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.

1. 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.
   
   
2. 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".
   
   
3. Try an online mortgage broker. There you'll fill out ONE application, and several banks can offer you loans. I'm currently reviewing mortgage brokers so I can recommend one, since I had some problems with the last one I listed here.
   
4. Try a local mortgage broker. A mortgage broker works with dozens of different lenders. The advantage to you is that the broker is shopping dozens of different lenders for you which saves you a lot of time, especially if you're having a hard time finding the terms you want, or finding a lender who will even give you a loan at all. The broker makes his/her money by charging a markup on the loan, but that doesn't necessarily mean you'll pay more than if you went straight to a bank, because brokers get special wholesale rates from lenders, and then charge a small markup, so the final cost to you is similar to what it would be from a bank. (More on brokers from Yahoo.)

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. The broker is charging an unknown markup. You still need to see what kind of offer you can get from another bank or another broker.

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.

Amount spent so far.   Red items apply towards the purchase. Amounts are typical, not exact.
$40	Credit Check	To the Lender
$40	Total

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