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Unless you plan on using your own money to purchase your home, you are most likely going to want to borrow money from a lender and spread payments to the loan out over a period time. With the advent of the Internet and a volitle mortgage market, there is a wide variety of loan options to choose from. As your representative in the process of buying your home, it is my responsiblity to guide you down the best possible path throughout the process.

Choosing a Lender

Commercial Banks
Commercial banks offer attractive loan terms, particularly if they evaluate their entire banking relationship with you. Some commercial banks have their own real estate lending departments and will service your loan. Other commercial banks sell their loans to Fannie Mae and Freddie Mac, two major government-sponsored enterprises (GSEs) that specialize in buying residential loans from lenders.

Mortgage Bankers
Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. They often receive a fee from these investors for servicing your loan. Loan servicing includes collecting monthly payments, sending out loan statements, and collecting late payments.

Mortgage Brokers
Mortgage brokers circulate, or 'shop,' a loan application among lenders to find the most attractive terms for the borrower. In exchange, a lender pays the broker a fee.

Homeowners
You may find that the current homeowner is willing to offer financing in exchange for selling the home. This means that the seller becomes your lender. A common means of financing is for the seller to accept a note. A note requires you to make monthly payments to the seller instead of a bank or other lender.

Credit Unions
Since credit unions are owned by their members, they are called cooperative financial institutions. Since they are nonprofit institutions, credit unions may offer attractive loan rates to their members. Like commercial mortgage lenders, credit unions sell their loans to Fannie Mae and Freddie Mac to maintain access to new sources of loan funds. The National Credit Union Administration (NCUA) regulates the credit union industry.

When selecting a lender or broker to finance your new home, be sure to do your homework on the company or institution. As interest rates have continued to decline, more and more lenders have appeared in the industry. As rates begin to increase, more and more of these new lenders may go out of business. Always check to make sure your lender is qualified and has the resources to service your note for the life of the loan

Choosing a Loan

There are literally hundreds of lenders offering a multitude of loan options that makes determining the best loan for your situation a complex endeavor. Since you may be making payments on a loan anywhere from 15 years to 40 years depending on the term, it is imperative that you work closely with us in choosing the right lender and loan that works best for you. What follows is a breakdown of the generally available residential loan programs.

Fixed-rate loans
This is a home loan with an ensured interest rate that will remain at a specific rate for the term of the loan. About 75 percent of all home mortgages have fixed rates. One reason for this is that most homes sold are to buyers who plan on living in their property for many years. When you choose the length of your repayment (usually 15, 20 or 30 years), keep in mind that while shorter term loans may have higher monthly payments, they also let you pay less interest and build equity faster.

30-year fixed-rate loan
The most popular loan is a 30-year fixed-rate loan. The reasons include:

• It provides the borrower with reasonable monthly payments.
• It's ideal for the homebuyer who plans on remaining in the home for more than 5 years.
  

20-year fixed-rate loan
The 20-year mortgage often offers a lower interest rate when compared to a 30-year loan. This loan amortizes principal and interest over a 20-year period, 10 years less than the traditional 30-year mortgage. This may save you a considerable amount of total interest when paid over the life of the loan.

15-year fixed-rate loan
The advantage of a 15-year mortgage is that its interest rate is generally lower than a 30-year or 20-year loan. Such a short-term loan will save you a significant amount of interest over the life of the loan. By paying off the loan in only fifteen years, you also build up equity in your home sooner. A 15-year loan allows you to own your home clear of debt much quicker when compared to longer term loans. This may be important if you are approaching retirement or have other large expenses to cover such as financing your children's education. However, the monthly payments you make on a 15-year loan will be significantly higher than those you make on a 30-year or a 20-year loan for the same loan amount.

Adjustable-rate loans
With an adjustable-rate mortgage (ARM), the interest rate you pay is adjusted from time to time to keep it in line with changing market rates. This means that when interest rates go up, your monthly loan payment may go up as well. On the other hand, when interest rates go down, your monthly loan payment may also go down. ARMs are attractive because they may initially offer a lower interest rate than fixed-rate loans. Since the monthly payments on an ARM start out lower than those of a fixed-rate loan of the same amount, you should be able to qualify for a larger loan.

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