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If you are not purchasing your home with cash,
you will need to look for a mortgage lender


There are many different types of mortgage financing institutions available to you, as well as many different types of loan products. Each option has its pros and cons. Educate yourself about each of the options so you can make an informed decision. Your real estate agent should be able to provide you with additional information about reputable lenders in your area.
 
Mortgage lender vs. Mortgage broker
The first decision you will make is whether to shop among various mortgage lenders to find the best deal, or apply for a mortgage loan through a mortgage broker who will “shop” for you. A lender has its own portfolio of products, whereas a mortgage broker will have information across a range of lenders and can offer you a variety of products.
 
Types of lenders
There are several types of direct lenders to choose from, including commercial banks, mortgage banks, savings and loan associations, credit unions and online lenders.
 
Commercial bank
Commercial banks often offer the widest variety of services, including checking and savings accounts, mortgages and investments. If you already have an account (such as a checking account) with a specific bank, that is a good place to begin to inquire about mortgage rates, services and closing costs.
 
Savings and loan association
Savings and loan associations specialize in carrying deposits for their customers and making loans for mortgages, auto purchases and business investments. Sometimes, savings and loans operate under shared ownership by the depositors.
 
Credit unions 
Credit unions are owned by their members and are not-for-profit organizations. You often see credit unions associated with specific companies, public employees, professional associations, unions, religious institutions, and government groups. Because they do not have to be concerned about turning a profit for shareholders, a credit union can sometimes offer good rates on loans, even if you are not a member.
 
Mortgage lender
A mortgage lender or mortgage bank is often a non-depository institution. It exists only to arrange mortgages and sell them on the secondary market.
 
Online lenders
Online lenders or Internet banks are electronic banks that do not have traditional branches. Because their overhead is diminished, they can often charge less for loans than traditional mortgage lending institutions.
 
Types of mortgage loans
In addition to finding a mortgage lender, you will need to choose the type of mortgage that makes the most financial sense for you. Each individual has different needs and each type of mortgage has its pros and cons. Your lender will be able to assist you in assessing your situation and advising you on which loan options are available to you. The following is an overview of options that may be available to you.
 
Fixed-Rate Mortgage: This mortgage has a fixed interest rate for a fixed amount of time. This means your mortgage payment would stay the same throughout the life of the loan. Typically, first-time homebuyers opt for a 30-year fixed mortgage. You can choose to pay off your mortgage in a shorter period of time, for instance opting for a 20-year or 15-year fixed mortgage. This would result in higher payments each month, but your mortgage would be paid off sooner, and over the life of the loan you would pay far less interest.
 
Adjustable-Rate Mortgage (ARM): This is a mortgage with a rate that fluctuates at predetermined intervals within a set minimum and maximum rate cap. Rate fluctuations are determined by the changing rates in the marketplace. ARM interest rates often adjust upward, meaning your payment will increase over time as interest rates rise in the marketplace. Ensure you can afford the highest rate cap before choosing from these options.
 
Hybrid ARM: Hybrid Adjustable-Rate Mortgages are mortgages that start out with a fixed rate for a fixed period of time, for instance, one-, three- or five-year periods, then become adjustable after that initial period. For instance a 3/1 hybrid ARM would offer a fixed rate for the first three years and then adjust each year after that. The advantage to a hybrid ARM is that it usually starts out with a lower interest rate than a fixed-rate mortgage, but like a traditional ARM, eventually the interest rate could go up, substantially increasing your monthly payment over time.
 
Assumable Mortgage: A mortgage in which the buyer can assume the existing mortgage from the seller.
 
VA Loans: VA loans are government-backed loans made available to veterans and active service members as a benefit of their service to our country. VA home loans are provided by private lenders, such as banks and mortgage companies, but since the U.S. Department of Veterans Affairs guarantees a portion of the loan, the lender can offer better terms, without requiring a downpayment or private mortgage insurance.
 
FHA Loans: An FHA loan is offered through traditional lenders, but it is insured against default by the Federal Housing Administration. Because the FHA guarantees the lender will be paid back if you default, lenders are more willing to lend to you. The advantage to an FHA loan is that it often requires a smaller downpayment. However, FHA requires the homebuyer to pay a mortgage insurance premium (MIP) upfront, plus an ongoing fee.
 
Visit our loan calculator. If you have additional questions, contact your local North American Title team member.