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Thursday, March 25, 2010 02:26 pm

When you’re face-to-face with the loan officer

Despite recent improvement in the economy, the lending environment is still tough. Winning over cautious lenders requires presenting a convincing case, exposing the details of your financial life and work history. The lender must have confidence in your ability and intention to repay this loan. Here is a step-by-step guide to finessing financing.

Deciding on a lender
Mortgage loans can be secured from a bank, credit union or arranged through a mortgage company that represents a variety of lenders. It is wise to start with a loan officer at the institution where you have your checking or savings account – they already know your banking history and are more likely to answer your questions about loan types, how to calculate what payment you can afford etc. Applying where you bank might reduce the time for a pre-approval, but it is also common to have your mortgage at a different institution.  “It is also wise to do a little comparison shopping,” suggests Barry Zigas, director of housing policy for the Consumer Federation of America.  Rates, terms and programs do vary.  

Before you shop get pre-approval
Pre-approval is like a lender taking your vital signs. The lender will look at your bank records, pay stubs, your credit history and credit score. If you are granted pre-approval, it means that the lender has confidence in your ability to borrow and repay a loan; while this is a preliminary judgment (subject to a more thorough process once you are in contract on a property), this step will help you know what price range you can afford and what interest rate you are likely to get once you’re ready to formally apply for a mortgage loan. Pre-approved buyers are also far more attractive to realtors and sellers; it shows that you are serious and in a position to proceed.

If your credit history is poor, this step could end in disappointment, in which case the loan officer will likely counsel you on what steps to take to improve your credit score in order to qualify for a loan in the future.

Finalizing a mortgage loan
Once you’ve entered into a contract on a property, your lender will ask for more detailed verification of your income and assets, including your income tax returns, W2 forms, pay stubs and checking account and bank statements.  If you don’t get the paperwork in quickly or if it doesn’t match what you told the lender in the pre-approval process, you may not get the loan.

With the formal mortgage application you will receive a “good faith estimate” of closing costs and other fees associated with the loan; these costs will be in addition to whatever down payment you are making on the property. They are paid when the loan “closes” and the new property becomes yours. Ask your realtor or an attorney to explain these fees and which of them you may ask the seller to pay; it is common to negotiate with the sellers to cover some of the buyer’s closing expenses.   
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