Your Financing Option and Loan Source

From Buyincomeproperties.com

Mortgages
Your Financing Option and Loan Source
By
Feb 22, 2006, 10:29

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.