Locating the Right Loan
You have the option of shopping around for the best terms you can obtain.
Shop Smart For Mortgage Money
It used to be that qualified home buyers simply went to their nearest bank or savings and loan for the standard, fixed-rate, 30-year mortgage or the VA/FHA backed loan. Interest rates were not highly competitive—back then.
Now, of course, things have changed. Competition among lenders is lively, and smart borrowers shop carefully to find the financing that best suits their circumstances and needs. Here’s where to shop:
Mortgage Lenders – Mortgage lenders issue mortgages to borrowers. They then process and sell the mortgages to large investors or into the secondary mortgage market.
Mortgage Loan Brokers – Some individuals or groups charge a fee (usually to the borrower) to match borrowers with lenders. Sometimes they make direct loans. An advantage of working with mortgage brokers is that they often represent many investors and can provide you with many more financing alternatives, usually at the same price as the mortgage banker.
Financial Institutions – Mutual savings banks, savings and loan associations, insurance companies, and some commercial banks are the traditional sources of mortgage loans. Savings and Loans often grant favorable terms to their own account holder.
Private Lenders – Individuals (often home sellers) and groups (sometimes sellers’ employers—if the seller is being transferred) lend money. This source is especially helpful in arranging second mortgages, but can also assist with first trusts, wrap-arounds, and other mortgage plans.
Credit Unions – Federal credit unions can write 30-year conventional and government insured mortgages. Some will make loans; others may not. This may be a good source for credit union members.
Finance Companies – To compete with the more traditional lenders, some finance companies promise quick service and some do not charge mortgage “points” or “pre-payment penalties”.
Ten Questions Most Lenders Will Ask You
Here’s the information most lenders will need:
- The amount of money you wish to borrow and the length of time you will need the money.
- Your current address and any other addresses covering the previous 24 months.
- Your social security number.
- Your current employer’s name, address and phone number and the same information for any other employers in the previous 24 months.
- Your gross monthly income including documentation: most recent pay stub, final pay stub for any job you may have left in the current year and previous year’s W-2 form(s).
- Complete account statements (all pages) for any bank, credit union, retirement, or brokerage accounts.
- Your assets (real estate, personal property, stocks and bonds, life insurance with cash value, etc.).
- A complete list of your debts including account numbers, balances and minimum payments.
- A copy of the sales contract.
- An account, in writing, of any problems concerning your application and any documentation of the circumstances of those problems.
With this information in hand, here are the steps the lender will take to process your application:
- Verify the facts.
- Get a credit report.
- Make a property appraisal.
- Review your application.
- Decide whether or not to make the loan.
Some Questions You Should Ask Most Lenders
Here’s how to shop a few of the questions to ask a lender:
- Are both fixed-rate and adjustable mortgage loans available?
- What is the interest rate?
- What are the “points”?
- How long can I “lock-in” the financing at the current interest rate?
- What are the other fees a lender may charge me in conjunction with my loan?
- Are funds for a second mortgage available?
- On adjustable loans:
- How often will the interest rate be adjusted?
- Is there a maximum limit on each rate change?
- How often will the monthly payment be adjusted?
- Is there a ceiling on payment adjustments?
- Can the term of the loan be extended?
- Is there a pre-payment penalty clause? This involves extra charges for paying off the loan before maturity. About 80 percent of all loans in the United States are paid off early.
- Is there an open-end clause? This clause in a mortgage allows you to borrow in the future for home improvements or other purposes, up to the amount of principal you’ve paid off.
- What is the “grace” period? How late can a monthly payment be made before a late charge is assessed? What will happen if a payment is missed?
- If you sell your house, will the new buyer be able to assume your mortgage at the same interest rate?
- Do you have to pay “points” to get your new mortgage? Usually lenders charge points for the cost of giving you a mortgage loan. A “point” is 1% of the loan.
- Will the lender require mortgage insurance?
Slicing Interest Rates
It is important to keep the tax advantage in mind when considering whether to rent or buy. A mortgage payment of $1,500 could result in a lower overall cost than an $1,200 rent amount after you consider tax advantages
Remember a buyer may not realize this “tax break” until tax time comes around unless withholding taxes are decreased in anticipation of increased interest payment deductions. Please contact your tax advisor for more information.