Shopping for Mortgages
Written by Dongmiao Cui   


After understanding all the terms that are mortgage-related, it’s time to go shopping for a mortgage. This is a very important step because choosing a “right” mortgage will save you a huge amount of money. There are a lot of lenders out there and offer all different kind of deals. Make sure to spend enough time “shopping around” and comparing all the rates, fees, and other variables that directly affect your mortgage loan. It’s also important to pick a lender with good credibility.


Where to Look for Mortgages

Banks, credit unions, savings and loans, insurance companies, and mortgage bankers are all popular sources for mortgages:
  1. Mortgage Brokers
Mortgage brokers provide the funding source for more than half of the real estate loans in the United States. They are responsible for helping more borrowers obtain loans. They usually have access to a large number of mortgage providers. Sometime borrowers are in special situations, such as having damaged credit or looking for an unusual type of loan. In these cases, mortgage brokers become a valuable source since they have a list of many lenders with different specialties and conditions. 
  1. Mortgage Bankers
Mortgage bankers may represent more than one bank and they provide loans that are funded by the bank. The bank sets the fees and therefore they are generally not negotiable. Loan products are also limited to what the bank can offer.
  1. Commercial Banks
Commercial banks such as Bank of American and Wells Fargo offer a broad collection of mortgage loans and services. The bank rates are competitive. To attract customers, banks may offer discount or other incentives on your loan, especially if you already own accounts in that bank.
  1. Savings & Loan Associations
Savings & Loan Associations take deposits from their customers and put them into money market accounts. Their businesses primarily focus on making real estate loans. In particular they provide loans for home purchase, improvement or construction. The advantage of applying loans from Savings & Loan Associations is that it is generally a little easier to obtain the loan from them than from commercial banks.
  1. Credit Unions
Credit Unions are formed by a group of individuals sharing a common interest. They typically offer competitive terms and interest rates. Many of them do not sell their mortgage loans to the secondary market.
The Shopping Process

These lenders are in a competitive business, and if you have good creditability, they all want to do business with you. To take advantages of your role as a customer, you can follow the following steps to obtain good deals:

Step 1: Put Your Finances In Order

Before you start shopping, the first and foremost step is to clear up your finances. You want to get your credit report and check your credit score. If possible, you might want to plan a few months ahead to allow enough time to correct error on your credit report. To find out how to check your credit score, dispute error and avoid multiple hard credit inquiries, please check out our Credit Report Category.

Step 2: Contact The Lenders

You can start your shopping process by contacting all the lenders to briefly explain your situations and describe your expectations. You can meet their representatives or managers in person or speak with them on phone, or even write them emails, however connects you and your lenders faster. You can emphasize that you are choosing ONE LENDER among all of them, and ask for a deal that they are willing to offer. Your prospective lenders would possibly deduct some charges or waive some fees “just for you,” once they realize the competitive situation.

Step 3: Seek Professional Helps if Possible

Most of the people have never had experience getting a mortgage, so searching for some professional helps from Mortgage brokers or Real-Estate Agents is recommended. In addition to mortgage brokers, as introduced in the previous section, Real-Estate Agents also play a major role in introducing their clients to lenders. Since their job is to sell houses and bring convenience to their clients, they often have more desirable contracts in the mortgage industry.  In fact, many homebuyers rather take a real-estate agent’s recommendation instead of spending time shopping for loans.

Step 4: Obtain Key Information

During the “shopping” process, make sure to obtain all important cost information, such as rates, points, and fees. First, we should ask each lender and broker for a list of its current mortgage interest rates and understand whether these rates are fixed or adjustable. We also need to know about the loans’ annual percentage rate (APR) because APR takes into account not only the interest rate but also points, broker fees, and other charges that you may be required to pay, expressed as a yearly rate. When you ask about points, make sure these points are quoted to you as a dollar amount, rather than some decimals or percentages, so you will know how much you actually need to pay.

A home loan often involves many fees, such as loan origination fees, broker fees, and transaction, settlement, and closing costs. You will usually receive an estimate of fees from lender or broker. Some fees are paid when you apply for loan; others are paid at closing. However, not many people are aware that many of these fees are negotiable. Careful borrowers would ask for an explanation of any fee that they do not understand.

Step 5: Fill Out The Application

When you have picked a lender, it’s time to fill out the loan application. While filling out the application, you should expect to provide the following information:

Personal Information: SSNs, age, years of schooling, marital status, current address, phone number. You need to prepare your former addresses for up to 7 years if you have lived at your current address less than 2 years.

Employment History: your job title/position, company’s name and address, salary, duration of the job. All the history should be at least two year.

Sources of Income: Recent paycheck stubs, Federal W-2 forms for two years. Records of dividends and interest received from investments. If you have other special sources of Income, such as social security payments or child support, you must provide adequate proof of these sources as well. All the information from employment history and sources of income will be verified after the loan officer have you signing a Verification of Employment (VOE) form.

Personal Assets: All bank accounts, current market values of stocks, bonds, CDs, and all other investments. To verify this information, the loan officer will ask you to sign Verification of Deposits (VOD) form.

Personal Indebtedness: Current bills, loan, debt’s account number, monthly payment, remaining balance of all the debts. These debts include automobile loan, credit card balances, and other existing mortgages.

Sometimes the underwriter is not satisfied with the documents provided, so additional documentation and conditions may be imposed. This step is called Stipulations.


When Your Job Is Done, What Happens Next?

After you submit the application along with all the documentation, the information will be evaluated in the lender’s loan processing department. After that, it goes to the underwriter that decides whether or not to approve the loan.

Approximately within three business days after submitting the application, you will receive a Good Faith Estimate of the anticipated closing costs. This estimate must include an itemized list of fees and costs that cover all the expenses associated with a home loan, including inspections, title insurance, origination fees, and escrow reserves (To have the full amount saved for you when time come to pay your property taxes, lenders will forward the tax payment on your behalf. This proceeding is called escrow reserves). Remember: the Good Faith Estimate is only an Estimate! The final closing costs may be different.

Later, you will be receiving a Truth-in-Lending Disclosure statement. And this document tells you exactly how much and how long you need to pay your monthly payment. This statement is designed to protect consumers in credit transactions, by requiring clear disclosure of key terms of the lending arrangement and costs.

After the lender has approved the loan, you will receive a Commitment Letter, which states clearly the terms of the loan and the length of time for which those terms are offered. This is the final legal process of the settlement of the loan. If you accept the commitment, you should return a signed copy to the lender within five to ten days. And people pay part of the origination fees at this time. Even though the whole process from Good Faith Estimate, to Truth-in-Lending is smooth, you still have to read the commitment letter carefully and make sure you do understand all the terms and be satisfied with the conditions.

Once the commitment letter has been received, you are assured the financing you need to complete the purchase of your home!
Last Updated on Wednesday, 22 December 2010 05:10