Let's Go Shopping for a Loan

It is recommended that you have an attorney represent you in the entire real estate transaction and closing.

Step One: Make a list of your financial resources for borrowing money

  • Bank where you have your money
  • Credit Union where you are a member
  • Mortgage broker you may know or get referred to by trusted source
  • National lender you may have heard about and want to investigate

Step Two: Calling for cash and the GFE

  • Contact each of these sources and see what type of loan products they have for someone with your credit scores, employment type (meaning self-employment or a W-2 employee)
  • Do not give any of them your social security number, just your credit scores
  • Explain that you are seeking the best deal that fits your plans. For instance, you may want a long term fixed rate if you are going to be in your home a long time or a shorter term like 15 year loan if you want to pay off your loan quickly but still at a fixed rate. Your situation may be short-term due to planned relocation, enlarging your family, or down-sizing. In that case, you may want a 3, 5, or 7 year Adjustable Rate Mortgage (ARM) with an interest only payment.
  • If you aren’t certain which is best, ask them all to send you a GFE on multiple types of loan products.
  • Be certain to keep the comparisons apples to apples.
  • Make separate folders for each type of loan product and place the GFE’s in side for clear comparison.
  • Don’t respond to short term offers or specials. They can often make the broker or loan originator extra money in Yield Spread and cost you more money.

Step Three: Reviewing the GFE

  • We recommend that you make a list of each category so at a glance you can see the highlights quickly. See example.

Step Four: Applying for the Loan- The 1003 Loan Application

  • Once you have selected your best option, contact that loan officer /broker and start the loan application (The 1003)
  • Keep in mind you will need the list of information from above in the “Before you apply section”
  • Once the loan officer/broker processes your application, pulls your credit, and confirms the loan program with the actual lender (if using a broker) have them send you a new GFE and finalize the numbers they sent you previously.

Step Five: The Truth-in-Lending Disclosure Statement (The TIL)

  • Within three (3) days of your completing the loan application (The 1003) the loan officer/broker is to send you the Truth-in-Lending Disclosure Statement otherwise known as the TIL. Don’t freak out when you see the actual amounts in the Finance Charge and Total of Payments boxes
  • The one area that confuses borrowers the most is the Annual Percentage Rate (APR). This number will be higher than the interest rate on the upper right hand side of the statement. The reason for this is the APR takes into account the lenders cost of servicing your loan annually, adds that cost into the total, calculates it as a percentage rate, and adds it to your fixed or adjustable rate for that year. That servicing cost is not normally disclosed.
  • If you look under the Interest rate on the right side of the statement, you will possibly see the words Index Used. If you read the example above about how rates can adjust above, you will see how an adjustable rate mortgage (ARM) can rise dramatically in a short time. That’s because the rate is fixed to market index like the US Prime Lending Rate or the London Inter Bank Offered Rate (LIBOR). That spot should indicate one of these or another index in the world.
  • The challenge with an ARM based on another country’s economy, is that you have no control over the events in London, Japan, or China and very little to none here at home in the US. When you bet on one of these ARM loans you have to know you can and will refinance before it adjust.

Step Six:

  • Check the interest rate, the payments listed in the payment schedule and all other information like late fees and due dates.
  • Most importantly on the TIL, check the section on the bottom that specifies if the loan has a pre-payment penalty or not. If so, how long is it in place? The norm would be no more then three (3) years. If there is a pre-payment penalty, what is it? For that, you will need to get the broker/loan officer to confirm that for you in advance. That information should have been on the GFE in the top right hand corner with the rate and term. If you didn’t see it on the final GFE tell the broker/loan officer that you will not do a loan with such a penalty.
  • It is a serious issue to fail to disclose so you may want to rethink doing business with that individual at that point.
  • If the pre-payment is not an issue you should be able to sign and return all documents required to keep your loan moving forward.