: BoFa home loans, follow-up questions

Post by ThisJustIn »

I spoke to a Bank of America home loan specialist yesterday, and I did ask him all I have, but I have some follow-up questions, because some of you may have tried loans with other banks / credit unions / others:

1) My FICO score returned by Bank of America account online is 748. The home loan specialist said that this is usually an overestimate of the actual FICO score. Is this correct, has anyone experienced this? Also, their rate for FICO score of 748 is 3%, but if I had 780+ FICO score, then the rate would be 2.75%. Has anyone used BoFa home loans, and has anyone tried to increase their credit score to 780+? How can I increase my credit score as soon as possible?

2) Paying downpayment with margin loan using Interactive Brokers: Interactive Brokers has this nice margin loan option with 1.59% until 100K, and 1.09% for above 100K. I'm almost fully invested in stock market, and I don't want to sell, so I want to use margin loan (say transfer 400K to IBKR, in which case they will lend me 200K, which will be good for 20% downpayment of a 1M home). Has anyone tried this? I told this to BoFa home loan specialist, and he said "we need to know the terms (duration / interest rate of payment schedule of the margin loan) to approve our own loan with your downpayment paid via IBKR margin loan". Why does BoFa care where the downpayment comes from? Has anyone done this, take a home loan from a bank or credit union, and make the downpayment via a margin loan from IBKR?

3)Prequalification: When does prequalification happen? Can I get prequalification and home loan application approved the same day? What else do I need, to make best use of 90-day period after my prequalification?
exodusNH
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Joined: Wed Jan 06, 2021 7:21 pm

Re: Purchasing a home: BoFa home loans, follow-up questions

Post by exodusNH »

ThisJustIn wrote: Thu Dec 02, 2021 3:45 pm I spoke to a Bank of America home loan specialist yesterday, and I did ask him all I have, but I have some follow-up questions, because some of you may have tried loans with other banks / credit unions / others:

1) My FICO score returned by Bank of America account online is 748. The home loan specialist said that this is usually an overestimate of the actual FICO score. Is this correct, has anyone experienced this? Also, their rate for FICO score of 748 is 3%, but if I had 780+ FICO score, then the rate would be 2.75%. Has anyone used BoFa home loans, and has anyone tried to increase their credit score to 780+? How can I increase my credit score as soon as possible?

2) Paying downpayment with margin loan using Interactive Brokers: Interactive Brokers has this nice margin loan option with 1.59% until 100K, and 1.09% for above 100K. I'm almost fully invested in stock market, and I don't want to sell, so I want to use margin loan (say transfer 400K to IBKR, in which case they will lend me 200K, which will be good for 20% downpayment of a 1M home). Has anyone tried this? I told this to BoFa home loan specialist, and he said "we need to know the terms (duration / interest rate of payment schedule of the margin loan) to approve our own loan with your downpayment paid via IBKR margin loan". Why does BoFa care where the downpayment comes from? Has anyone done this, take a home loan from a bank or credit union, and make the downpayment via a margin loan from IBKR?

3)Prequalification: When does prequalification happen? Can I get prequalification and home loan application approved the same day? What else do I need, to make best use of 90-day period after my prequalification?
Following 2009, BoA is risk averse.

The credit scores you can see and the ones mortgages they use are different. The latter is usually lower, for reasons.

Banks always want to know the source of funds. If someone gave you money to pad out your account that you were just going to return after they checked your balance, you have less than it appears.

If you take a $200K margin loan on $400K of equities, you're setting yourself up for a lot of pain in the event of a stock market decline. If the market drops 50%, you've lost it all because they will sell what was $400K of equities and is now $200K to pay off your loan. They may do this without asking you or giving you a chance to top off the account.

Margin loans are best used for as a short-term bridge loan if you're not using it to buy into the market. Aside from the forced liquidation, the interest rate is not fixed. If you don't have a plan for paying it of quickly, you're going to find yourself in an unenviable position.

If you have substantial assets, then this may not be an issue for you. But if $400K is a substantial part of your net worth, what you're doing is very risky. You're better off selling the $200K of equities. Or, at least do more like a 25% margin loan instead of 50%. E.g. $100K out of $400K, since that will probably not cause a margin call event and would be more easily settled when the margin rate increases.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: Purchasing a home: BoFa home loans, follow-up questions

Post by ThisJustIn »

exodusNH wrote: Thu Dec 02, 2021 4:29 pm
ThisJustIn wrote: Thu Dec 02, 2021 3:45 pm I spoke to a Bank of America home loan specialist yesterday, and I did ask him all I have, but I have some follow-up questions, because some of you may have tried loans with other banks / credit unions / others:

1) My FICO score returned by Bank of America account online is 748. The home loan specialist said that this is usually an overestimate of the actual FICO score. Is this correct, has anyone experienced this? Also, their rate for FICO score of 748 is 3%, but if I had 780+ FICO score, then the rate would be 2.75%. Has anyone used BoFa home loans, and has anyone tried to increase their credit score to 780+? How can I increase my credit score as soon as possible?

2) Paying downpayment with margin loan using Interactive Brokers: Interactive Brokers has this nice margin loan option with 1.59% until 100K, and 1.09% for above 100K. I'm almost fully invested in stock market, and I don't want to sell, so I want to use margin loan (say transfer 400K to IBKR, in which case they will lend me 200K, which will be good for 20% downpayment of a 1M home). Has anyone tried this? I told this to BoFa home loan specialist, and he said "we need to know the terms (duration / interest rate of payment schedule of the margin loan) to approve our own loan with your downpayment paid via IBKR margin loan". Why does BoFa care where the downpayment comes from? Has anyone done this, take a home loan from a bank or credit union, and make the downpayment via a margin loan from IBKR?

3)Prequalification: When does prequalification happen? Can I get prequalification and home loan application approved the same day? What else do I need, to make best use of 90-day period after my prequalification?
Following 2009, BoA is risk averse.

The credit scores you can see and the ones mortgages they use are different. The latter is usually lower, for reasons.

Banks always want to know the source of funds. If someone gave you money to pad out your account that you were just going to return after they checked your balance, you have less than it appears.

If you take a $200K margin loan on $400K of equities, you're setting yourself up for a lot of pain in the event of a stock market decline. If the market drops 50%, you've lost it all because they will sell what was $400K of equities and is now $200K to pay off your loan. They may do this without asking you or giving you a chance to top off the account.

Margin loans are best used for as a short-term bridge loan if you're not using it to buy into the market. Aside from the forced liquidation, the interest rate is not fixed. If you don't have a plan for paying it of quickly, you're going to find yourself in an unenviable position.

If you have substantial assets, then this may not be an issue for you. But if $400K is a substantial part of your net worth, what you're doing is very risky. You're better off selling the $200K of equities. Or, at least do more like a 25% margin loan instead of 50%. E.g. $100K out of $400K, since that will probably not cause a margin call event and would be more easily settled when the margin rate increases.
Thank you for the explanation, very informative.
As for margin loan, I understand you about 25% margin loan. As long as I place stable funds there like 3-fund portfolio, I think the likelihood of it dropping to 25% of it is low. 400K is around 1/5th of my NW, I would say it is substantial. But with 25% margin loan using index funds, I think I should be safe.
If Bofa is not the best choice, what are the alternatives?
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: Purchasing a home: BoFa home loans, follow-up questions

Post by exodusNH »

ThisJustIn wrote: Fri Dec 03, 2021 11:30 am Thank you for the explanation, very informative.
As for margin loan, I understand you about 25% margin loan. As long as I place stable funds there like 3-fund portfolio, I think the likelihood of it dropping to 25% of it is low. 400K is around 1/5th of my NW, I would say it is substantial. But with 25% margin loan using index funds, I think I should be safe.
If Bofa is not the best choice, what are the alternatives?
BOA is fine. They're just more conservative that many other lenders. I don't have specific recommendations as I have my mortgage through a broker that goes through United Wholesale Mortgage.

As recently as 2007, an 50 US/30 ex-US/20 BND dropped 43%. https://www.portfoliovisualizer.com/bac ... tion3_1=20

The same portfolio dropped ~17% in early 2020.

The market has averaged a 20% drop every 3-4 years.
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