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SECTION I – SHOPPING FOR YOUR LOAN Previous Page | Next Page

 

To obtain financing for the purchase of a home can be an intimidating process for a home buyer, particularly those buying a home for the first time. The following three Sections are designed to minimize this frustration by highlighting the steps involved in the home loan process.

FIND THE RIGHT LENDER

To identify the right lender, you must first have a clear understanding of the various types of lenders available. The home financing system in the United States includes many private and public institutions. Home mortgages are made and processed by primary market lenders and these mortgages are often insured and/ or sold to “secondary market” institutions. Although the types of lenders originating mortgages are growing, there are five categories of “primary market” lenders active in the residential lending market. They include:

Commercial Banks that primarily specialize in consumer and construction lending.

Savings and Thrift Institutions that provide residential mortgages. They are regulated and their deposits are insured by FDIC (Federal Deposit Insurance Corporation) or corresponding state agencies.

Mortgage Bankers that are independent firms or subsidiaries of commercial banks that originate mortgages. They focus exclusively on providing mortgages and they do not accept deposits. They typically originate mortgages and then sell them to other financial institutions. These purchasers constitute the “secondary market”. Mortgage Bankers are not federally regulated like commercial banks.

Credit Unions that are private banking organizations that frequently have very good mortgage rates for its members. A number of credit unions will offer first mortgages to its members. Credit unions are generally regulated by federal or state agencies.

You should use the services of the lender that best suit’s your needs based on location, type of products offered, and the quality of service they provide.

The term “secondary market” refers to financial institutions that purchase mortgage loans originated by other lenders. They are often large banks, life insurance companies, pension funds and federally or state chartered institutions. The most significant purchasers of mortgages on the secondary market are Fannie Mae and Freddie Mac. Both are large, shareholder-owned and privately managed corporations. They are federally chartered and have federal statutory obligations to serve the needs of lower income households and other underserved populations. As a result, both organizations have made affordable new lending products available to originating lenders.

Ginnie Mae plays a similar role as Fannie Mae and Freddie Mac. They all purchase government insured or financed mortgages. However, unlike Fannie Mae and Freddie Mac which are quasi government corporations, Ginnie Mae is a government corporation under the jurisdiction of the Department of Housing and Urban Development (HUD).

The secondary market allow lenders that originate residential mortgages to sell some or all of their portfolio to secondary market purchasers. By doing so, lenders can replenish their cash so that additional financing can be made available. The underwriting and other criteria set by the secondary market great impacts the lending practice of most mortgage lenders. In today's mortgage market most loans end up sold in a secondary market. This fact becomes particularly important if you try to get your mortgage through a local lender only to find that the local lender sold the loan to a national company. Sometimes even when a local lender sells the loan they keep the "sevicing" so you can retain your local contacts even if the loan has been sold. If you want to keep things local make sure you ask pointed questions to make sure you end up getting the mortgage loan you expect.




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Table of Contents | Homebuyer Course Start Page | Find A Realtor | Budgeting To Buy a Home | Neighborhoods | Find Your First House | Inspect Before You Buy | Shop For a Mortgage Loan | Mortgage Home Loan Process | Credit Score and Credit Report | Home Mortgage Loan Closing | Being a Home Owner


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