Choosing a Lender
Along with choosing a loan, you should consider the variety of sources for loans as they each offer advantages and disadvantages depending on the loan amount, the interest rate, your down payment amount, and much more. Major categories of mortgage lenders include:
Savings & Loans
Savings and Loan Associations (S&Ls) are the largest traditional lenders of residential home loans. They remain a major source of funding for home loans. S&Ls are often called Savings Banks in the Eastern U.S.
Commercial banks offer attractive loan terms, particularly if they evaluate their entire banking relationship with you. Some commercial banks have their own real estate lending departments and will service your loan. Other commercial banks sell their loans to Fannie Mae and Freddie Mac, two major government-sponsored enterprises (GSEs) that specialize in buying residential loans from lenders.
Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. They often receive a fee from these investors for servicing your loan. Loan servicing includes collecting monthly payments, sending out loan statements, and collecting late payments.
Mortgage brokers circulate, or ‘shop,’ a loan application among lenders to find the most attractive terms for the borrower. In exchange, a lender pays the broker a fee.
You may find that the current homeowner is willing to offer financing in exchange for selling the home. This means that the seller becomes your lender. A common means of financing is for the seller to accept a note. A note requires you to make monthly payments to the seller instead of a bank or other lender.
Since credit unions are owned by their members, they are called cooperative financial institutions. Since they are nonprofit institutions, credit unions may offer attractive loan rates to their members. Like commercial mortgage lenders, credit unions sell their loans to Fannie Mae and Freddie Mac to maintain access to new sources of loan funds. The National Credit Union Administration (NCUA) regulates the credit union industry.
When selecting a lender or broker to finance your new home, be sure to do your homework on the company or institution. As interest rates have continued to decline, more and more lenders have appeared in the industry. As rates begin to increase, more and more of these new lenders may go out of business. Always check to make sure your lender is qualified and has the resources to service your note for the life of the loan.