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Mortgage Basics  Chapter 2: How mortgages work
You can get a mortgage in many places, but they all share the same characteristics.
 
   
How mortgages work

Which type of lender is right for you?
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Risks of a mortgage broker:
Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: know the loan process and ask questions.
Professional oversight: Unlike mortgage bankers, mortgage brokers are not subject to licensing and regulation in all states.

Banks, thrifts and credit unions
Most financial institutions offer a limited menu of loan products just as mortgage banks do. They typically hold mortgages in their portfolios or sell them on the secondary market.

Home builders and real estate agencies
Many large home builders and real estate agencies now own their own on-site mortgage company to make it easier to buy their properties. These affiliated companies may operate as a mortgage banker or broker.

Internet lenders
Mortgage lenders have proliferated on the Internet in recent years, offering fast, easy loans at competitive rates. Some are online channels of brick-and-mortar financial institutions or mortgage brokers, others are Internet-based banks or brokers.

Which lender is right for you?
Depending on your credit history and circumstances, you may benefit by using one source of mortgage loans over another.

Which lender is right for you?
What kind of borrower are you? Best source to shop

Tips for working with lenders

  • Get recommendations: Ask friends and family members for suggestions, especially if they've recently obtained a loan.
  • Check credentials: Mortgage bankers are regulated by either your state's department of banking or division of real estate. Check with the one appropriate to your state to see if a lender is in good professional standing. Mortgage brokers may be state regulated or not. If not, check with the local chapter of the National Association of Mortgage Brokers or the Better Business Bureau to see if their record is clean. The Library of Congress has a good index of state and local government Web sites.
  • Do your homework: Learn about typical mortgages and ask questions when something looks amiss; a broker may be trying to pad closing costs or other fees at your expense.
  • Take care online: There are plenty of attractive deals online, but first make sure you're dealing with a reliable broker or lender.
  • Extra care during peak season: Unscrupulous lenders and brokers are more apt to quote you bogus rates or slip in extra costs during peak home buying season, in hopes you won't notice.

-- Posted: May 1, 2006
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