Where To Get a Mortgage

When you think about obtaining financing for buying a home, you probably envision yourself sitting in a bank opposite from a loan officer who is reviewing the lengthy mortgage application you have painstakingly completed. While mortgages offered by banks remain the most popular method of home purchase financing, there are other options available. And it's important for you to consider more than one avenue when getting your mortgage. If you know where to look, you may end up saving yourself some money. Let us walk you through the choices available for home buying loans.

Tip If you are pre-approved for a mortgage, which we strongly recommend, don't feel obligated to stick with that lender when you actually get your financing. We know it's tempting to do so since you have already gone through all the paperwork with them. However, you should only use this lender if they can offer you a mortgage with competitive terms, rather than just for convenience. Resist the urge to take the easiest route and you may save a considerable sum.

Banks. Savings and loans and savings banks are the traditional sources most people turn to when they need financing to buy their home. Since mortgages are such a big part of their core business, these banks are usually able to offer traditional loans with competitive terms to get your business. Commercial banks are also in the mortgage business and often are right in step with other banks when it comes to offering competitive terms.

Credit unions. If you belong to a credit union, don't neglect to check out this valuable source for financing your home purchase. Credit unions usually offer attractive mortgage terms for their members and are often the best deal you can get. If you are not a member of a credit union, but are eligible to be one, you may find it worth your while to join if the credit union is offering an attractive mortgage.

Mortgage companies. Mortgage companies are in the business of making money by lending mortgage money they have borrowed, usually from banks, and then selling those mortgages to different private investment companies, as well as government agencies, such as Fannie Mae and Freddie Mac. Mortgage companies make money by reinvesting the funds they get from selling the mortgages they originate. They also make money from service fees, since they often continue to handle the mortgages they sell. For example, even though they sold your mortgage you still make your payments to the mortgage company. Banks also sell their loans to companies and agencies, but most banks do not engage in the same level of selling activity that mortgage companies do.

You may be wondering why private companies and government agencies buy loans from mortgage companies and banks. Well, the private companies and government agencies use the principal and interest payments they get from the mortgages to create what is commonly known as the secondary mortgage market. They create this market by packaging together these mortgages and selling them as securities backed by these mortgages. This in turn makes mortgage dollars available for borrowers in different local regions. As we stated, this may all be going on while you're still making your payments to the mortgage company or bank where you originally obtained your mortgage.

Mortgage brokers. The basic function of a mortgage broker is to help a prospective homebuyer get a good deal on a mortgage. You may be wondering what they can do that you can't do on your own when shopping for a mortgage. First of all, since mortgages are their business, mortgage brokers know the mortgage market inside and out. While you can do a lot of research on your own, it's unlikely to approach the experience and breadth that a mortgage broker should have. More importantly, mortgage brokers have access to mortgages you don't simply because of volume. Lenders that are eager to get a high volume of business from a mortgage broker will compete with other lenders by offering favorable terms. How does the mortgage broker get paid for all this work? As you might have guessed, this is where you, as the homebuyer, come in. If you use a mortgage broker, you usually pay a fee for services or you pay additional money to your lender (sometimes the extra money is tacked on as an additional point on the mortgage) and then the lender pays the mortgage broker.

What mortgage brokers can't do is guarantee your mortgage application will be approved and you'll get a loan. Mortgage brokers are not lenders, but rather serve as a liaison between lenders and homebuyers who are looking for financing for their purchase.

Should you shell out the extra money for a mortgage broker? As usual, the answer depends on a couple of factors. If the mortgage rates are favorable to buyers, and you don't mind doing the necessary legwork yourself, you probably don't need a broker. On a more personal level, if your individual situation is making it difficult to find an acceptable mortgage, a mortgage broker might have access to a mortgage that you can't get on your own. If this is your situation, you may find it cost-effective to pay the mortgage broker's one time fee and get a mortgage with better terms for the long run.

Warning If you decide to use a mortgage broker, resist the urge to blindly accept the mortgage he or she recommends. You should at the very least investigate what's generally available loan-wise in the economic market and specifically for you, on a personal level. We understand the temptation to accept a professional's recommendation and skip the legwork, particularly when you're paying for a professional skill, but just like all professionals, he or she isn't infallible. As always, knowledge is your best asset, and combining your research with a mortgage broker's connections will get you the most for your fee. For more information on mortgage brokers, visit the National Association of Mortgage Brokers web site.

Your employer. One of the benefits that employers sometimes offer is help with the financing of your home purchase. The type of help can range anywhere from paying points to lending you the funds you need to buy your home. Be sure to look into this possibility for availability of funds.

Seller financing. Having the seller of the home you're buying hold a mortgage on the home is a popular method of financing the purchase of a home. The way this type of arrangement works is that basically, the seller is the lender and you make your mortgage payments to the seller. Seller financed mortgages have advantages and disadvantages for the seller and the buyer that all the parties should be aware of before entering into this type of arrangement.

Relatives. Asking your parents or grandparents for a loan to buy your home certainly isn't an option for everyone. However, if you think this arrangement might work for your family, by all means broach the subject with the appropriate members. If you truly believe this is a realistic option, come prepared with a negotiable offer that benefits all involved. Such an offer would likely include an interest rate that is fair to both sides, a reasonable repayment schedule and recourse for the lenders if the buyers default on the loan terms.

Warning We would like to caution that even if the financial means are there, in some families mixing relatives and money is like oil and vinegar; it won't work no matter how favorable the conditions seem. For example, if your parents lending you money to buy a house will stir up the rivalry that's brewing between you and your siblings or cause problems with your spouse because the in-laws feel free to drop in all the time because in their minds they actually own your home, you may want to nix this idea. If these scenarios sound all too plausible for your family, it's probably best to seek alternative lenders for your mortgage and preserve both your sanity and your family relationships!

Now that you know your choices, how do you go about doing some comparison shopping? You can go locally first, inquiring with banks, etc. in your neighborhood, town or city. Or perhaps you have already established a relationship with a financial institution (for example, you have all your business accounts with them or maybe have taken out other loans there and paid them off, not to mention your personal savings and checking and other accounts). They may extend more favorable mortgage terms to established customers. You can also check with friends and relatives, as well as going through the phone book, and of course the Internet is a practically endless source of information on lenders.

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