A home loan is most likely the largest amount of money you will ever borrow for the biggest asset you will possess. Finding the perfect loan for your financial situation deserves careful consideration and research.

THE BASICS

1. Only borrow the amount you need and can afford to repay. Some lenders (typically labeled predatory lenders) may encourage you to borrow more than you really need, so be clear on how you will use the money and how you will repay it. There's no need to take on more debt than necessary.
   
   
2. Know exactly how much the entire loan will cost. Review the payment schedule and figure out how much you will have paid in total at the end of the loan. Avoid balloon payments that require one large payment at the end of a typically short loan life with lower monthly payments: It is very difficult to pay this sum and can put you even deeper into debt.
   
   
3. Be sure the loan fees are reasonable. Loan fees should be no more than 5 percent of the loan amount, unless you are paying more for a lower interest rate.
   
   
4. Read the entire loan document - recruit help if necessary. No matter now tedious the task may seem, it is imperative to take the time to read the document to be certain you understand all the language and its relation to you. If anything is confusing to you, it is the lender's responsibility to explain it. If they do not, find one who will. Consider asking a trusted lawyer or other knowledgeable party to explain the information.
   
   
5. Do not sign a loan you can't afford. It's you who makes the payment and you who pays the consequences should you default, so look out for your best interests. If you sign for a loan and subsequently realize it is too much, you have a legal right to rescind that contract when your home is used as security for a home-equity loan. You must do so in writing within three (3) business days of signing your loan documents.
   
6. Do business with a certified, experienced loan officer. The best way to avoid predatory lenders is to establish a relationship with a mortgage professional that has access to multiple choices that can be tailored to individual needs and delivered at competitive pricing. Make sure that your loan officer has the credentials and experience. Also, research the company and its history to make sure that it is a reputable organization.
   
   
7. To consolidate your debts into a home-equity loan, discuss your options with a local non-profit housing or consumer credit-counseling agency first. They can help you sort through your credit payments to determine if you need to consolidate or not. If consolidating is your best choice, these agencies can help you find the best options.
   
   
8. Be aware of any "extras" attached to a loan that you may not want or need. These may include unnecessary costs such as prepaid single-premium credit life insurance. Be wary of a lender who includes these as a "requirement" to get the loan. It isn't necessary, so proceed with caution.
   
9. Be sure you understand everything in your loan before you sign it. Even if something is "standard" but you don't understand it, ask for a complete copy of the loan and ask your loan officer to explain the unclear aspects to you. You may want to get a second opinion of the loan's terms before you sign. Educate yourself in loan terms to make an informed decision.
   
   
10. Fill in all blank spaces. Even if this means entering N/A (not applicable), this may protect you from someone who fills in the empty blanks and has you agreeing to terms you aren't aware of. It's not the norm, but it does happen.
    
    

1. FHA (Federal Housing Administration): FHA loans have helped people become homeowners since 1934.  The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal.

• Low down payments
• Low closing costs
• Easy credit qualifying

2. VA (Veterans Administration): Loans can be obtained with no down payment.

Special Government Projects

1. State-Sponsored Programs: vary from state to state. In California, for instance, veterans may qualify for a Cal Vet low-interest-rate home loan program (http://www.cdva.ca.gov/calvet/default.asp).
2. Local Government Programs: Sometimes local government entities offer low-interest-rate mortgages, usually backed by public bond money, to help make housing more affordable for low-income or special-circumstance homebuyers. For instance, the charity corporation AmeriDream offers down-payment gifts to qualifying applicants in the Washington D.C. area affected by the October 2002 sniper attacks (http://www.ameridreamcharity.org). It pays to do your research.
3. Conventional Programs: These include first and second mortgages; fixed, adjustable, and graduated-rate mortgage; single and multi-family mortgages; or cooperative mortgages.

"B", "C", & "D" LOAN MARKETS
(Conventional programs: Non-conforming; Portfolio lenders: Own underwriting guidelines)

MBS (Mortgage-Backed Securities)

Federal Government-Sponsored Enterprises

1. FNMA (Fannie Mae) - Federal National Mortgage Association: Formed by the U.S. Government in 1938 to provide funds for FHA, VA, FmHA, and Conforming Conventional loans. Also supports a secondary mortgage market through pass-through securities. It is federally charted and privately owned, but its corporate guarantee is not fully backed by the U.S. Government. Fannie Mae guarantees timely payment of principal and interest to its investors.
2. FHLMC (Freddie Mac) - Federal Home Loan Mortgage Corporation: Established by Congress in 1970 to provide funds for FHA, VA, FmHA, and Conforming Conventional loans.  It maintains a secondary mortgage market through Savings and Loans, Commercial Banks, and Mortgage Bankers. Freddie Mac's mortgages are purchased with securities, which the institution may either sell or borrow against. Like Fannie Mae, it is federally charted and privately owned, with its corporate guarantee not fully backed by the U.S. Government. It does guarantee timely payment of interest, but the principal is paid when received, and there is no guarantee of when that might be.
3. GNMA (Ginnie Mae) - Government National Mortgage Association: Created by Congress in 1968 to break away from Fannie Mae (FNMA), it provides funds for FHA, VA, and FmHA. Ginnie Mae is part of the U.S. Government (under HUD) and guarantees pass-through securities backed by government loans, with the full faith and credit of the U.S. Government. It also guarantees payment of principal and interest in a timely manner to investors.

Private Conduits

There are also private conduits that:

• Create private MBSs
• Fund conventional, non-standard, or jumbo loans
• Invest institutional and depositors' funds directly into mortgages
• Offer no government backing

Examples include MAGIC and Residential Funding Corporation (Solomon Brothers).

Portfolio Lenders

• Savings and Loan Associations: write about half of the single-house and condominium mortgages in the United States, which is their principal business. They are also the principal lenders of adjustable-rate mortgages and other alternative mortgages. S&Ls lend as much as 95 percent of a home's appraised value, assuming income and other factors meet with their standards.
• Commercial Banks: are the second-largest mortgage underwriters.  They typically require larger down payments than S&Ls - usually 25 percent or more; it's also helpful if you are a long-standing customer. FHA and VA loans require smaller down payments, but many banks refuse to write these loans because of the red tape involved.
• Credit Unions: Often overlooked, these are excellent sources for mortgages. Credit unions are nonprofit cooperatives for people employed in the same industry or with some other common bond. Nearly 58 million Americans belong to a credit union. As nonprofit organizations, they can offer lower down payment requirements, lower interest rates, and lower closing costs. They are also a good source of second mortgages. If you belong to a credit union, begin your shopping there. However, not all credit unions offer mortgages and most that do offer a limited assortment.
• Mutual Savings Banks: Mutual savings banks, similar to Savings and Loan associations, exist for the mutual benefit of their depositors. These institutions, which invest most of their assets in mortgages, exist in 17 states: Alaska, Connecticut, Delaware, Indiana, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin.
• Portfolio Lenders: A lending institution that retains rather than sells its loans is known as a portfolio lender. Because they don't have to worry about selling their loans to investors, their loan requirements are somewhat more flexible than those of secondary-market lenders who must toe the secondary market's underwriting line. Portfolio lenders often charge a higher rate for their loans.

 Mortgage Banks

Despite their name, these banks do not accept deposits. They are financing companies that offer mortgages, which in turn are sold to large institutional investors, such as FNMA (Fannie Mae), FHLMC (Freddie Mac), GNMA (Ginnie Mae), pension funds, and life insurance companies. The advantage is that a mortgage bank is the underwriter and the direct source of funds, making it a single-source lender.

Mortgage Brokers

Mortgage brokers serve as an intermediary between you and the lender. They are especially helpful to borrowers in some of these situations:

• Self-employed, whose income may be considered unreliable
• First-time buyers without a long work history
• Borrowers with past credit problems
• Marginal borrowers turned down by a direct lender
• Borrowers too busy to shop for low rates

Because they work with several lenders, mortgage brokers can locate the best loans and rates in your area. They usually have access to a multitude of loan products and can frequently arrange financing that would not available to a homebuyer working on their own. Many lenders that work with mortgage brokers will not accept loans directly from an individual buyer. When you go with a mortgage broker, they will package a loan that is acceptable to a wide number of lenders and their programs. A broker can even pull your loan package from the fixed rate lender and submit it to a lender with a lower interest rate adjustable loan program within a matter of hours.

However, they do not have direct control of the approval process or the funding of the loan. And not all mortgage brokers handle FHA or VA loans; for these low or no down payment mortgages, you may have to approach mortgage bankers or Savings and Loans yourself.

Also, mortgage brokers work on commission, with the lender sharing a portion of the points with the broker who originates the loan. Mortgage brokers generally cost no more than direct lenders.  Not all brokers are independent; some are subsidiaries of a specific lender and route all their business to one source.

You may occasionally encounter the bait-and-switch technique in which you are lured in with the promise of a mortgage with very attractive terms.  At the last minute you are informed that the loan is no longer available, leaving you with whatever loan is available - usually one with unaffordable rates. Don’t feel obligated to accept this less than desirable alternative, search elsewhere. Most brokers will steer you in the right direction.

Sometimes a realty agent will recommend a broker they know well. This is acceptable as long as you understand that under federal law, it is illegal for them to receive any monetary compensation or kickbacks in exchange for that referral.

Consider seeking the services of a mortgage professional if you do not already have an established relationship with one.  Make sure that your loan officer has the credentials and experience to help with your selection and has access to multiple choices that can be tailored to your individual needs. Also, research the company and its history to make sure that it is a reputable organization.

Alternative Sources
Builders and Developers: New-home builders usually reserve large sums of money at local lending institutions and make them available to their buyers. Because the builder is bringing a bulk of business to the lender, their banks offer terms that can be quite attractive.
You can also research the following sources for mortgage programs:

• Pension funds
• Labor unions
• Fraternal organizations
• State housing finance authorities
• Local mortgage revenue bond programs
• Insurance companies

• Note: The promise to pay.
• Trust deed/mortgage: The instrument that liens the real estate, securing the note.
• Loan amount: The amount you are borrowing.
• Mortgage payment: The amount you will pay each month, which includes:
  - Principal: A portion of the amount you borrowed.
  - Interest: The interest rate or price of the loan.
  - Taxes: A portion of your property taxes.*
  - Insurance: Property insurance.*
  
  *Impound account is usually required on FHA, VA, and high loan-to-value conventional mortgages.

These following items are usually known by the acronym PITI. In most mortgages, principal and interest - remain the same for the life of the mortgage, while taxes and insurance - usually go up.

Interest Rates

Interest rates determine the size of your monthly payment. The exact rate you pay is influenced in part by:

• The size of your down payment
• The length of the loan term

As a rule, the bigger the down payment you are able to make, the lower the interest rate. For example:

• Make a 10 percent down payment, expect an interest rate ¼ to ½ percent higher than if you put down 20 percent or more.
• Rates on a 15-year mortgage are usually a bit lower than those on more conventional 20-year loans, because shorter terms put the lender at less risk.

The interest rate is expressed as an annual percentage rate, or APR. This figure includes service charges, points, PMI, and any other costs associated with the loan. Federal law requires that when you receive a loan, you should to get a statement indicating the APR. When you apply for a loan, request the APR.

Buy-Down

The goal of a buy-down is to make a home mortgage affordable for a borrower who is having trouble meeting the lender's standard qualification ratios. This is accomplished, in effect, by "buying down" the borrower's rate for a certain period of time. Some advantages are:

• Each additional dollar applied to buy-down (after covering the down payment and closing costs) can have a greater impact than if applied to the down payment.
• Buy-down can provide for a lower start rate, much like a GMP.
• During a seller's market, builders use this technique to attract buyers.