bluecollardollar: on buying a home, part two

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The first part of this series took us through the first steps toward the purchase of a home. But as you can only imagine as with anything to do with money, the journey only starts there. We are taking a "baby steps" approach to owning a home. For the next three weeks we will bring you the everything you need to know but couldn't find about home ownership.

Especially now that you are looking at homes.

After your qualification, it is time to start looking for a lender.

There are basically three types of lenders which you may come in to contact with. The most important thing to remember here to help you differentiate between them is the "closing costs". We will get to that.

The first type of lender is a mortgage banker. These institutions are not really bankers at all. they do nothing but lend money for homes. NO other types of loans or banking services such as checking or savings is available. What they do is simple. They have a line of credit which allows them to lend money. When they do close the transaction, your loan is sold. This is not a bad thing. The terms that you have agreed upon are still in force and will last for the life of the loan. They sell your loan only because they need to have that money available to lend to the next person down the line. Profits in this kind of transaction are made form fees and anything they can gain form the sale of the loan. Again, this does not have any effect on you the borrower. The advantage in using a mortgage banker: they might be able to help you in a tough to get a loan situation and they might be better able to time a tricky market.

Mortgage Brokers on the other hand have no money to lend themselves. They act as a conduit between you and the lender. These are the ones you hear most advertised. The ones that can find you four offers in minutes. Not a bad idea id your particular situation is pretty straight forward. They act as a lender's super market, and having offers to chose from from many different lenders is kind of a cool idea. But remember that you are dealing with a middle man who has laid out different offers for you. The flexibility you may need in this process is limited.

Banks, Savings and Loans, and the big National Mortgage Companies also sell mortgages. But they have different reasons for doing so. There is the selling of mortgages by these lenders just like the mortgage bankers I just mentioned, but some times they keep these loans grouped together as large securities that are sold to investors. Banks and S & L's act as the collection point for the fees and the payments and by making sure that property taxes have been paid. This is often tied directly to your payment. This bundling of loans often results in relatively poor customer service should your loan have problems.

Understanding Points.

Points are the cost of obtaining the loan at a certain interest rate. A point is simply a percentage of the cost of the mortgage. Do not confuse the mortgage amount with the sale price or what the home's appraisal value is. At this juncture in the loan you can buy these points down and this can be a good idea if you plan on staying in the home for a long time. If not, here is a simple calculation to help you figure the pay off period's break even point.

Each point has a dollar amount. Divide that dollar amount by the payment on a no point loan less the payment on the same loan with points. This will give you the break even answer in months. Costs of the points divided by (payment with less payments without the points) = the time the points would have been paid off. If the time you estimate in the home will be short term, then paying points may not be the best option.

There are certain fees that you can dodge. remember, you are the customer, and you should act like one. They have overhead costs that they would like to pass on to you in the form of processing fees, underwriting, wire transfers, funding.

And there are certain fees that you can't dodge. Application fees usually take the form of appraisal fees and credit report fees. This is a cash up front deal, and it is a good idea to have an idea of how your credit report stands up to scrutiny. They will not take your copy of the report, and you will be asked to explain any oddities about the report. Beware having the report checked too often. Each check of your credit history shows up and will be probably be the subject of a question or two should it have been checked a lot recently. These fees generally don't exceed $400 and should be, by law, applied as part of the application fee before they have secured financing for you.

If things are square with your credit and employment, then you can shop among all types of lenders for the best deal that suits you. But if things are a little sketchy or unstable in your application, a bank or a broker might be better able to help your situation.

Next up, agents and homes...