Shopping for a Loan
Your choice of lender and type of loan will influence
not only your settlement costs, but also the monthly cost of your mortgage loan.
There are many types of lenders and types of loans you can choose. You may be
familiar with banks, savings associations, mortgage companies and credit unions,
many of which provide home mortgage loans. You may find a listing of some
mortgage lenders in the yellow pages or a listing of rates in your local
Some companies, known as ´´mortgage
brokers´´ offer to find you a mortgage lender willing to make you a loan. A
mortgage broker may operate as an independent business and may not be operating
as your ´´agent´´ or representative. Your mortgage broker may be paid by the
lender, you as the borrower, or both. You may wish to ask about the fees that
the mortgage broker will receive for its services.
You may be eligible for a loan insured through the Federal Housing
Administration (´´FHA´´) or guaranteed by the Department of Veterans Affairs or
similar programs operated by cities or states. These programs usually require a
smaller downpayment. Ask lenders about these programs. You can get more
information about these programs from the agencies that run them. (See Appendix
to this Booklet.)
Computer loan origination systems, or
CLOs, are computer terminals sometimes available in real estate offices or other
locations to help you sort through the various types of loans offered by
different lenders. The CLO operator may charge a fee for the services the CLO
offers. This fee may be paid by you or by the lender that you
Types of Loans.
Loans can have a fixed interest rate or a
variable interest rate. Fixed rate loans have the same principal and interest
payments during the loan term. Variable rate loans can have any one of a number
of ´´indexes´´ and ´´margins´´ which determine how and when the rate and payment
amount change. If you apply for a variable rate loan, also known as an
adjustable rate mortgage (´´ARM´´), a disclosure and booklet required by the
Truth in Lending Act will further describe the ARM. Most loans can be repaid
over a term of 30 years or less. Most loans have equal monthly payments. The
amounts can change from time to time on an ARM depending on changes in the
interest rate. Some loans have short terms and a large final payment called a
´´balloon.´´ You should shop for the type of home mortgage loan terms that best
suit your needs.
Interest Rate, ´´Points´´ & Other Fees.
the price of a home mortgage loan is stated in terms of an interest rate,
points, and other fees. A ´´point´´ is a fee that equals 1 percent of the loan
amount. Points are usually paid to the lender, mortgage broker, or both, at the
settlement or upon the completion of the escrow. Often, you can pay fewer points
in exchange for a higher interest rate or more points for a lower rate. Ask your
lender or mortgage broker about points and other fees.
A document called
the Truth in Lending Disclosure Statement will show you the ´´Annual Percentage
Rate´´ (´´APR´´) and other payment information for the loan you have applied
for. The APR takes into account not only the interest rate, but also the points,
mortgage broker fees and certain other fees that you have to pay. Ask for the
APR before you apply to help you shop for the loan that is best for you. Also
ask if your loan will have a charge or a fee for paying all or part of the loan
before payment is due (´´prepayment penalty´´). You may be able to negotiate the
terms of the prepayment penalty.