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Start and Finish Loan Process on a High Note

The key to avoiding stress and steering clear of rip-offs starts with your home loan approval and ends with the loan closing.

Obtaining a home loan can be a gut-wrenching and nerve-wracking experience, especially for the first-time homebuyer, but it need not be. Getting off to the right start, and anticipating what the lender will want from you to process your loan, is a good way to head off headaches. Knowing your rights at the end of the process, the loan closing, will help to avoid finishing on a sour note with your lender.

Remember that when you apply for a loan, you're going to pay a fee of $300 to $400, so if you're still not sure you've picked the right loan or found the best rate, now is the time to reconsider. That fee is nonrefundable and covers the cost of a home appraisal and your credit check. The credit check will reveal any past financial problems, so if there are any skeletons in your closet, you need to discuss them with your lender. Now is the time to inquire about the lender's policy on credit problems, if you have any, to see if they're willing to be flexible.

Try to be patient during the application process, and relax, your lender isn't out to rake you over the coals. One way to speed things up is to make sure you have all the documentation you need, which includes, among other things: W-2 forms or your profit-and-loss statements if self-employed; pay stubs (usually one month's worth); bank statements (three months' worth), including checking, savings, and other assets; and, your past two years' tax returns.�

Don't be bashful. Make sure you get all your questions answered. The application interview could take place in the lender's office, in the real estate agent's office or even in your home. Afterwards, don't be surprised if your lender calls you back and asks for more documentation. Just provide it, understanding that the loan officer has to comply with underwriting guidelines that are pretty strict. If all goes well, you should survive the loan application process and get along with your lender.�

Once your loan is approved, get a written loan agreement. This binds the lender to the payment terms and spells out the interest rate, fees, and other details, including the terms of your interest rate lock-in agreement, if any. This agreement is key to avoiding nasty surprises at the closing when you sign the final agreement. The closing is the moment of truth for both the homebuyer and seller. Lenders know that they have enormous leverage at closing. It's the most difficult time to resolve any issues with your lender, and any dispute could jeopardize the sale.�

As a result, you could be faced with disputing terms with your lender while your seller squirms across the table from you. You don't want any room for mischief or misunderstandings, i.e., a higher interest rate or bigger monthly payments than you expected. As a general rule, get everything in writing, and be suspicious of lenders who resist confirming the terms on paper. Be sure to get receipts for any application fees, too. Another way to avoid problems is to request your final loan papers several days before the closing. You'll have the luxury of reviewing the fine print well ahead of time, which increases your comfort and betters your chances of finding discrepancies and resolving them with your lender.

Sources used to create this article include the Orange County Register.