Where To Get a Mortgage
Finding a Loan
You know the ins and outs of loans. You can spot an A.R.M., PMI or a hybrid 7/23 from 20 paces. Now, who will give you the loan?
In general, there are two sources for loans: (1) the government; (2) private mortgage industry. Private mortgage loans (also called “conventional”) account for 80% of mortgage loans. Typically, to qualify for a government loan you may need to meet additional qualifications as a low-income buyer, a buyer that will purchase in an economically depressed area, or something similar.
Since the boom of the Internet, online mortgage lenders have also become a popular option. So between government loans, conventional loans, and the addition of online lenders to the mix, you have a great variety of lenders to choose from. In general, conventional wisdom argues that where you get the loan is not as important as what the terms of the loan are. However, you do need to ensure that your lender is ethical, offers the features and services you need, and is a good match for your personality and lending situation.
Breakdown of Government and Private Mortgages
Here is an overview of the types of financing that are available from the government and loans that are available from private lenders.
|Name||Details||Best For||Avoid If|
|FHA (Federal Housing Administration)||The FHA is not an actual moneylender—FHA loans are obtained through an FHA-approved lending institution and guaranteed by the FHA.||Low/moderate income families with less-than-stellar credit history. It usually requires only a 3% down payment and is assumable.||You have good credit and can put more than 5% down. In this case, you can probably get a better rate with a conventional loan.|
|VA (Department of Veteran Affairs)||Like the FHA, VA loans are granted through approved lenders.||Qualified veterans, reservists, and active servicemen and women.
Benefits include: larger amounts than FHA loans; No down payment
Low interest rate
|Government loans often take significantly longer to get approved, so this may not be your best option if you’re buying in a very hot market.|
|USDA/RHS (U.S. Department of Agriculture, Rural Housing Service; formerly FmHA)||Low-interest loans through approved lenders for low/moderate income families living in rural areas.||Borrowers living in a rural area. Loans are also available for multiple-family properties.||You like city living|
Private Industry Loans
|Name||Details||Best For||Avoid If|
|Mortgage banks/ independent mortgage companies||Mortgage banks are direct lenders—the bank you complete the loan approval process with will actually be your lender.||You want reliability and a speedy approval. You may also save money by dealing directly with the loan originator. Mortgage banks often offer better fixed rates.||You want a lot of choice (mortgage banks only offer their own programs).|
|Savings Institutions||Your local savings and loan or savings bank may offer a limited variety of mortgage options.||You want a conventional, conforming loan.||You want a loan that is outside of the average parameters. Savings institutions tend to stick with only the most widely accepted loan terms.|
|Commercial banks||Commerical banks may have an affiliation with mortgage bankers or keep the mortgage in their own portfolio.||You would like to continue dealing with your local bank branch. Commercial banks may offer better A.R.M. rates than mortgage banks, although that isn’t guaranteed.||Like with savings institutions, the selection may be more limited.|
|Mortgage brokers||Mortgage brokers are intermediaries who help you find the best lending institution for your needs.||You want an advocate to explain your options, help find the best loan, and work through the paperwork with you. They are also helpful in the subprime mortgage market, where borrowers are more likely to be taken advantage of.||You prefer to do your own research and comparison shopping. Using a broker may also add to the closing costs, as they are typically paid a commission when you buy your house.|
|Other||Credit unions, public agencies, employers and unions||Most of the options listed here require membership to a specific organization. If you have a membership, this may offer you a unique opportunity for a better loan.||You are not eligible. Even if you do have a specific program available, be sure to comparison shop and ensure that it’s the best deal for your situation.|
Online Mortgage Options
What are 'Points'?
Perhaps you’ve heard mention of “points” on your mortgage loan. And you wondered: What are points? Are they good or bad news?
Well, points can be either. A point, in mortgage speak is a cash payment required at closing equal to a percent of the loan amount. For example, 2 points on a $125,000 loan is equal to 2% of the loan, or $2,500. There’s two kinds of points: origination and discount.
Origination points: These are generally considered a necessary evil of the mortgage business. They are charged by lenders to cover costs related to the loan origination process.
Discount points: Discount points offer you another way to lower your interest rate. Typically, buying a discount point equates to a quarter-percent decrease on a fixed-rate loan or .375 percent decrease on an A.R.M. This applies over the lifetime of the loan.
Additionally, many Internet sites such as e-loan, Lending Tree, and CitiMortgage give homebuyers an opportunity to compare rates and terms and get the best possible loan. Some buyers prefer to use the Internet because of the accessibility and ease of comparing rates and terms from several different companies. Others may shy away from making such a large transaction solely in the virtual universe.
Whether you’re a web-surfing pro or just getting your toes wet, using Internet mortgage sites can help you:
- Get a sense of the market: These sites typically can show the latest rates in your area for all different loan types, which are updated daily
- Learn more about the process: Many online mortgage sites also offer professional advice and informational articles
- Play with the numbers: Use mortgage and income-to-debt ratio calculators to get a feel for your comfort range and what type of loan may suit you best, so you can be prepared for a more fruitful conversation with potential lenders
- Find a better deal: If you have done your homework and ensured that the site is safe and reliable, it is possible to purchase a mortgage online. Some online mortgage companies are willing to take a smaller commission if they believe they’ve saved time and money through the online loan application process
- Find a better deal offline: If you’ve been offered a certain loan online, you may be able to convince an offline lender to match it.
Traditional Mortgage Lenders with Online Applications:
Many of the largest traditional mortgage lenders also offer online loan applications, if you would prefer dealing with a bricks-and-mortar company. Wells Fargo, Countrywide, and Bank of America all offer in-person and online loan applications. No matter who you choose as a lender, ensure that you are getting the best loan possible from a reputable, reliable institution that offers the services you need.
So, now you know what a mortgage is, what types of loans are available, how your timeline can affect the type of loan you choose, and what lending options are available. Can you remember all of that? Click on to the next page for a handy checklist.