Lenders: Who Is Out There to do Business With?
There are a variety of sources from which you might get a mortgage loan. You should ALWAYS consider examining SEVERAL of these, as their terms, conditions, and costs can vary dramatically.
Lenders & Descriptions
Banks, Savings & Loans and Credit Unions
- Banks, savings & loans and credit unions are good initial sources of credit, especially when you already have a relationship with a particular institution.
- Their terms and conditions are usually among the most favorable for consumers.
Mortgage Bankers and Mortgage Brokers
- Mortgage bankers & brokers are businesses that specialize in making mortgage loans.
- They don't lend their money. They will get money from other sources, like bigger lenders.
- A mortgage banker will actually lend you money; but a mortgage broker will put you in touch with a lender that will lend you money.
- Ask if you are dealing with a mortgage broker or mortgage banker.
- Mortgage bankers are usually paid by you and by the lender who makes you the loan, so -- no matter what they say -- they may not be getting you the best available terms. Compare the rates and terms with those being offered by other banks, savings and loans or credit unions in your area.
- When dealing with a mortgage broker, ask the following questions:
- From how many different lenders did you get a quote?
- How much are you charging me?
- Are you getting money from the lender? If so, how much?
- Can I pay all of my charges up front and get a lower rate?
- Can I roll all of the charges into the interest rate?
- Finance companies are another potential source of mortgage credit.
- The cost of credit is generally higher from a finance company than it would be from a bank, a savings and loan or a credit union.
- Finance companies often lend to people with less than perfect credit histories and charge more to cover the risk.
Home Improvement Contractors
- Home improvement contractors may offer you financing options for work they propose to do on your home.
- Be VERY CAUTIOUS about getting credit from or through a contractor.
- You will probably arrange a less expensive, more attractive loan by shopping around and obtaining the loan from another source.
- NEVER agree to have work done on your home that you don't need or want.
- Get at least 2 or more estimates for any work on your home BEFORE signing any agreement with a contractor, especially if the contractor initiated the contract with you.
- Get estimates from other sources for financing before you agree to any loans through a home improvement contractor.
- NEVER allow a contractor to begin work until AFTER you have agreed to and signed the loan papers.
Tips for Locating a Lender
One way to locate a lender is through, "word of mouth," that is, experiences of your friends, family, or church members in getting a loan.
Often, lenders will advertise through direct mail to your home, or calling you on the telephone (telemarketing). These solicitations often disclose the lender's best terms and not necessarily the terms that you would receive on a loan. Make sure you know what terms you are being offered and compare them with terms offered by other lenders.
You should get several loan quotes from independent sources of mortgages (banks, credit unions, mortgage bankers, etc.).
Shopping Around For Lenders and Loans
Determining what loan is best for you is not a simple matter. One way to make sure that you are considering all of the relevant factors is to compare the various loan options using specialized worksheets and pamphlets such as the ones offered by the National Credit Union Association.
Not all lenders are as desirable as others, and it is important to avoid becoming a victim of "predatory lending." The American Bankers Association offers some tips for spotting predatory lending scams.