Shopping For A Loan. Your choice of lender and type of loan will influence not only your settlement costs, but also the monthly cost of your mortgage loan. There are many types of lenders and types of loans you can choose. You may be familiar with banks, savings associations, mortgage companies and credit unions, many of which provide home mortgage loans. You may find a listing of some mortgage lenders in the yellow pages or a listing of rates in your local newspaper.
Mortgage Brokers: Some companies, known as “mortgage brokers” offer to find you a mortgage lender willing to make you a loan. A mortgage broker may operate as an independent business and may not be operating as your “agent” or representative. Your mortgage broker may be paid by the lender, you as the borrower, or both. You may wish to ask about the fees that the mortgage broker will receive for its services.
Government Programs: You may be eligible for a loan insured through the Federal Housing Administration (FHA) or guaranteed by the Department of Veteran’s Affairs or similar programs operated by cities or states. These programs usually require a smaller down payment. Ask lenders about these programs. You can get more information about these programs from the agencies that run them.
CLO’s: Computer loan origination systems, or CLO’s, are computer terminals sometimes available in real estate offices or other locations to help you sort through the various types of loans offered by different lenders. The CLO operator may charge a fee for the services the CLO offers. This fee may be paid by you or the lender that you select.
Comparing Loan Costs: Comparing APR’s may be an effective way to shop for a loan. However, you must compare similar loan products for the same loan amount. For example, compare two 30 year fixed rate loans for $100,000. Loan A with an APR of 8.35% is less costly than loan B with an APR of 8.65% over the loan term. However, before you decide on a loan, you should compare the up-front cash you will be required to pay for each of the two loans as well.
Another effective shopping technique is to compare identical loans with different up-front points and other fees. For example, if you are offered two 30 year fixed rate loans for $100,000 and at 8%, the monthly payments are the same, but the up-front costs are different:
Loan A – 2 points ($200) and lender required cost of $1800 = $3800 in costs
Loan B – 2 ¼ points ($2250) and lender required cost of $1200 = $3450 in up-front costs.
A comparison of the up-front costs shows Loan B requires $350 less in upfront cash than Loan A. However, your individual situation (how long you plan to stay in your house) and your tax situation (points can usually be deducted for the tax year that you purchase a house) may affect your choice of loans.
Transfer of Your Loan: While you may start the loan process with a lender or mortgage broker, you could find that after settlement another company may be collecting the payments on your loan. Collecting a loan payment is also known as “servicing” the loan. Your lender or broker will disclose whether it expects to service your loan or to transfer the servicing to someone else.
Flood Hazard Area: Most lenders will not lend you money to buy a home in a flood hazard area unless you pay for flood insurance. Some government loan programs will not allow you to purchase a home that is located in a flood hazard area. Your lender may charge you a fee to check for flood hazards. You should be notified if flood insurance is required. If a change in flood insurance maps brings your home within a flood hazard area after your loan is made, your lender or servicer may require you to buy flood insurance at that time.
