How To Shop for a Loan

There are hundreds of mortgage lenders that will pre-qualify and pre-approve you for a mortgage loan. Don't let these two terms confuse you. See my prior post on pre-qualify/pre-approval for clarification.



Major categories of mortgage lenders include:

Savings & loans: Also called thrift institutions, savings and loan associations (S&Ls) are the largest traditional lenders of residential home mortgages.

A government cleanup of bad loans at S&Ls that ended in the 1990s left behind the stronger S&Ls. These institutions remain a major source of funding for home mortgage 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 departments and will service your mortgage loan.

Other commercial banks sell their mortgages to Fannie Mae and Freddie Mac, two major government-sponsored enterprises that specialize in buying residential mortgages 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 mortgage. Mortgage servicing includes collecting monthly payments, sending out loan statements, and collecting on late payments. For more information, see the Web site of the Mortgage Bankers Association of America (MBAA).

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: The most overlooked and a financially beneficial method. You may find that the current homeowner is willing to offer financing in exchange for selling the home sooner. This means that the seller becomes your lender. A common means of financing is for the seller to accept a mortgage note. A mortgage note requires you to make monthly payments to the seller instead of a bank or other lender. See my website for add'l info: AC Associates

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 mortgage 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 funds. The National Credit Union Administration (NCUA) regulates the credit union industry.

Nonprofit community development and housing organizations: Throughout the United States, there are hundreds of nonprofit community-based organizations that work to rebuild neighborhoods that have fallen into disrepair, or to help low-and moderate-income families buy homes. Often, these organizations have money available from government or private grants to loan for home purchases or for home improvement loans. The interest rates are often less than the cost of bank loans and the repayment terms are easier for new homebuyers. Check with your city housing agency and ask for the names of non-profit housing groups in your area or search for local organizations that are part of national nonprofit networks, such as these:

NeighborWorks organizations: These local nonprofit housing advocates provide many services to low-income homebuyers, including homeownership training, financial counseling, foreclosure intervention, loans for rehabilitation and repair of existing properties, and, sometimes, home loans. There are hundreds of these local nonprofits nationwide. Visit www.nw.org for more information.

HUD-Approved Housing Counseling Agencies: These local nonprofit and public agencies offer rental, homeownership and foreclosure prevention counseling. They can also help you obtain mortgage financing directly from them or through referrals to local lenders. Visit HUD's website for more information.

Government Agencies:

State or Local Housing Finance Agencies: Almost every state has a housing finance agency (HFA) that works with state and local groups to revitalize neighborhoods and promote homeownership. They also provide financing for special uses, including rehabilitation of existing home. HFAs may have financing available at lower interest rates or require lower down payments and closing costs for low-and moderate-income or first-time homebuyers. City and county agencies generally perform the same function as state HFAs. Ask your local lender, real estate agent or a nonprofit housing organization about state and local government agencies. You can also visit www.ncsha.org for more information on state housing finance agencies.