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Picking the Right Mortgage Lender

Types of Mortgage Lenders
Secondary Market
Finding a Mortgage Lender
Mortgage Lenders Qualifications
Questions to Ask the Mortgage Lenders

Types of Mortgage Lenders
Who are the sources for loans? Firstly, it is important to understand who has the money to lend. Here are some of the most common sources for loans:

Mortgage Bankers
A mortgage banker both originates and closes on the loan with his own name and with his own funds. Once you closed on the loan, the same company might service your account, collect payments and make sure your real estate taxes are being paid. The company may also sell your loan on to the secondary market and then re-lend the money. Mortgage bankers make their money on actually making the loan where you pay fees and points that the banker pockets.

Mortgage Brokers
A mortgage broker is more of a middleman. The broker takes the loan application, processes the paperwork and submits the loan to a lender who underwrites and closes on the loan. Mortgage brokers usually work with a variety of lenders who buy loans on the secondary market, providing mortgage bankers with an almost inexhaustible supply of money. With this money, a mortgage broker can make new mortgages and a variety of packages.

Credit Union
A Credit Union can be an excellent source for a loan and the interest rate can be lower for members. Many companies operate their own credit union so check out your workplace and open an account.

Savings and Loans
This is another very common source for loans. It actually provides more than half the loans in the United States.

Builders and Developers
This option, if available, allows the purchase and finance of a home to take place in one step.

Government agencies
These agencies do not actually give loans; however, they back or insure loans. Remember that a conventional loan is backed by bankers. This is to say they are secured by the lender. A government backed loan is secured or backed by the government; however, it is still a lender who makes the loan. This makes the lender more attractive to the lender.

Seconday Market
What is the secondary Market? Most loans get sold on to the secondary market and the government has actually set up agencies specifically for buying mortgages. The three names you will most likely hear are:
  • Fannie Mae (Federal National Mortgage Association)
  • Freddie Mac (Federal Home Loan Mortgage Association)
  • Ginnie Mae (Government National Mortgage Association)
  • This gives lenders an almost inexhaustible source of money.
Do not be surprised if your loan gets sold over and over again on the secondary market. However, if you receive a letter from the lender stating your loan has been sold, make sure you call the lender. By law, he has to provide you with an 800 number of the agency taking over the loan.

Finding a Mortgage Lender
Where do I actually find a lender? Lenders can generally be found in the same place as information on mortgages. These include:

Newspapers
Generally the local papers have Mortgage Watch columns in the real estate section. These will give you the names of a number of local mortgage companies plus the loan types and rates they are offering. You can then call up the different mortgage companies and compare loan types and rates.

Local Lenders
Visit local lenders such as banks, savings and loan companies or credit unions. Your workplace may have a credit union. Credit unions generally have low rates for members and will have a lot of information on mortgages.

Real Estate Agents and Brokers
Real Estate agents and brokers will generally have lots of information on mortgages, local lenders and their rates. The firm may even own a mortgage company which is not at all unusual. Your agent or broker should provide you with information on lenders including their own. Since 1974, it has been illegal for a real estate broker to receive a kickback or finders fee from referrals so you do not need to worry the agent receiving a fee from referring clients to lenders.

Newspapers
Generally the local papers have Mortgage Watch columns in the real estate section. These will give you the names of a number of local mortgage companies plus the loan types and rates they are offering. You can then call up the different mortgage companies and compare loan types and rates.

Local Lenders
Visit local lenders such as banks, savings and loan companies or credit unions. Your workplace may have a credit union. Credit unions generally have low rates for members and will have a lot of information on mortgages.

Real Estate Agents and Brokers
Real Estate agents and brokers will generally have lots of information on mortgages, local lenders and their rates. The firm may even own a mortgage company which is not at all unusual. Your agent or broker should provide you with information on lenders including their own. Since 1974, it has been illegal for a real estate broker to receive a kickback or finders fee from referrals so you do not need to worry the agent receiving a fee from referring clients to lenders.

Federal Government
The government provides information on mortgages to the public free of charge. However, the information is limited. For a free brochure write to: Consumer publications Pueblo, Colorado 81003

Local Housing Authority
A local housing authority provides free information to the public on housing and mortgages. There may also be program information for first time buyers. Programs may include help with down payment plus lower than current interest rate loans. You will have to meet certain income or location requirements to be eligible.

On Line Sources
Both Fannie May and Freddie Mac who trade on the stock exchange have excellent websites filled with information on mortgages. Bank Rate Monitors website www.bankrate.com is devoted to providing the latest information on mortgage interest rates. Homeowners.com has won several awards form for site content and is also an excellent source of information. In fact, you can even apply for a mortgage on line. www.homeowners.com and www.homeadvisors.com are two of the most popular. Many of the search engines and websites have their own guides to mortgages such as Service Network's Mortgage Guides.

Mortgage Search Company
You could enlist the services of a mortgage search company that uses a computerized network to find the best loans and thus lenders in your area.

Depending on the current market you may be inundated with calls from lenders or have to seek them out. In a down market, when there is not a lot of money floating about, the lender will most likely have many clients looking to borrow money and will most likely not be seeking out more. On the other hand, in an up market, there will be more money around thus the lender will probably be seeking clients to borrow this money. Remember, it is ultimately your decision on which lender you choose to use so do your research. You can even call up lenders and interview them. You need to feel entirely comfortable with your lender and the loan officer as these are the persons you will most likely be dealing with. Investigate whether the company has been in business for long. It can be reassuring to work with an established company that has a good track record.
Mortgage Lender's Qualification
What qualities should I look for in a lender?
A word of caution beforehand -- do not choose a lender solely on the fact that they are offering the lowest interest rates. Remember, there may be hidden costs such as point's, enormous closing fees and poor service. If it sounds too good to be true, it probably is.

If the rates appear to be well below current market rates, beware. In this day and age, most lenders offer competitive rates. If your lender doesn't offer the rate you have been offered elsewhere, ask if he would consider lowering the interest rate to you. Don't be surprised if he will. This is a business and the lender wants your business.

You need fast and efficient service from a lender. If you are not getting it, think twice about using this lender. The closing needs to go smoothly. Having incomplete or inaccurate documentation could delay the entire process. This is not the position you want to be in. There are also other aspects that should trigger your attention. If your lender is not responsive to your calls and questions or appears to have incorrect information, you should reconsider using him.

Questions to Ask the Mortgage Lenders
  1. What types of loans are offered? Does the lender offer fixed and adjustable (ARM) rate loans? What other types of loans are offered?
  2. What points are charged for a particular rate? If you want to pay less points how much does the rate increase?
  3. What application fees are charged? What are the non-standard fees and can you negotiate around some or all of these fees?
  4. What is the current interest rate for a 30 year fixed rate loan? Keep an eye on the papers to see if this is competitive.
  5. Does the loan require Premium Mortgage insurance and for how long?
  6. Can you prepay the loan without penalties?
  7. Can you lock in the rate and for how long? Also, when is the rate locked in: at loan application or loan approval?
  8. Who should you call if you have questions and/or concerns? Most likely this will be the loan officer.
  9. What is the processing time for a loan? You will need to ensure that the loan can be closed within the time frame you are working in. Nowadays, there should be no roadblocks, so beware if the lender appears to be very slow. It may be a sign of an incompetent service.


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