Unless
you plan on using your own money to purchase your home, you are
most likely going to want to borrow money from a lender and spread
payments to the loan out over a period time. With the advent of
the Internet and a volitle mortgage market, there is a wide variety
of loan options to choose from. As your representative in the process
of buying your home, it is my responsiblity to guide you down the
best possible path throughout the process.
Choosing
a Lender
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
Choosing
a Loan
There are literally hundreds of lenders offering
a multitude of loan options that makes determining the best loan
for your situation a complex endeavor. Since you may be making
payments on a loan anywhere from 15 years to 40 years depending
on the term, it is imperative that you work closely with us in
choosing the right lender and loan that works best for you. What
follows is a breakdown of the generally available residential loan
programs.
Fixed-rate loans
This is a home loan with an ensured interest rate that will remain at a specific
rate for the term of the loan. About 75 percent of all home mortgages have
fixed rates. One reason for this is that most homes sold are to buyers who
plan on living in their property for many years. When you choose the length
of your repayment (usually 15, 20 or 30 years), keep in mind that while shorter
term loans may have higher monthly payments, they also let you pay less interest
and build equity faster.
30-year fixed-rate loan
The most popular loan is a 30-year fixed-rate loan. The reasons include:
- It provides the borrower with reasonable
monthly payments.
- It's ideal for the homebuyer who plans on
remaining in the home for more than 5 years.
20-year fixed-rate loan
The 20-year mortgage often offers a lower interest rate when compared to a
30-year loan. This loan amortizes principal and interest over a 20-year period,
10 years less than the traditional 30-year mortgage. This may save you a
considerable amount of total interest when paid over the life of the loan.
15-year fixed-rate loan
The advantage of a 15-year mortgage is that its interest rate is generally
lower than a 30-year or 20-year loan. Such a short-term loan will save you
a significant amount of interest over the life of the loan. By paying off
the loan in only fifteen years, you also build up equity in your home sooner.
A 15-year loan allows you to own your home clear of debt much quicker when
compared to longer term loans. This may be important if you are approaching
retirement or have other large expenses to cover such as financing your children's
education. However, the monthly payments you make on a 15-year loan will
be significantly higher than those you make on a 30-year or a 20-year loan
for the same loan amount.
Adjustable-rate loans
With an adjustable-rate mortgage (ARM), the interest rate you pay is adjusted
from time to time to keep it in line with changing market rates. This means
that when interest rates go up, your monthly loan payment may go up as well.
On the other hand, when interest rates go down, your monthly loan payment
may also go down. ARMs are attractive because they may initially offer a
lower interest rate than fixed-rate loans. Since the monthly payments on
an ARM start out lower than those of a fixed-rate loan of the same amount,
you should be able to qualify for a larger loan.
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