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By Jack Harris, Mark Baumann and Charleen Knapp
Choosing a lender is largely a matter of finding the best terms available. Always check with several different lenders because interest rates, up-front fees and the variety of loans offered can vary even among local sources. Lenders should be willing to give you this information over the telephone. In addition, many local newspapers occasionally print tables comparing the terms of several local lenders. It is also a good idea to get references from acquaintances and your broker because lenders may vary in how well they handle loan approvals. Here is a list of potential loan sources, and their distinguishing characteristics. - Commercial Banks
Commercial banks specialize in short-term loans and have traditionally not been interested in mortgage loans. However, in recent years they have become more active because they can sell the loans they originate. If you already have a checking or savings account, the bank may have special deals available for a mortgage loan. Banks are good sources for second mortgages (for a down payment) and home improvement loans.
- Savings and Loan Associations
The S&L is the traditional source for home purchase loans. Both S&Ls and banks make loans from the deposits they hold in the form of savings accounts and certificates of deposit. They also originate loans for sale in the secondary market. Because they hold some loans in portfolio, they may offer a wider selection of loan types than lenders who sell everything they originate.
- Mortgage Bankers and Brokers
Mortgage bankers and brokers have emerged as the most popular sources for home loans. Unlike banks and S&Ls, these lenders do not keep deposit accounts. Mortgage bankers sell all the loans they originate to investors and organizations that hold large pools of such loans. Mortgage brokers originate loans for other lenders and may be able to find loans tailored to the special needs of the borrower.
- Credit Unions
Credit unions operate like banks in that they specialize in short-term loans. However, because the credit union is owned by its depositors, there is nothing to prevent the offering of mortgage loans if the majority of depositors so wish. If you are a member of a credit union, it might be worthwhile to check.
- Home Finance Company
Home finance companies rarely make first mortgages but may be a source for a secondary mortgage to help finance a down payment.
- Real Estate Brokers
A relatively recent development is the "one-stop shop" in which a real estate broker may offer a wide range of services related to the purchase of a home. Some brokers have affiliation with a mortgage banker and can help you apply for a loan in the broker’s office (if you want to go with that particular lender). Others can access a network of lenders through a personal computer and allow you to compare available loans, apply for a specific loan and monitor the progress of your application. If your broker offers such a service, you may want to consider it after checking loan terms offered locally. The service usually requires a fee that is applied to the loan application fee when you apply through the network.
- Stock Brokers
The major stock brokerage houses often have money available for mortgage loans. These loans usually have high minimum amounts ($100,000) and may require that you have a brokerage account with the firm. These are often very flexible loans that can be almost customized to the needs of the individual borrower.
- Seller
The seller of the home may be willing to help finance the sale but generally only when loans from more standard sources are hard to get or especially expensive. Seller financing may be a first mortgage, a second mortgage combined with assumption of an existing first mortgage or a second mortgage as part of the down payment on a third-party first mortgage. The seller’s main motivation is to improve the chances of the home selling. Seller-provided financing is part of the purchase price and should be negotiated with the contract. Favorable financing terms may be offered in lieu of a concession on the price.
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