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Choosing a Lender

Knowing what type of mortgage you need should help you choose a lender. Decide what kind of mortgage you want -- fixed rate or variable rate -- and the mortgage term that's right for you -- 10, 15, 20, or 30 years. Now you're ready to start shopping for a lender.

Tips for Shopping
You can save a lot of money by shopping carefully for the best interest rates. For example, saving a quarter of a percent on an $160,000, 30 year mortgage could result in $10,000 in cash savings over the term of the loan.

Of course, you want to find the best price and terms for your mortgage, but it's also important to shop around for customer service and other intangible or hard to quantify aspects of a lender. A mortgage is a huge commitment; you need a reputable lender that you can be comfortable with.

When you've selected some lenders, call each one to ask that information be sent to your home. If they have a Web site, check that out as well. If the finalists have offices in your area, visit them to get a better sense of the company and their willingness to work with you to strike a deal you're happy with.

If you can't visit their offices, call them or send an e-mail with a few questions. Give them a few details about your circumstances and ask what kind of mortgage would be best for you. If they're pushing a loan that's inappropriate for you because it makes more money for them, steer clear.

Once you decide upon a lender to work with, you may want to get prequalified or preapproved. You can often do this right on the lender's website. Once you've received approval and chosen a home, you will then move to the mortgage application. If you are working with a lender online, make sure you get final approval by fax or snail mail. Don't rely on e-mail.

Online Sources
Because interest rates change daily, the Internet is often the easiest way to get current prices-and to take advantage of them. You can compare prices, and even fill out and submit applications from the comfort of your own home. It's also fast: the online mortgage application process takes just 21 to 45 days on average.

You will find broker sites that work with multiple lenders and individual lenders' sites online. You will find more information about the pros and cons of each type of lender later in this article. Some sites, such as Ameriquest.com, do a brisk business as direct lenders, but with the added benefit of doing business online, over the phone, or in one of their nationwide offices.

If you visit one of the hundreds of mortgage related sites on the Web, be sure you're not dealing with a scam artist. Anyone can create a Website with the persona of a large, professional lender. Verify the physical address of the lender or broker you're considering. It also couldn't hurt to contact the Better Business Bureau to see if there have been any complaints.

Compare online lenders as you would any lender: scrutinize interest rates, points, terms and closing costs. But also take into consideration web-specific features such as tools, wizards, types of mortgages offered, discounts and application tracking. Test a lender's customer service department by requesting information or e-mailing questions. Also, be sure to check out the online lenders' security and privacy policies. If they don't have these policies visible on the website, you have reason to be concerned.

Traditional sources
If you belong to a credit union, check its programs. Call your local savings bank & savings and loan. You can often find attractive terms from these and other financial institutions. Banks are another option. These include savings and loans, savings banks and commercial banks. They offer some enticing terms, particularly on ARMs. Commercial banks sometimes offer additional services and various loan packages.

Mortgage Brokers
Mortgage brokers have their pros and cons. They streamline the process by surveying a number of lenders. That saves you legwork and cuts the approval process to about two-and-a-half weeks. But critics argue that you may pay a higher interest rate on a loan that originates from a broker, since lenders often award brokers a premium based on the interest rate. Mortgage brokers are quick to defend their practices. If you decide to work with a mortgage broker, make sure they are reputible and that they take a great deal of trouble to screen their lenders.

Mortgage Bankers
Mortgage bankers concentrate on mortgages. They play a three-way game: borrow money from a bank, lend it to you, then sell your loan to an outside investor. Although this leads to extra fees, mortgage bankers are flexible and offer attractive terms to offset those fees.

Government-Guaranteed Mortgage
You may also qualify for a government-guaranteed mortgage. Fannie Mae, for example, guarantees loans through the Federal Housing Administration and the Veterans Administration. Fannie Mae and Freddie Mac, which guarantees conventional loans to low and middle-income Americans, are private, nonprofit organizations chartered by Congress to provide mortgages. Their interest rates are usually lower than the typical rate, and down payments can be 3 percent or less. You would be required, however, to purchase private mortgage default insurance (PMI) if you post such a small down payment.

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