There are a number of financial institutions that will loan you money to purchase your house. Banks, mortgage banks and brokers are the most commonly sought after lenders. A mortgage broker has access to a number of lenders and rates to fit your financial circumstances, and can find a loan that will meet your needs...at a price. They are fee based and are the middlemen for more than half the loans in the U.S. The broker will find you a lender, do the paper work, hand it over to the lender who will in turn sell it to someone else. These "someone else"s can be
state pension funds,
the Federal Home Loan Mortgage Corporation ("Freddie Mac")
the Federal National Mortgage Association ("Fannie Mae") , generally offering the lowest interest rate and servicing the loans themselves
the Government National Mortgage Association ("Ginnie Mae")
or another bank.
The advantages in using a mortgage broker may include a faster closing time with a lower interest rate, as well as the ability to find a mortgage at all if your credit history is not very good. Keep in mind brokers fees come in at closing time ranging from $500 to over $1,000 and the broker can legally charge whatever he wants for preparing your papers for the loan. Always ask for the fees charged up front so you can assess if you are actually getting a good deal over the life of the loan. A mortgage broker does not actually decide if you get the loan, nor can they promise you that you will get a specific loan. That is not their role. If you decide to work with a mortgage broker, verify that he or she is licensed.
Banks also offer mortgages and service them for you, although they often then sell your loan as soon as they grant it. There is more control over broker fees as well and therefore less chance of being overcharged. Even if your loan is sold, the terms are the same, just the name on the check changes. It makes sense to visit your local bank and check out the offerings that will apply to your situation. Then look at other banks for a better rate. Often these are listed in the real estate section of your newspaper. If you do go with a mortgage broker, do this homework first so you will have an informed starting point.
It should be no surprise that you can shop for a mortgage rate on the internet. Do a search for mortgage rates and you will find sites that pull together a number of lenders' rates for comparison. There are a number of perks when you shop for a mortgage on the web. No calling from work so you can get lenders who are open only during banker's hours and no dressing up for appointments...pj's or sweats will do just fine. The comparisons allow you to make a more beneficial mortgage decision. If you have a hard time sending email, shopping for mortgages on the web may not be for you.
The downside of web shopping is the lack of personal attention you would get with a local broker. Also, each time you input your social security number for a quote on the web, know that a credit report will be accessed. The lender you finally settle on may interpret you as a bad credit risk due to a large amount of credit report queries. However, if you want to get a number of quotes (and you will want to for comparison) do it within a two week period and the requests will be considered as just one inquiry. Even though you may find a great rate on the web, know what you will feel comfortable with. If you go with an online mortgage broker make sure you feel secure with someone miles away that you cannot call or visit.
When you compare mortgage plans, here are some items to note for each quote:
Who you are talking with and their phone number
When it is calculated (6 months or a year)
Penalties for paying early
Fees — how much and for what
Just as you considered location, location, location when you picked out your home, you need to shop, shop, shop to find the best options for yourself. In fact, it does not hurt to shop, shop, shop even before you find the location, location, location.