SELECTION

Choose a Lender (Mortgage Company).

Securing finances requires a decision that you may have to live with for many years-so spend time comparing the terms and conditions of different lenders, before making your choice. There are a number of ways to find a willing lender, whether through traditional print ads, Realtor referrals or Internet sources. There are also several considerations to keep in mind when shopping for the right lender and program:

• Price.  Consider the competitiveness of a lender's terms with that of others, especially for mortgage rates, interest rates, and additional closing costs and points. Your prospective lender should provide you with a Good Faith Estimate at the time of loan application. Whether you provide the information to the lender face-to-face, over the phone, or on the internet, make sure you request a good faith estimate the same day.
• Pulling Credit. Your prospective lender will have to pull a credit report on you in order to determine how to price your loan. Allow the first one to pull the credit but demand a copy for your own records. You can use this report to make copies and give to other lenders you are shopping with. Pulling credit too many times in a short period of time may or may not affect your credit scoring.
• Diversity of products.  Price is important but by no means should it be your only determining factor. How extensive is the lender's range of offered loan programs? Check the availability of the loan program most appropriate to your credit profile and property. When can you lock in a rate and product and how long will it stay locked?
• Service and Reputation.  Do your lenders and brokers communicate effectively? Do they listen to what you need or are they talking too much? Are they attentive and prompt? You aren't looking for just a guide but a partner that you can work with and trust every step of the way. What does the broker think of the loan and rate you are interested in?
• Connections. Talk to the lender about the underwriting process. Does the approval process happen locally or does it happen from another state? Do they have desktop underwriting options?


• Understanding how mortgage brokers get paid? It is always good to understand how the majority of mortgage brokers or loan officers get paid. Although it may differ from company to company, most are paid in 3 ways. The first is the loan origination fee in your closing costs. On average this fee runs 1% of your loan amount. The second way is through miscellaneous fees such as processing fees, doc prep fees, administration fees, underwriting fees, and other various named fees. Some of the fees are true fees that go to the actual lending bank and some are just extra padded fees. The third way is the most complicated. It is called the yield spread premium. The bank or investor is the company that actually lends you the money. The mortgage broker or loan officer is the intermediary that is originating the loan for you and your primary contact. The investor or bank promises to pay the mortgage broker a variety of amounts on the “back-end” of the transaction depending on how much of an interest rate they charge the borrower. If the rate is a premium rate to the average they will pay more money to the broker. If it is a lesser rate than they will pay a smaller amount. This is big way that mortgage brokers can compete to get you the best rate. Remember though, rate is not everything. Service, reliability, and loan programs go a long, long, way in the process. Ask your broker to help explain if you have questions.

Choose a Loan

• Fixed loan. This long-term option requires monthly payments that will remain the same (fixed) throughout the duration of the loan. The loan term may vary: fifteen, twenty, thirty, and even some forty years.
• Adjustable rate mortgage (ARM). The loan rate here will be determined by factors such as the Federal Funds rate index, readjustment intervals, and capitalization rate. The initial interest rate can be as much as 2 to 3 percent lower than a comparable fixed rate mortgage. This can make homeownership more affordable. However you should first examine all factors and consider the downside risks before selecting this option. You could find yourself in over your head.
• Hybrid loan. Also known as an intermediate or convertible ARM, it offers a fixed interest rate for a specified initial period before it 'switches' to an ARM and adjusts with the market every six months or every year thereafter. An example is a 5 year fixed rate that converts to an adjustable rate after the fifth year.
• Interest only loans. Interest only loans are exactly that….interest only. You don’t pay the principal for a set period of time. These loans can be good for some circumstances and really scary if abused. They are meant to reduce your payment for a short period with the understanding that you have to pay off the loan at some point. It is always a good idea to make principal reduction payments with this kind of loan.

Consult with your lender and Turning Point Real Estate broker to determine which loan type and program would best correspond with your resources and needs.

Loans are insured and guaranteed in many ways. These 3 are the most utilized. Each program can affect your mortgage differently. You and your lender should check to see which option is right for you. There are private money options also, but usually require some hefty interest rates and terms.

FHA (Federal Housing Administration) is an agency within the U.S. Housing and Urban Development (HUD), that administers many loan programs, loan guarantee programs, and loan insurance programs designed to make more housing available to buyers. An additional benefit is that the home buyer using an FHA loan can usually put a minimum of 3% down payment (or more) and it often provides more flexible guidelines for income ratios and credit scores than some conventional loans. FHA insures the lender for the loan amount above 80% of the homes value.

VA (Veterans Administration) guarantees home loans through the restitution to the lender in the event of default by the buyer. The guaranty is 60 % of the loan, but not more than a specific amount. The home must be a principal residence and the buyer must be a veteran of the U.S. Armed Services. Generally, a veteran must have served more than 120 days active duty. An additional benefit is that the eligible buyer may elect to obtain the loan with no down payment.

Conventional is a loan other than one guaranteed by the Veterans Administration or insured by the Federal Housing Administration and is a fixed rate and fixed term loan. If you are going to borrow more than 80% of the value of the mortgaged property you will have to buy private mortgage insurance or obtain a second mortgage for the remainder of the loan amount and down payment amount from the sales price.