Unit 3 : Lesson 2: How to shop for a mortgage loan

Step 1. Shopping for a mortgage lender

Many financial groups offer mortgage loans, including commercial banks, credit unions, savings and loan associations, and mortgage companies. When you begin to shop for a mortgage loan, you may want to start by talking to your own bank or credit union. Your real estate agent, your real estate attorney, or friends who are homeowners may also have suggestions. To find out about special loan programs for low- and moderate-income persons, you may also call your local department of housing and community development. Their phone numbers should be listed in the blue pages of your telephone book.

You should also check the real estate section of your local newspaper. At least once a week, most papers have a list of local lenders and their current mortgage rates.

It’s a good idea to contact at least three lenders before making a final decision. You may be surprised at the range of interest rates and the variation of fees charged by different lenders. One lender may be better for you than another, depending on your needs. You should also take into account the history of the lender. Has the company been in business for some time? Does it have a record of providing good and fair service?

On page 79 is a Mortgage Comparison Shopping Chart. It will help you think about questions to ask when you call lenders.

The Millers used a chart like this and chose one day to gather all of the information. First, Mary stopped at her local credit union. She told them she wanted to know about a 30-year fixed-rate mortgage.

John Harris, a credit union representative, told her that with no points the rate would be 7.875 percent. Mary was very impressed with the many special loan programs the credit union offered. Mr. Harris gave her flyers about different programs to take home and read. With private mortgage insurance, they could put just 5 percent down on the house. The private mortgage insurance would be added to their monthly payment. They could make extra payments with no extra charge. Their loan processing time was shorter than some but longer than others at 30 to 40 days. The credit union worked hard, Mr. Harris said, to keep closing costs low. Usually they came out to about 3 percent of the cost of the loan.

Having practiced with her own credit union, Mary was now ready to make calls to other lenders. First, she tried a commercial bank where her sister had a loan. Again, she asked about a 30-year fixed-rate loan. The interest rate from this bank was lower, but she would have to pay 1.25 points. Overall, the annual percentage rate was higher than her credit union’s. The bank said that they sometimes process FHA and VA loans, but mostly dealt with regular or “conventional” loans. Loans usually took 30 to 60 days to process. Closing costs were about 5 percent of the loan.

The third call Mary made was to Fairway Mortgage Company. Its interest rates were lower than the bank’s and the same as the credit union’s. The APR, however, was a bit higher. The closing costs and some other fees, such as the lock-in fee, were a bit high. One advantage of this company, however, was that it could process the loan in less than two weeks.

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