There are many mortgage and construction loan lenders. If you have good credit, a good work record and sufficient income most of them will write you a loan. You will be able to pick and choose between lenders based on their rates and their services. Loan officers and mortgage brokers are like all other types of salesmen. They are eager to write you a loan because they get a commission. If you do not have good credit and a good work record, most of the reputable loan officers and mortgage brokers will not write your loan application. Even if they do help you to fill out a loan application, it is likely that the lending institution will turn down your loan, unless it is a loan with less than favorable conditions and a high interest rate.
Not Ready for a Mortgage?
There are plenty of less than reputable companies who might give you a loan, ready or not, but they will not be doing you a favor. If you are not financially prepared, the worst thing they could do to you is give you a loan. If you aren’t financially ready the lending institution charges more interest, you may have to pay mortgage insurance and there is a likelihood that you will be unable to pay.
Lending companies have rules to define who can borrow and who cannot, and exactly how much they can borrow. These rules are based on decades of statistics on what types of situations lead to loan defaults. Lenders want people to be able to pay off their loans. They do not want you to default, or get behind on your payments, so most companies abide by the optimal rules. Some companies however, do make high risk loans at a higher interest rate or with government mortgage insurance to protect them in the event high risk borrowers can’t pay. These loans mean even higher payments for people who can least afford it. These types of loans can be a recipe for disaster. It is far better to get your finances under control before buying a home and also to buy or build a home you can afford, even if it means compromising on what you want.
Become financially prepared before you go to the loan office. It takes most people well over a year of saving and paying off bills to prepare for a loan. Almost no one qualifies comfortably without this sort of preparation. You should have a credit score of at least 750 and be free of other debt including car payments, furniture payments, credit card debt, old medical bills, and various old debts you may have forgotten. Become accustomed to paying all your utility bills before the due date and put tens of thousands of dollars in savings. You must have held your current job for more than one year, or two years if self employed. You should have enough income that one quarter to one third of your monthly income would equal a house payment. If you have all these things, then you are prepared to apply for a mortgage. If not, then you should wait and get your finances in order before applying in order to get a better loan.
Lending institutions can be disreputable, even the biggest banks in the nation. There are a host of practices that you should be on the lookout for. There are several types of banking policies that could put you at a disadvantage. Until a couple of years ago, many people did not think of these things, but considering the situations that have arisen during the banking crises is it important to look at the downside of getting a loan.
Your loan company will almost certainly sell your loan to another company. There are only a few credit unions and small banks that make portfolio loans. A portfolio loan is one held with the lending institution you originally made it with. A portfolio loan however is only preferable if you know and prefer the lending institution over random chance. Finding a portfolio lender on line is not necessarily better than allowing your loan to be sold. Some credit unions and small banks keep their own loans. It might be a good idea to borrow from them if their rates are comparable.
Just last year America learned that any lending institution could foreclose on a borrower who had paid their payments for absolutely no reason at all. Most people were shaken by this discovery. Be sure to research your lender, even though they may resell your loan, to find out if the people they normally sell to are among those who foreclosed unjustly. Also while some of the larger banks do not resell their loans, they are among those who did foreclose without cause.
ARM stands for adjustable rate mortgage. If you agree to an adjustable rate, your payment can go up without notice. This can be especially vexing if the payments are too high for you already. Further if the FED looses control of artificially held down interest rates, you could be in real trouble. In the 1980s interest rates suddenly went up, leaving people with ARMs facing 15 to 18 percent interest. Fixed rate mortgages make more sense, but they are even more likely to be sold than ARMs. Why? Because the bank doesn’t want to their money lent out at less than prime, if the rates ever go up.
Long term mortgages put the borrower at an extreme disadvantage. They are enticing because they allow people to borrow more than they could on a 15 year loan. Unfortunately though, ten years into a 30 year loan, your equity will be less than $10,000. With a 15 year loan, the home will be almost paid for in ten years. Thirty year loans are designed to generate interest for the bank, not pay off your home. Over the course of a 30 year loan you will pay interest equally nearly the entire cost of your home. A 15 year mortgage is much more sensible than a 30 year loan, even if it means you must build a smaller home.
Lending institution policies are designed to earn interest as profit for the corporation. It is their intention to offer loans to people who are a good risk. If they make high risk loans then they want a higher interest rate to better compensate them for the risk. It is all based on averages, so that if one high risk loan defaults, another high risk loan will be paying enough to cover their loss. For this reason it is best to form good financial habits, clean up your credit score and save your money before applying for a loan. For more information on mortgage and construction loan lenders, download our 98 page free book and read the other articles on this site.