Understanding Loan Sources for House Buying

Today, there are many loan sources from which to choose. Shopping for a loan by visiting more than one lender or mortgage broker is a good idea. Like anything else, comparison-shopping and referrals may lead you in the right direction. Ask your real estate broker, friends or family to suggest some companies they have used in the past.

Generally national banks offer many mortgage options and services and may have competitive rates, but may also be stricter with their lending guidelines. Credit unions and local or regional banks may be more flexible in underwriting loans, but may not offer the range of services that a national bank can. For example, on-line banking, where you perform banking functions on your computer, is a great service many banks now offer.

Perhaps, you may already be comfortable with your bank and a loan officer. Applying for a debt at your bank where you currently have an account may be more convenient, particularly if your financial condition is solid. They are more familiar with your situations, and the application procedure may be a lot easier.

Using a mortgage broker is a good option because they can connect to many different lenders and loan programs. Their role is to act as a middleman between a lender and a borrower. Frequently, first-time home buyers will have better success with a mortgage broker because they will be able to choose between many loan programs to find the best one. Less-than-perfect financial profiles may mean higher interest rates or other charges, but the chances of securing a loan may be better. Real estate or mortgage brokerage offices have Computer Loan Origination systems that help sort through the various types of loans offered by different lenders. The CLO operators may charge fees for their services, and  the selected lender or the buyer may pay the fee.

The lender, the borrower or both may pay the mortgage broker. Comparing the fees that mortgage brokers charge for their services can save you thousands of dollars in the long run. A good way to do this is to compare the Annual Percentage Rate (APR) from lender to lender. The APR includes the interest rate, mortgage broker, fees, points, and other fees you may have to pay. Points are usually paid to the lender, mortgage broker or both, at the settlement or completion of escrow. The Truth in Lending Act (Consumer Protection Act), also known as Regulation Z, requires lenders to show the borrower what the APR is and detail other payment information associated with the loan.     

Mortgage banks or mortgage companies now generate the majority of mortgage loans. Unlike traditional banks, they do not offer savings or checking accounts. These are banks that specialize in mortgages, packaging and selling them in the secondary market to investors. These investors can be life insurance companies, commercial banks, savings and loan associations, mutual savings banks, or pension, trust or retirement funds. Institutional lenders are often in the position of a mortgage banker. In some cases, they will sell the loans to other investors, usually in the secondary market, and then service the loans for the investors. In compensation, they receive a fee based on the principal balance of the loan each year from mortgage buyer-investors.

Today, there are more types of mortgages available than ever before. We will detail only the most common types of mortgages, but there are many others that may work for you. Each year, lenders who want to make loans more attractive are inventing new and creative mortgage programs. With names like graduated payment mortgage, shared appreciation mortgage, reduction option mortgage, price level adjusted mortgage, package mortgage, or reverse annuity mortgage, the mortgage game can be complex and confusing.

Deciding which mortgage is right for you have a lot to do with predicting where you may be financially in the future. For example, some mortgages have payments that balloon or increase in size as time goes on. Being able to handle this future financial burden and hoping that your income will continue to increase can be a stressful way to live. Yet it can also be a way to afford a home now when your income may be at a lower level.     

Community Home Loan Programs are now also offered. They are ideal for first-time home buyers and can offer more flexible guidelines with smaller down payments. Usually associated with a county or state program, specific terms vary from area to area. The government is now making it easier for a first-time home buyer to purchase, so ask your local mortgage professional about these types of programs in your area.