Home Loan Comparison
Many entities, including banks, credit unions, savings and loans, insurance companies, and mortgage bankers make home loans. Lenders and terms change frequently as new companies appear, old ones merge and market conditions fluctuate. To get the best deal, compare loans and fees with at least half a dozen lenders. Because many types of home loans are standardized to comply with rules established by the Federal National Mortgage Association (Fannie Mae) and other quasi-governmental corporations that purchase loans from lenders, comparison shopping is not difficult. Be sure to ask for the same size, type, and length of the mortgage — such as a 30-year fixed-term mortgage for $300,000 — so you’re comparing apples to apples.
Mortgage Rate Resources
Fortunately, mortgage rates and fees are usually published in the real estate sections of metropolitan newspapers and are increasingly available on online mortgage websites. You can also work with a loan broker, someone who specializes in matching house buyers and appropriate mortgage lenders, normally collecting their fees from the lender. Be sure to check out government-subsidized mortgages, which have no down payment and low down payment plans. Also, ask banks and other private lenders about any “first-time buyer” programs that offer low down payment plans and flexible qualifying guidelines to low- and moderate-income buyers with good credit.
Finally, don’t forget private sources of mortgage money — parents, other relatives, friends, or even the seller of the house you want to buy. Borrowing money privately is usually the most cost-efficient mortgage of all.
Government Home Loans
Several federal, state, and local government financing programs are available to homebuyers. The two main federal programs are:
VA Loans
U.S. Department of Veterans Affairs (VA) loans are available to men and women who are now in the military and to veterans with an other than dishonorable discharge who meet specific eligibility rules, most of which relate to length of service. The VA doesn’t make mortgage loans but guarantees part of the house loan you get from a bank, savings, and loan, or other private lender. If you default, the VA pays the lender the amount guaranteed. This guarantee makes it easier for veterans to get favorable loan terms with a low down payment. For more information, check the VA’s Website at http://www.va.gov or contact a regional VA office for advice.
FHA Loans
The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), insures loans made to all U.S. citizens and permanent residents who meet financial qualification rules. Under its most popular program, if the buyer defaults and the lender forecloses, the FHA pays 100% of the amount insured. This loan insurance lets qualified people buy affordable houses. The major attraction of an FHA-insured loan is that it requires a low down payment, usually about 2% to 5%.
Comparing Home Loans
You can save real money if you carefully shop for a mortgage. Everything else being equal, even a one-quarter percentage point difference in interest rates can mean savings of thousands of dollars over the life of a mortgage.
In addition to comparing interest rates, there are a variety of fees — and fee amounts — associated with getting a mortgage, including loan application fees, credit check fees, private mortgage insurance (if you’re making a low down payment), and points. Since points comprise the largest part of lender fees, it’s important to understand how they work: One point is 1% of the loan principal. Thus, your fee for borrowing $250,000 at two points is $5,000. There is normally a direct relationship between the number of points lenders charge and the interest rates they quote for the same type of mortgage, such as a fixed rate. The more points you pay, the lower your rate of interest, and vice versa.
