What It Took To Successfully Refinance My Mortgage

It took a lot to successfully refinance my mortgagee. The mortgage industry is tight due to the pandemic. There's a rent moratorium and millions more unemployed. Banks are much more stringent now, especially with higher rates and a potential recession.

Here's a recap of what it took to successfully refinance my last mortgage. It was very difficult to do. If you are going through your own mortgage refinance, perhaps my story will help you get through the process.

What It Took To Successfully Refinance My Mortgage

After almost four months, my latest mortgage refinance to 2.375% from 2.625% for a 5/1 jumbo ARM is now done!

What used to take 30 – 60 days to refinance a mortgage pre-crisis now regularly takes three months or more due to increased scrutiny by lenders. Higher lending standards is one of the main reasons why I don't think there will be a housing correction as painful as we had in 2007-2010.

New readers may not know, but in 2015 I failed at my initial attempt to refinance my 5/1 jumbo ARM in its fourth year. The main reason for failure was I didn't have two full years of consulting income under my belt. 

For any of you who are freelancers, even if you make $1,000,000 in 1.9 years, the banks will not count any of it during their underwriting calculations until you get past year two.

For those of you thinking about leaving your day job and becoming a rockstar freelancer, please refinance before leaving your job. Once you no longer have W2 income, you become dead to banks. 

The Deciding Mortgage Refinance Factor

After about the second month, my mortgage officer gave me the bad news that I wasn't eligible to refinance the full ~$981,000 amount because my debt-to-income ratio was still too high. I needed to get it down to 42% or less. The most I could borrow was $800,000 if my income stayed the same.

What It Took To Successfully Refinance My Mortgage

Paying down $181,000 was possible because I had about $190,000 in cash at the time. But it didn't feel good to lose so much liquidity at once.

Paying down principal to qualify to refinance is generally a smart move. You pay down debt and get a lower mortgage rate in the process. However, you must also have enough liquidity to survive after the fact.

A Different Solution To Refinancing A Mortgage

Instead, I asked her what if I just earned a higher income? After all, I was purposefully earning a lower monthly income to save on taxes and give myself the optionality for a bigger bonus at year end.

She said that would work if I could give myself a raise without being an officer / owner of my company. I told her no problem since the owner and I are tight.

As proposed, my paycheck increased from $9,000 a month to $20,000 a month in the third month of the refinance. I got the company to write a letter to my bank stating I received a promotion to “VP Of Marketing” at the firm. Whoo hoo! The bank now said I could refinance up to $936,000 from just $800,000 previously, but still not $981,000.

Given I was willing to pay down $181,000 of principal to refinance $800,000 if the bank rejected my higher income and company letter explanation, I decided to split the difference and pay down ~$130,000 and refinance $850,000. It felt good paying down principal while still having ~$60,000 left in the bank instead of just $9,000.

Below is a snapshot of my final new loan. The total closing cost was actually around $2,800. The $4,779.25 in the document includes almost two months of pre-paid interest before my first regular payment is due.

Closing Docs For Mortgage Refinance - What It Took To Successfully Refinance My Mortgage

Key Takeaways From My Latest Successful Mortgage Refinance

Takeaway #1: In any negotiation, there's always a compromise.

I refused to believe that having to pay down $181,000 in principal was the only way so I worked with my mortgage officer to find alternative solutions. Ask your officer what they are. Also, when in doubt, choose a middle path.

A part of me wanted to refinance to the maximum allowable $936,000 and pay down just $45,000 in principal because my new interest rate of 2.375% was so low. Splitting the middle by paying down ~$130,000 instead of $181,000 allowed me to finally make up my mind and feel good about the decision.

Takeaway #2: Employment And Pay Flexibility

Most people won't be so lucky to have a boss who will give them a raise and a promotion any time they want. But most people don't ask to take voluntary pay cuts as well, as I did at the beginning of one year to save on self-employment tax. Nor do most people have enough trust to give 100% ownership of a company to someone else.

Having a lower monthly income in one year than the year before looked off to the underwriter. They feared I was trending the wrong way. Therefore, if you plan to refinance or get a mortgage, always earn the same or an increasing amount of income.

My original plan was to earn a small paycheck and then receive a bigger bonus come year end to give myself and the business the most optionality possible. A business owner would love it if all employees were OK with earning a tiny salary until year end.

As an entrepreneur, you never know exactly what your full income will be, therefore, it's better to stay conservative until the chickens come home.

I do not live off my online business income due to my passive income streams. For those interested, I can write a new post on how I structured my business to create better tax efficiencies if interested.

Takeaway #3: A long mortgage refinance can be a blessing.

Refinancing a mortgage is stressful because you're up against a deadline. The longer the deadline, the less stress you'll feel and the more time you'll be able to improve your finances.

To prove I was getting a raise, I needed another 15 – 30 days so I could show my new pay stub. As long as you aren't paying extra fees for a longer mortgage refinance, encourage them to take their time. Drag your feet if they drag their feet.

You want to maximize the fixed rate of your existing ARM until the adjustment period so you can get a longer fixed rate on the back end. Given this mortgage took almost 4 months, I gained two more months of “free time.” My next interest rate change is in August 2021 instead of June 2021. In other words, I was able to utilize my previous 5/1 ARM at 2.625% for 4 years and 2 months.

Takeaway #4: Be diligent throughout the process

Not only do you need to get the timing of the refinance lock right, you've also got to get approved. I got my timing right in one year when the 10-year bond yield collapsed. But I failed to get approved because I didn't have two years of freelance income yet.

I kept watching the bond market until rates collapsed again in early February 2016 when the stock market sold off by 10%. Banks want your business. So they will do everything possible to win it. It's the regulators and underwriters who make things difficult.

Check out the latest mortgage rates online for free to get multiple competitive quotes. Then use those written competitive quotes and forward them on to your existing bank to make them match or beat the rates. That's exactly what I did in order to get 0.125% lower than the lowest quote possible.

Takeaway #5: Stay flexible in your refinance quest

If it so happens there's a refinance opportunity between January 1 – April 15, wonderful! Refinancing during tax season makes the process easier because you've got to gather all your documents for the IRS anyway. There's only about 20% more documents you need to gather for your mortgage application e.g. monthly pay stubs, proof of homeowner's insurance, proof of consulting employment, etc.

You may or may not have to get your taxes done for the previous year to get your mortgage approved either. I didn't because I filed an extension due to a delayed K-1 statement. They just had me send in proof of the extension.

Mortgage Refinance
New 5/1 jumbo ARM at 2.375%. Notice the large 49% of total payment going to principal given how low the interest rate is. When rates were 5%+, the percentage to principal was closer to 25% only.

No More Refinancing This Property!

I'm tired. I've owned this refinanced property since 2005 and I never plan to refinance it again. Given I was able to pay off one of my rental properties in 12 years, I definitely want to pay off this property in 20 years or less (2025). Yes, $850,000 is a boat load of debt to pay down within nine years, but I'm going to try!

My strategy will be to wait until year four or five to see what rates and the economy are like before paying down multiple lump sums. 2.375% is just too cheap of a rate for me to aggressively pay down sooner.

I have yet to regret paying off my $464,000 rental property mortgage early in 2015. I doubt I'll have any regrets paying this larger one off early either when the time finally comes.

Update: I also paid off $815,000 of mortgage in 2017 by selling my single family rental. It feels so good to deleverage as the bull market starts showing signs of cracks in stocks and real estate. 2018 was a down year for the S&P 500, while the median home price in SF fell by 11.5% from its peak i n2018.

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Shop around for the latest mortgage rate. Check the latest mortgage rates online. You'll get real quotes from pre-vetted, qualified lenders in under three minutes. The more free mortgage rate quotes you can get, the better. This way, you feel confident knowing you're getting the lowest rate for your situation. Further, you can make lenders compete for your business. 

What It Took To Successfully Refinance My Mortgage is a FS original post.

47 thoughts on “What It Took To Successfully Refinance My Mortgage”

  1. Oh man I feel ya. Refinancing can feel like a battle. It takes so much patience and follow through. My lender dropped the ball so many times on my last refi. I had to keep asking for updates and resend so many documents. But it finally got done.

  2. Excellent post, Sam. We’ve been considering a 5/1 ARM for a few years now only to have my real estate agent mother talk us out of it each time it’s brought up. I forwarded her your post on the matter and have convinced her it’s quite safe now in this tighter mortgage lending practice day and age; however, I’m not seeing 5/1 ARMs lower than 2.9% (including on Lending Tree). I won’t refinance unless we can find a rate below 2.5%. Any suggestions on where to find a credible competitive rate would be greatly appreciated.

    1. I’d knock on your local bricks and mortars banks. I used online quotes in writing and brought them with me to Chase and Citibank. They matched and then beat them. I ultimately went with Citibank for my 2.375% mortgage. All about leveraging the internet.

      What did your mom say about why she is against a 5/1 ARM? Is she convinced after reading this post? I always like to hear the other side so I don’t miss anything. thx

  3. Like PK said: “For those interested, I can write a new post on how I structured my business to create better tax efficiencies.”

    I’ll register a vote for this – and depending on how popular you think it is, I’d love to hear some of your California (or high-tax state in general) strategies as well.

  4. Jeanette Levan-Perdomo

    I am planning to refinance my home for a lower rate and some cash. I also want to refinance an income property with a very low balance to pay for college costs for my 2 children. Should I do one first (which one?) and then the other? Can I do both at the same time? How will banks look at 2 refinancings? Not sure what is the best way to proceed. Please reply. Love your website. Thanks for sharing your knowledge and experiences.

  5. Hiya,

    Long time lurker, first time poster.

    I’ve just started my goal for F.I. (13 years to retire) and refinancing the house is likely going to be part of it.
    I plan on refinancing with a fixed 15 year, pay the minimum, and invest the extra. A lot of the Bogleheads disagree on this point, but if the returns are okay I don’t see the issue. Plus it would be payed off soon into early retirement.

    Thanks for sharing the insights and experience with your refi.

  6. Financial Slacker

    Congratulations! Sounds like this was a long time in the making.

    I refinanced to a lower 30-year fixed rate mortgage a few years ago. I had stayed away from ARMs after too many 2008 horror stories. But after reading your articles for a while, I’m starting to rethink.

    “For those interested, I can write a new post on how I structured my business to create better tax efficiencies if interested.” I would love to hear more about how you business is structured and why. I never knew you had put 100% ownership of the business with a partner.

    1. What were some of the horror stories you heard of? Are you sure it wasn’t more people lost their jobs and couldn’t pay? If someone took out an ARM that reset in 2008, their payments went LOWER, not higher since interest rates/LIBOR/10-year bond yield all went lower.

      Perhaps you were reading about negative amortization mortgages w/ large balloon payments after a certain period of time? Don’t confuse the two!

  7. I’m so worried about my ability to get a mortgage. I work as a contingent worker and have my own business. My income has been stable, but it is good to know that if I want a loan, I need to still have the contingent work. My own business is not paying me well enough yet for me to go full time.

  8. Cash Flow Celt

    Congrats on the finish of a long thing coming. How long do you think underwriters will continue to be stingy about 1099 or Schedule C’s? It just doesn’t make sense anymore, especially in the modern gig economy and with many millennials opting to do more freelance work. We already can’t afford homes, so now the ones that might be able to, can’t if they haven’t freelanced long enough?

  9. Congrats on the refi….did you pay any points for the rate? I just refinanced at 2.625 for 5/1 Jumbo ARM a month ago, I probably was just too early on the timing etc for the rate lock.

    1. Thanks. No points. But it did cost me about $2800 in fees. So my break even point is about one year. How about you? What are your fees? I really put pressure on them to give me the best rated with my other quotes and with my assets at the bank

  10. I just got approval on a HELOC loan, after getting rejected several times from large banks due to less than 2 years of self-employment history (despite great credit, income, loan to value). Here’s what I learned:

    1) Go with a local credit union (vs the big banks) – they tend to have better, more personalized service and competitive rates. In San Francisco, I highly recommend SF Fire Credit Union.

    2) If you have less than 2 years in a self-employed business but the line of work is related to your prior W2 position, write a letter explaining the continuity of industry, role, market (and even include a resume). Large banks tend to have narrow minded blinders on – but smaller credit unions will consider the new business self employment as a non-issue if its within your overall experience/industry.

  11. Brian - Rental Mindset

    Well worth the effort. With your payoff goal, did you calculate how much this is going to save you?

  12. Believe Fire

    Congratulations Sam! I know that took longer than you initially thought it would, but I’m glad it eventually worked out.

    We would be very interested to hear how you structured your business for better tax efficiencies. Please share.

    Have a great weekend.

    1. Thanks. I’m really glad this mortgage took forever. Seeing the first adjustment period start in August instead of June made my day. Two more months of extra security feels good.

  13. Is jumbo some sort of American bank name for mortgages over a certain size or is it just the way you refer to the size of your mortgage because it is so huge?

    Once I had a mortgage that was about $200,000 and that was a very scary time for me. I can’t imagine sitting down with a pen to sign mortgage documents with your kind of gigantic numbers on them. I might need medical attention and some oxygen to get through it.

    1. Yep. A conforming loan is $417,000 or less. These loans are sold to Fannie and Freddie Mae, which ended up blowing up the world as conforming borrowers defaulted more than jumbo borrowers. It’s kind of ironic that people with larger loans get lower interest rates and didn’t default as much as a percentage. If anybody wants to prove me wrong, I’d love to see the data b/c I’m just speaking from memory.

      There’s a saying in finance Beth: no risk, no reward!

      Everything is relative too. I’ve only showed you the debt side. What if the property was worth much more? Always think about relative levels in finance. But you are right about debt. It’s why I paid down $130,000 of it for this latest refinance.

      What is your housing and debt situation like?

      1. I owe $26,000 on a HELOC. I couldn’t get a traditional mortgage when my marriage fell apart a decade ago. My house is worth about $230,000 and it is in a nice area of a smallish Canadian city. I should gross $55,000 this year.

        I will be debt free in 2.5 years then the real savings can begin. For investments I prefer boring dividend paying stocks and ETFs. I do a lot of short term trading with 5% of my portfolio. I watch for a dip and do a quick flip. Sometimes I make $50 and sometimes I make $200. I never put too much in any individual stock. I have made almost 2 weeks of gross pay doing that so far this year. Higher risk but more reward and no one ever calls me in the middle of the night to tell me their toilet is broken.

        1. Cash Flow Celt

          Beth, sounds fantastic that you’ll be debt free in less than three years, but have you looked at trading options? At your numbers of $55,000 a year, that means you’ve made around $2100. I make a substantial bit less than you, and I’ve already been able to score around an extra $3,000 playing options. Doing options also allows you to play a little more in the speculation game. Think the stock may go up, but don’t want to go all in? Buy a long call at current prices and exercise if it does.

          Last year I made 168% on my brokerage account by “quick flipping” and option trading, although a lot of that was in the August freefall. However, Axovant Sciences and Sunpower were my big winners. I also made money trading on $MSFT and $ADM. Just something to think about.

  14. You are right about the W2 vs 1099. When I tried to buy the house I live in now I was self employed. Banks told me not to even try unless I was a W2 employee. Got a job as an employee for a company and 3 paychecks later was approved for a mortgage. Luckily I was able to jump back to self employment with only a minimal detour.

    Moral of the story, if you are self employed banks hate you.

  15. FinanceSuperhero

    I’m glad to see your diligence paid off in a big way, Sam. I am sure you are happy that you decided to play hardball and negotiate with the lender.

    I would like to join the others who are clamoring for a post on business tax efficiencies.

  16. Congrats on completing your refinance! I totally understand how slow and frustrating refinancing can be. Banks take forever to respond to questions and emails, but they always want an immediate response on a hundred different things at different times. It’s also crazy that it takes so long now. I bet a lot of people just give up in frustration because the process is difficult these days. You must be feeling good that the process is finally over!

  17. Sam, glad your refi is now out of the way, congratulations on your patience! Good thing that the Bank picked-up the “rate extension” costs instead of you!

    Caution regarding healthy income/W2 levels: if your “ability” to “afford” the higher amount dependent upon your W2 increase, you maintain your income same, or similar W2 numbers for 6 more months of payments into your new mortgage. Any drastic changes in W2 income are considered “bad” potentially gaming the system, or downright “fraud” (Federal level, if you need to know)

    Luckily, the Jumbo’s eventual ownership go different route than conventional-loans which goes to Fannie/Freddie, so less “burden” on your end to maintain salary level. But it still good to maintain respectable W2 levels to commensurate with your current title/career-level – for next 6 payments/months.

    Now that you ReFi’ed at a great ‘owner’ rate – you prolly have 6 months to 12 months bligation to reside in this home as “primary” home. After that even if you convert this home to Rental, may be OK. Have you considered – may be look for another decent property in next 4-6 months horizon, and may be you can rent-out your current home — may be this will offer “better” cash-flow (particularly knowing you have a great owner-rate on your mortgage refi!) Would it be good to take “HomeEquity” loan to bring-back those extra dollars you paid towards principal., in-turn use those $$s towards down-payment for your next “own” home ??

    Many people suggest go for 7/1 ARM — where “rate” is “qual” ! Where as: with 5/1 and 3/1 ARMs, the “qual” is based on what would potential “reset rate” at the end of 5-year term (usually much higher!), and your 42% Debt-to-Income limit depends on that typically-higher payment amount !! May be you could have very-well be qualified with NO additional principal payments.

    If you were to go with 7/1 ARM, say @ 2.5% ., then you will be qualified (DTI ratio) based on current monthly-payments (rather than what would have been higher future-rate on 5/1 ARM). Besides, you are “safe/covered” for 7-years rather than 5-years .. however at slightly higher interest rate ..

    One more thing with Jumbo ARMs, the underwriters look for “buffers” — how much you may have saved additional cash/bank/CD/Stock/401K savings, to be able to afford next 6 months to 2-years payments. Payment cushion give them some amount of leeway to qualify you with higher DTI than usual 42%

    BTW, most importantly — clean-up Credit-Card debt, and any possible car-payments before taking any new mortgage or starting ReFI. As an example, a friend had cleared-up 12K loan (payments of $500 for next two months, I know 0% APR!) on his family SUV just prior to start off ReFI. Thus “freed” up $500/month DTI — which allowed him to obtain nearly $100K more home! Hence, he paid $12K to his car, and in-turn he qualified for $100K additional mortgage loan (since ARMs typically amortized at 30-years — hence the same $500/month allows $100K more house in this case)!

    Typical Auto loan is typically 5-years long. These days, an auto-loan may be going for 6+ years, but who on Financial Samurai recommends longer Auto loan!? For the same $500 or so you may have car-payment, you could in-turn use that $500 towards 30-year/ARM mortgage — which will give you 5-6 fold increase in the loan/mortgage amount !! Would you like to own a depreciating asset, or be able to afford necessary/dream roof-over-head, with 5-6 times more $$ amount than you car loan, for same $500/month ??

    In your case Sam, you don’t have much car lease payments — may be you would have saved hassle of brining that much capital to the table, locking-up money in equity. But with leases though, its hard to clear the “debt” easily — unlike a “loan” which you could have paid-off to reduce DTI!

  18. Fiscally Free

    I’ve always been under the impression an adjustable rate mortgage is a risky proposition. Can you explain your reasoning behind going with the ARM (or direct me to where you’ve already done so)?

  19. Congrats on the refi Sam and welcome to lower pmts! Hopefully I’ll be closing on a 7/1 ARM soon too :-).

    Were you nervous at any point though putting down $130k? What triggered you to be willing to sacrifice that much liquidity?

    1. Thanks. Not really b/c I was mentally prepared to pay ~$180,000 to make sure my mortgage refinance went through, so $130,000 felt like a reprieve.

      Also, having less money motivates me to make more money. I found myself starting to get really lazy the large my savings account grew. Finally, I do have a large final tranche of my severance package coming due in 1Q2017. It’s crazy that five years after I left my job, I’m still going to get paid. Never quit folks!

  20. Ughh, I hate how banks play the “no W2 no loan” game. Like W2 income is some how “safe” v. all other kinds of income.

    1. It’s old school bank underwriting thinking. After almost three years of earning a 1099 income, I will say that you can make WAY MORE and have a lot more flexibility as a freelancer b/c you have multiple clients. And these clients all want your services once you work with one of their competitors.

      For one year, my corporate freelance income was significantly higher than my base salary as an Executive Director at a major finance firm. But the banks said none of it counted. I’m thankful! If they refinanced me in early 2015, I would have one less year of 2.375%.

      1. I’ve been running my business for almost 10 years now, and talking to a realtor friend (who passed our info to a mortgage agent) said that they wouldn’t even consider my Schedule C income even though it bests my wife’s public teacher salary. But it was a blessing in disguise because the market in Denver is way over inflated compared to the houses and areas. So we’ll rent at $1,250 for another year before leaving and playing a little geographic arbitrage. Maybe we’ll be back, maybe we won’t. Who knows.

  21. Michael @ Financially Alert

    Congrats, Sam on the new mortgage! I love how you dissect your process and embrace the tedious tasks (like aggregating all your tax documents!). I definitely love details, but underwriters love to make you jump through crazy hoops sometimes… especially when you own your own business! Great job pushing through and getting it done. Enjoy the extra cash flow. :)

  22. Jack Catchem

    Good call on the banks not being interested in your income even if it’s “$1,000,000 in 1.9 years.” When my wife and I first purchased our home, we got a better rate by having my wife purchase the home since I had only been a cop for a year and a half at that point.

    We refinanced last year and the bank was more than happy to add me to the loan with my seven years of employment.

    I’m continuously tempted by the lower rates of the ARMs, but my employment is extremely stable and the 30 year fixed at the interest rate I have fits perfectly into my budget as is. I also include an extra payment every month so the house will be paid off the year I’m eligible to retire. Still, your ARM arguments are sound and we live in crazy times interest wise.

  23. Money Beagle

    Great work. Anything under 3% is a huge win in these times. It still amazes me that I remember when my parents built their house in 1989 and they had an adjustable rate that started at 11%. People today have no idea how much things have changed!

  24. The Green Swan

    Can’t say I’ve ever gone through this (purchased on property 4 years ago and still live in it). Great work on getting through this with such a low interest rate!

    Please do share how to create better tax efficiencies!!

    The Green Swan

  25. Congrats! Gotta love that low interest.

    And “For those interested, I can write a new post on how I structured my business to create better tax efficiencies if interested.” – Yes! Please!

    1. Yes, please. Would be great to hear more details on how you’ve structured FS from a tax perspective.

      Congrats on finally completing the refi!

  26. Apathy Ends

    2.375% is an awesome rate, did you purchase any property when the rates were in high single or even double digits? When we bought our first house, our agent told us that 6% was a “really good” rate for awhile

    I can’t imagine paying 6% after being so low on our first two houses

    1. I bought it at the end of 2004, and did a 3 month rent back. I think I locked in a 5% rate or so, I forget! I just remember the payment was over $6,000 back then, and now it’s at $3,303. Meanwhile, the house has supposedly appreciated by 50%+ too. It is bizarre to pay less, and make more. But I’ll take it! If I had to rent the house, it would be well over $8,000!

  27. Wow, 2.375% is a great rate! I recently refinanced our house from 3.875% down to 2.875% for a 15 year fixed-rate, but the process was much easier than yours. I contacted my mortgage broker to investigate rates and start the process on April 25th and disbursed funds on May 31st – 5 weeks.

    Mine was simple though, all income was straight W-2 after 15 years with the same employer, 2nd refinance with the same broker and the house was already paid down by 50%

    Congrats on the great rate!

  28. Wow, congrats! Getting a refi done and funded is always a big win in my book. Sometimes they’re easy — my most recent HELOC took only 10 days from the date I first called to ask about the rate until the date I was signing docs in the bank. My last full refi was in November 2014, and that one only took 2 weeks to get funded. My loan officer inside the bank is awesome about getting all the info needed up front, uploading it to the file himself, and pushing the underwriters every day until they get it approved.

    The one before that was a nightmare, though. I think it was finally done in 2011, but it took months and months, and at one point the bank canceled the process because they thought I was taking too long. I made them reopen it because it wasn’t me that caused the delay, it was them, and I was still waiting for an answer from underwriting. They actually took so long that time that I had to get the house appraised a second time (on their dime, that time). Nightmare.

    And yes, I would love to see a post on how you structured your business!

  29. Vicki@Make Smarter Decisions

    That is excellent and now this is my next project too. We have an 8 unit commercial property with a mortgage at 5.25%. We need to do better on that if at all possible. But I just gave up my full-time job… Still have W-2 income. I am thinking the rules are different for commercial loans? Time to get busy – thanks for the push!

    1. Nuclear Real Estate


      It is indeed easier to refinance commercial loans than a conventional mortgage after having given up your full time job. The reason being that commercial loans are analyzed primarily on the ability of the property itself to support the loan, whereas conventional mortgages are analyzed primarily on the ability of the loan applicant to support the loan.

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