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.

1. Shop online.  There's a right and wrong way to do this, so pay attention:  The wrong way is to go to LendingTree or any other site that asks for your email address & phone number up front and promises to hook you up with lenders.  The offers you get will carry higher interest rates than you can get elsewhere, and you'll be deluged with email messages and phone calls, sometimes even outright spam.  The right way to shop for a loan online is to use a site which lets you see bank offers without revealing your personal information to those banks, and then lets you choose which banks you want to follow up and share your info with.  One such site I like is Zillow, which shows what banks are offering what interest rate, plus what their fees are.
   
   By the way, I used to recommend LendingClub here until I learned how lousy their offers were, and dropping their ads from my site cost me around $2000/mo. in referral commissions that I used to get.  By contrast, Zillow doesn't pay me a damn dime.  But I've always pledged to do what's best for my readers, even if that means a hefty hit to my income.
   
   Anyway, shopping online at Zillow is usually the best way to go, because you can easily see what banks are offering the best rates.  You're unlikely to get a better deal from going to a local bank or broker, but it's possible, and that gives you the ability to work face-to-face if that increases your comfort level.
   
   
2. 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).  You'll almost certainly probably pay a higher rate than you would by finding a bank on Zillow, but that's worth it for some people to have their loan at a bank they already have a good relationship with.
   
   
3. 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 is a good option if you're having a hard time getting approved by other banks for a loan.  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.  Basically, if you can't get a loan elsewhere, then beggars can't be choosers, and that's the time you should seek the help of a broker.

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, 30-mortgage rates hit a record low of 3.31% in November 2012, the lowest rate since 30-year mortgages started being offered in the 1950s. (CNN)  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.