| Begin the home buying process by contacting mortgage lenders in your area. Take advantage of MBA's easy-to-use lender search page or talk with people you know who have bought or refinanced a home recently and ask if they were pleased with the service. Check the newspaper’s real estate or business section or look in the yellow pages under “mortgages.” If you have a bank account, check with your bank or credit union since you already have a financial relationship with them. Make appointments with as many mortgage loan officers as you wish (three is a good number) and ask to be pre-qualified for a loan. You will discuss your income and debts, savings, credit and employment. When comparing interest rates among lenders, remember that mortgages with the same interest rate can end up costing different amounts because of additional costs such as origination and application fees. See All About Interest Rates . | | While it's important to consider rates, you also want to make sure the person providing your loan is someone you feel good about. Remember, you’ll be working closely with your lender. Spending a little extra time at the beginning to find someone you’re comfortable with is well worth the effort. Don’t let rates be your only criterion. Get a feel for what it will be like to work with them, and how they approach your needs. If you’re still uncertain, ask for references—recent home buyers like yourself—and talk to them. At this point you are not filling out any paperwork—just having conversations. Ask to review the types of mortgages that are generally available through your lender. Many lenders offer a variety of loans. You should become familiar with the different products so you can find a mortgage that best suits your financial and lifestyle needs. See Mortgage Types . Many types of institutions can offer mortgage loans. Most are regulated by federal or state agencies and all are required to adhere to federal and state laws governing mortgage banking. Some types of lenders are defined below.
Mortgage banks specialize only in mortgage lending. Funding for their loans comes from investors in the "secondary" market. Two of the largest investors are Fannie Mae and Freddie Mac. These two "government-sponsored enterprises" (GSEs) buy loans and package them together to sell to other investors, who expect a certain rate of return from the collective repayment of interest and principal on the loans. Selling loans to investors helps to ensure that there is money available for people to buy houses and other types of real estate. Most mortgage banks do not service the loans they originate. See information about servicing in Step 5 Submit the Application.
Mortgage banks can be competitive, meaning possibly better rates and fees, because they specialize in lending and cannot rely on revenue from or have the need to cover losses in other departments, as is usually the case in traditional banking. They may not, however, have access to federal money or other types of loans associated with federal banks. State laws covering mortgage banks vary and can be different from laws covering traditional banks. Another type of mortgage originator is a broker, which can represent a large variety of lenders, including both mortgage banks and traditional banks, as well as specific investors. A broker is a "middleman." Brokers sometimes may be able to offer a greater variety of loan types but also may be less regulated in some states. Check with your state banking authority if you have questions about mortgage brokers.
These are often what we refer to as "the bank" where we have our checking and savings account. These are federally chartered banking institutions that can usually be identified by the words "national" or "national association" in their titles or by the letters N.A. or NT&SA following their titles. National banks represent about 28 percent of all insured commercial banks in the United States and hold 57 percent of the total assets of the banking system.
Owned by its members, a credit union is a cooperative financial institution. A board of directors from its membership sets interest rates and policies. As a non-profit institution, it is exempt from state and local taxes. Credit unions may offer lower rates than national or other commercial banks to its members; borrowers, however, should still compare the loan rates and terms with those of other lenders.
Formerly known as savings and loan associations, these institutions specialize in holding savings deposits and making loans, a large portion of which are mortgage loans. Originally, these organizations used savings deposits to fund their loans, but today they have access to many of the same funding sources as national banks, including the federal government.
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