Mortgages Overview
Mortgages Resources
A mortgage is a document that a borrower signs when a loan is made on a property giving the lender the right to take possession of the property if the borrow does not pay the loan off as agreed. In other words, the loan is secured by the property. A mortgage can be entered into at the time of purchase of a property, or later if a loan is taken out later, such as a home-equity loan, or if there is a refinancing.
There are many lenders and choices in obtaining a mortgage so it is wise to comparison shop and negotiate the costs and terms involved. Before shopping, consider the goals of the mortgage. For instance, if the borrower plans to sell the property after a short period of time, an adjustable rate loan might be a better option than a fixed rate loan. Lenders will usually provide a better rate for those with larger down payments. So consider, the total amount of the loan, the down payment, the length of term of the loan.
Mortgages are available from a number of different types of lenders including commercial banks, mortgage companies, thrift institutions and credit unions. You should contact several lending institutions to compare their various offerings.
Mortgage brokers can also arrange for loans but they do not lend the money directly. The mortgage broker has access to a wide selection of loan products but there are also fees involved in paying the mortgage brokers for their service. If you plan to contact a broker it is a good idea to contact several just as you should contact several lending institutions in doing comparison shopping.
It is not always clear whether you are dealing with a broker or an agent of a lender. Be sure to ask and find out because brokers are generally compensated with a fee that is in addition to the lender's fees. So it is important to find out what fees will be involved in addition to the rates you pay on the loan and the origination fees.
In comparison shopping, obtain the following information from each lender or broker:
Rates - Find out what the current rates are and whether those are the best rates available. If you have strong credit or plan to make a large down payment, inform the lender because these attributes usually translate to better rates. Find out whether the loan is fixed or adjustable. An adjustable rate loan will change so payments could go higher. Consider whether you will be able to afford the rate going higher. With an adjustable rate loan find out whether there is a fixed period before the time when the rate will adjust and if there is a fixed period how long will it last. With an adjustable loan, also find out what index the rate is attached to, how often the rate is re-calculated, whether the loan amount will go down if the rates go down and if there is a cap on the rate. In addition, learn about the annual percentage rate (APR) of the loan. The APR includes other factors besides the internet rate including broker fees, points, and certain other credit charges, expressed as a yearly rate.
Fees - Find out about additional fees involved. Mortgages may include a number of fees such as underwriting fees, loan origination fees, transaction fees, broker fees and closing costs. Obtain an estimate of fees from each lender or broker, and get an explanation if you do not understand a certain fee. Like other aspects of a mortgage, fees are often negotiable.
Points - Each point is one percent of the loan amount. These are fees paid to the lender. They are often linked to the interest rate. For instance you may be able to get a lower rate by paying points. In deciding whether to pay points to reduce the loan rate, consider how long you plan to hold the property.
Down payment - Find out what down payment is required. You can usually get a better rate with a higher down payment because there is less risk involved for the lender. Along the same lines, having a lower down payment increases the risks, and if you are going with a very low down payment, the lender may require Private Mortgage Insurance (PMI), which adds an additional cost to the loan. If PMI is a loan requirement, then find out what the total PMI cost will be, and how long it is required for your loan.
Rates change daily so it could be hard to compare apples to apples when contacting one lender on a Monday and another on a Friday of the same week. Doing research online around rates before contacting the lending companies can be helpful. This can also help you gage whether rates are changing from day to day.
The Equal Credit Opportunity Act (ECOA) protects consumers from discrimination during the lending process. ECOA forbids lending institutions from discriminating against credit applicants in any aspect of a credit transaction on the basis of color, race, religion, gender, national origin, age, marital status, whether all or part of the applicant's income comes from a public assistance program or alimony, or whether the applicant has exercised in good faith a right under the Consumer Credit Protection Act.
If you suspect you have been a victim of discrimination during a credit transaction, you may want to contact the state attorney general to determine whether complaints have been filed against this lender. If you let the lender know that you are aware of the law and believe you have been discriminated against, they may realize an error or reverse their initial decision. You may want to contact an attorney to help fight for your rights. If you win a case in district court, you can recover damages in addition to court costs and attorneys fees. If you are denied credit, the lender is required to provide you with the contact information for the appropriate agency. Not all of the government agencies resolve individual disputes, however reporting violations helps them agencies determine which lenders to investigate.