There are almost as many sources for mortgage money as there
are types of mortgages. Shop for financing. Closing costs aren't the same at
every lending institution, nor are interest rates the same. A 1 percent
initiation fee or an extra 1 percent in interest can amount to a considerable
amount of money. Each type of lender has its own regulations and preferences in
terms of the size of the mortgage and degree of risk it's willing to take. Some
of these lenders may only loan money for single-family homes or another
specialized segment of the real-estate market. As a rule, it's more difficult to
get funding for commercial and multifamily real estate than it is for a
single-family home. Such properties often carry mortgages with stiffer terms and
higher interest rates.
Savings and Loans
Savings and loan associations are the largest source of
single-family residential financing. They are tied to the immediate local area,
are generally run as smaller operations emphasizing personal contact, and will
make a more knowledgeable appraisal of the property and neighborhood than most
other
lenders. Their mortgages tend
to be made with longer terms and a high loan/ value ratio. They almost always
require a note of personal liability. The loan will probably cost more in fees
and points, be non-assumable, and carry a prepayment penalty.
Commercial Banks
Commercial banks generally extend further than the savings
and loans. They will make a loan at a somewhat higher interest rate. Commercial
banks want your other banking business and may therefore be more lenient on some
features like prepayment. They prefer a shorter term. Commercial banks tend to
be conservative and terms tend to be stringent. For example, nationally
chartered commercial banks are barred from granting mortgages with a maturity
greater than 30 years and an amount greater than 90 percent of the property's
appraised value. Most commercial banks won't go beyond 25 years and 80 percent.
Insurance Companies
Insurance companies prefer to invest in large commercial
development mortgages, often using a mortgage broker to arrange the deal. This
orientation toward larger sums makes them less likely to haggle over a few
hundred dol-lars. If they like your property, you may be able to save
significantly on points, fees, and the interest rate. Competition for these
loans is intense. An insurance company mortgage generally offers the combined
advantages of low interest and long maturity. The drawback is that most
insurance companies require a large down payment. Insurance company mortgages,
when available, are ob-tained mainly through mortgage brokers, rather than
directly through the in-surance company itself.
Mortgage Companies
Mortgage companies are privately owned firms that specialize
exclusively in granting mortgage loans. Terms usually are flexible, but the
interest rate is often a bit higher than at other sources. It's best to avoid
mortgage companies, unless you simply cannot find a mortgage anywhere else.
Mortgage bankers issue mortgages to borrowers. Then they
process and sell the mortgages to large investors or into the secondary mortgage
market. Mortgage bankers generally don't have large cash reserves, but usually
orig-inate the mortgage by borrowing the money for a short time from a com-mercial
bank. Then they sell it in a package to a large institutional lender or to one
of the national federal mortgage corporations. Much of their profits come from
servicing these loans, for which they get a small part of the out-standing
balance.
