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Applying And Negotiating For A Loan
Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage — whether its a home purchase, a refinancing, or a home equity loan—is a product, just like a car, so the price and terms may be negotiable. Youll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.

Home loans are available from several types of lenders - thrift institutions (a general term for savings banks and savings and loan associations), commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure youre getting the best price.

To get the best loan for you, be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information.

Getting a loan is a pretty simple process consisting of these two steps: completing a loan application, then giving the lender a verification of your income, as well as proof of your assets and debts. Then, it's all in the lender's hands. Your debt-to-income ratios, and your employment and credit history will be reviewed. Once the lender is satisfied, you will finally get approved for a mortgage depending only on the property appraisal and the title report. Sounds straightforward enough, isn't it? Then why do so many homebuyers complain about the difficulties qualifying for a mortgage? The answer is just as straightforward, documentation.

The loan approval process generally begins with an initial interview where the prospective home buyer and the lender meet to discuss the potential loan. You will need to bring information to verify your income and long-term debts.

Often people prefer to meet with the lender before house hunting to determine in advance what price range they can realistically afford and the mortgage amount for which they can qualify. This step is called pre-qualification and can save you much time and trouble by making certain you are looking in the correct price range.

For your first meeting with the lender, you should bring:

  • A purchase contract for the house, if you have one.

  • Your bank account numbers and the address of your bank branch, along with checking and savings account statements for the previous two to three months.

  • Pay stubs, W2 withholding forms, tax returns for two years, or other proof of employment and income verification.

  • Divorce settlement papers, if applicable.

  • Credit card bills for the past few billing periods, or canceled checks for rent or utility bill payments, to show payment history and amount of revolving debt.

  • Information on other consumer debt such as car loans, furniture loans, student loans and retail/credit cards.

  • Balance sheets and tax returns, if you are self- employed.

  • Any gift letters, if you are using a gift from a parent or relative or other organization to help pay the down payment and/or closing costs. This letter simply states that the money is in fact a gift and will not have to be repaid.

Having these items on hand when you visit the lender will help speed up the application process. Usually, you will need to pay an application fee and the appraisal fee when you submit the mortgage application. This is done only after you have negotiated successfully on a home and the seller has accepted your offer. Generally, there is no fee for prequalification.

After the initial meeting with the lender, you should have a general idea if you qualify for the size and type of loan you want. The lender should let you know if you qualify for the loan in 30 to 60 days. If you are denied a home loan, the lender must explain the reasons. If this happens, the lender will usually discuss any options with you.

Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. Youll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. Theres no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere. Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid.

Dont be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.