There are three major sources of mortgage loans: commercial
banks, thrift institutions, and mortgage brokers.
Commercial banks, typically known for their short term
lending, have been increasing their presence in the mortgage arena in
the last several years. By developing a good standing relationship
with your local bank, they may make a consorted effort to get
you the best financing deal possible.
Thrift institutions include savings and loan associations
and savings banks. They either use customers' deposits to make loans or
sell loans to private investors. Typically, their loans are slightly more
favorable than other sources due to business structure; however, the 1980's
savings & loan failures have made many potential investors leery.
Lastly, mortgage brokers or bankers both solicit borrowers,
originate loans, and place them with mortgage lenders such as life insurance
companies. Mortgage brokers take loan applications and then find
lenders willing to grant the mortgage loans under the desired terms; thus,
saving you time and the inconvenience of talking with several lenders
yourself. Brokers typically pursue conventional loans for consumers. On
the other hand, mortgage bankers deal primarily in government- insured/
guaranteed loans. Importantly, before working with a broker or banker,
you should carefully investigate the firm and its reputation by checking
with your local Better Business Bureau.
Applying for a Mortgage
One of the most critical steps in buying a home is obtaining
the proper financing. There are many sources of mortgage loans, and you
should begin investigating them while you are looking for your home. It
may be helpful to meet with several mortgage lenders and prearrange for
a mortgage loan. By pre- qualifying, you will know ahead of time the maximum
mortgage loan amount you will be able to receive. Pre-qualification also
provides estimates of the required down payment and closing costs for
different types of mortgages. It also identifies in advance of purchase,
problems including creditor errors or incorrect personal information,
which can cause your loan to be denied.
When you apply for your loan the lender will usually request
- proof of income (pay stubs or W-2 forms)
- debt balances (credit cards, car and school loans)
- financial assets statements (banking, investment)
Under the Equal Credit Opportunity Act, lenders may not
discriminate against an applicant for a mortgage loan on the basis of
race, color, religion, national origin, sex, marital status, or age, provided
you meet the legal requirements for entering into a legal binding agreement.
Nor can credit be denied because you receive public assistance .