With interest rates remaining at record lows, homebuying has become particularly popular here in the U.S., but vacation-condo and investment property buying have also become increasingly popular. Increased prices have slowed the positive buying trend somewhat, but buyers continue to buy with plenty of options available to them.
When considering a purchase, unless you are paying cash, it is imperatively important to choose wisely when selecting a finance company to finance your purchase, because each one is different, and each one can easily effect your purchase price, as well as determining whether or not you get the loan you apply for.
Here are some things to remember when selecting a company to provide you with financing your real estate purchase:
Find the mortgage lender that will provide you with the best mortgage for the lowest price. Remember, there are always closing costs, and typically financing charges involved when getting a mortgage loan. The key quality to look for in a lender is a good track record of service and reliability, but if you can find a lender that offers this without finance charges (points) or with a lower finance charge, all the more better for you, the buyer. Here's some background information on each lender type.
Mortgage Bankers. These are lenders that are large enough to originate loans and create pools of loans, which they sell directly to major investors. Since they are usually a brand name, they have competitive first time buyer programs (i.e., FHA), lower interest rates and financing costs. However, there can be problems when working with a big bank. Big banks, at times, aren't as likely to listen to their customers after the purchase of the mortgage, and if you have past credit problems, it is likely that they will not issue a loan to you.
Portfolio Lenders. These are lending institutions that lend their own money and originate loans for itself. They are lending from their own portfolio of loans and are not worried about being able to immediately sell them on the secondary market. They can create their own rules for determining credit worthiness, which makes them an ideal place to apply for a mortgage loan if you're credit history is somewhat shady. It is easier to qualify for a portfolio loan since their loans are usually adjustable rate loans. The down side is that they are not as competitive as mortgage bankers and brokers in the fixed rate market.
Direct lenders. These lenders fund their own loans. If you've seen "seller financing" you are familiar with this type of lender, but "seller financing" can also refer to another type of lender.
Correspondents. These lenders originate and close home loans in their own name, then sell them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, reselling the loan to a major investor.
Mortgage Brokers. Mortgage brokers are companies that originate loans with the intention of brokering them to lending institutions. They have access to wholesale lenders' rates and can find the best rate for the borrower. If the borrower is declined the first time, the mortgage broker may have backup lenders for them. Mortgage brokers are only paid if they find you a loan, which makes them motivated to find one that fits your needs, however, mortgage brokers' loan officers do not necessarily offer the lowest rates, and they are not always able to work with someone who has a problematic credit history.
Wholesale Lenders. Most mortgage bankers and portfolio lenders also act as wholesale lenders, catering to mortgage brokers for loan origination. Wholesale lenders offer loans to mortgage brokers at a lower cost than their retail branches offer them to the general public. However, the loan costs will usually be the same to the borrower since the mortgage broker then adds on his fee.
Banks and Savings & Loans. They usually operate as portfolio lenders, mortgage bankers, or some combination of both.
Credit Unions. Credit unions usually operate as correspondents, but larger ones are able to act as a portfolio lender or a mortgage banker. Their rates are often lower than a bank's or a savings & loan institution, but much like a bank or an S&L, they aren't apt to work with someone who has a poor credit history.
Of course, there are always exceptions to these, but these are fairly common with these lender types. If you know of a good, or even a bad lender, please share the lender and your experience with our readers in the comments section. Knowing a good lender is imperatviely important, in most cases, when someone is seeking to buy a home, condo, residential or commercial investment property. If you do not plan on buying using cash, the right mortgage can quite often allow you to purchase the home or other property type that you are dreaming of.
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