Loan Information

Tips on Loan Shopping and Credit Information

Finding a Lender

You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company or various state government lenders.

Shopping for a loan is like shopping for any other important purchase:

You can save money if you take the time to look for the best prices. Different lenders offer different interest rates and loan fees, which can make a big difference in how much home you can afford. Talk with several lenders before you choose one. Look for a lender with financial stability and a reputation for customer service. Be sure to select a company that makes you feel comfortable and that is ready to offer helpful advice.

A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. In addition, it is beneficial if the lender knows home values and conditions in the local market.

Ask family, friends and co-workers who have bought a home recently if they liked their lender. Real estate agents are also good resources because they work with lenders on a regular basis. They are especially discriminating because their livelihoods depend on reputable lenders.

You also can look in the local newspaper’s real estate section; most newspapers list interest rates being offered by local lenders. Once you have compiled a list of potential lenders, you are ready to compare them. First, devise a checklist for each institution. Include the company’s name,contact information, type of mortgage, minimum down payment required, interest rates and points, closing costs and loan processing time.

You can speak with companies either by phone or in person. However, be certain to talk with every lender on the list on the same day, since interest rates can fluctuate daily. Although your primary purpose in talking with lenders is to compare them, you also are trying to find a lender with whom you feel comfortable working with and trust.

In addition to doing your own research, ask your real estate agent if he or she has access to a database of lender and mortgage options. Even though your agent may be affiliated with a particular lending institution, he or she also may be able to suggest a variety of different lender options to you.

Debt control before seeking a home loan:

First, pay off as much credit card and other high-interest consumer debt as soon as possible, even at the expense of saving for the down payment. Pay this off first so that your debt load does not limit the amount you can borrow but do not switch debt from one card to another; that is merely shuffling debt, not paying it off.

Next, do not assume new debt, especially in the 6 months before buying a home. Mortgage loans are based on debt-to-income ratios–the amount you pay out monthly versus the amount you bring in–so new debt could change the ratio and hinder the chances of obtaining a mortgage.

Finally, pay all bills on time.

Credit Score

A credit score is a complex mathematical model that evaluates many types of information in a credit file. It is often referred to as a FICO score after Fair Issac Corporation, the company that initiated credit rating technique. The model generates a score ranging from 300 to 850 that is used by a lender to help determine whether a person qualifies for a particular credit card, loan or service. Most credit scores estimate the risk a company incurs by lending a person money or providing them with a service––specifically, the likelihood that the person will make payments on time in the next 2 to 3 years. Generally, the higher the score, the less risk the person represents.