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
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
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
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.
Homeowners
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.
Credit Unions
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.
