Find a Lender & Fill Out an Application
Here's where you find a bank willing to
give you a loan. So how do you find a lender? You have a few
choices.
-
Go to the bank that holds your checking or savings
account. Just go in and ask to talk to a loan officer. They'll ask
you to fill out an application, which does NOT obligate you to buy a
house or accept the loan.
- Try an online mortgage broker. There you'll fill out
just one application, and get loan offers from several
banks. I'm currently recommending ELoan (see their banner at
right, or
).
I'd appreciate hearing from customers who
have
experience with them, good or bad. Also, whenever looking for
loans online, use a disposable email address
in case you start getting spam as a result of your inquiry.
- Try a local mortgage broker. A mortgage broker shops
your loan to many different lenders to try to get a good deal (or to
try to get any deal, if you're having a hard time finding a
lender who will grant a loan). This saves you time because you
don't have to approach a slew of lenders yourself; the broker does that
for you. The broker gets paid either by a fee from the lender or
from a markup on the loan, but that doesn't necessarily mean you'll pay
more than if you got your loan directly from a bank, because brokers
often get special wholesale rates from
lenders, and because by shopping dozens of lenders they can often find
a better rate than what your local bank offered.
- Try an online lender. Banks are in cyberspace, too.
I'm currently looking for one I can recommend. In the meantime, you can
find lots of banks by searching
Google for "home loan".
[an error occurred while processing this directive]The
Application
You'll fill out a loan application which asks about your
financial status and employment history. You'll also probably have
to provide some documents, like a paycheck stub and maybe your income
tax return. If you're self-employed, they'll probably want a whole ream
of papers from you. It's possible to get loans that require less
paperwork but they require you to have near-perfect credit, and
interest rate will be 0.5 to 3.0 percentage points higher. (More on
this on our page about Qualifying
for a Loan.) Filling out an application does NOT obligate you to
buy a house or accept a loan.
They'll also expect you to fork over $40+ so they can run a
credit check on you.
Once they've processed your application and run your credit
report they'll be able to tell you how much they're willing to loan you
and under what circumstances.
Special considerations for
duplexes or garage apartments
If you're going to rent out part of your new home
then that increases your income, and so the bank should be willing to
give you a bigger loan. If you think you'll be buying a duplex or
a house with a garage apartment ask the lender to give you an idea of
how much extra you can borrow, given the typical income you'd expect to
make from rent.
Getting the best deal
 Unless you shop around, you'll almost
certainly pay too
much interest. This will cost you tens of thousands of dollars
over the life of your loan. Up to 90% of borrowers pay an interest rate that's too high.
To avoid this shop around and get at least two
loan
offers. Shop for a loan like you'd shop for anything else, by considering
the cost and by comparing what you get. The cost is
the interest rate you'll be paying on the note, plus any fees the bank
charges. Interest rates and fees vary from lender to lender. What
you get is the amount of money the lender is willing to loan you.
Some lenders will loan you more than others. (You could also consider
efficient and friendly service as part of what you get, but you don't
really have any guarantee that one lender will process the loan faster
than another, and once all the paperwork is done you'll probably never
have to deal with the lender again.)
You should always get at least two loan offers so you can
choose the best one. (Two offers is the minimum -- it won't hurt to
get three or four.) Get an offer from at least:
- Two banks, or
- Two brokers, or
- A bank and a broker
You should also make sure each lender knows that
they
have competition. Tell them you're shopping around. If your lender or
broker thinks you're not talking to anyone else, what incentive do they
have to give you the best deal? None. And you'll pay more.
And even after you get multiple offers, you can still try
to negotiate a better deal. Let's say one broker or lender offers
you a 6.5% loan and the other offers 6%. I'd go to the one who offered
6.5% and say "Another broker or lender is offering 6%. Can you tell me
why I should take your loan instead?" At that point they might lower
their rate to 6% to match the other one you got. To this I'd reply,
"That doesn't really answer my question. Now your offer is simply no
better than theirs. Why should I take your loan instead?" You might not
get a better deal, but it's worth asking. Of course, if at this point
you have two identical deals, you can go back to the broker or lender
who offered 6% off the bat and tell them you have an identical offer
from another source, and ask your standard question about why you
should take their loan instead of the other one.
It's not sufficient to get two offers from the same
broker.
You still need to see what
kind of offer you can get from another bank or another broker.
Incidentally, in July 2010, U.S. mortgage rates dropped to
4.58%, the lowest rate in over 50 years. (Star Tribune) And HSH has a list of historical mortgage rates since 1986.
On the next page we'll cover how to evaluate the bank's
offer -- especially if they give you various options and you don't know
which one to pick.
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Amount spent so far. Red items apply towards the
purchase. Amounts are typical, not exact.
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$40
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Credit Check
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To the Lender
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$40
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Total
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If you liked this site then you might like some of my other sites:
How to Find Cheap Airfare How to Save Electricity How to get listed & ranked well in Google
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