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A mortgage is a mortgage is a mortgage, right? Wrong! There are many mortgage products on the market now, so it's important for you to do your homework to determine which type is best for you.

The decision to purchase or build a home is a huge consideration, and choosing a mortgage company to assist with the financial aspect is a big part of that consideration. Keeping a few key elements in mind will undoubtedly help make this decision a less stressful event.

What’s the difference?

Direct Lenders vs. Mortgage Brokers

One of the first things homeowners, or prospective homeowners, need to understand is the difference between direct lenders and mortgage brokers. Direct lenders work to encompass all aspects of the home-buying process. They are, for all intents and purposes, lending their own money to the homeowners. They generally make the final decisions regarding a mortgage loan. Mortgage brokers, on the other hand, represent a variety of different lenders and feature various programs.

Finding a “Comfort Zone”

Once homeowners begin the process of buying or building a new home, they quickly realize a heightened stress level accompanies the task. In order to make things a bit less stressful find a lender that you can communicate with freely, you trust, and gives you a certain level of comfort and peace of mind.

How to Choose a Mortgage Lender

You’ve checked and re-checked your budget. You’ve crunched the numbers and know how much house you can afford. You know the difference between interest rate and annual percentage rate (APR). You’re ready to buy a house.

But are you ready to choose your lender? Don’t take your lender choice for granted. Here are some things to consider.

Reputation
There are lots of mortgage companies out there. Just because you’ve never heard of them doesn’t mean they aren’t reliable. However, if you are considering a smaller company, do your homework. How long have they been in business? Are they a member of the Better Business Bureau or the local Chamber of Commerce? If you are considering a larger “brand name” lender, chances are you know someone who has worked with them. Canvas your friends and family: what were their experiences with this lender?

Service
You’re going to be working closely with this company for a while, from application to closing, and beyond. It’s a complex process – you’re going to want to feel comfortable that your lender won’t drop the ball along the way. Once you’ve made contact with a lender, what was your first impression? Were you able to get someone on the phone right away? Did they answer your questions thoroughly and without industry jargon? Did you feel pressured to submit an application before you were ready? At this stage, trust your gut.

Product Selection and Price
Most mortgage companies offer the most popular mortgage products: a 30-year fixed rate and a selection of adjustable-rate mortgages. But product selection is still important. Ask your loan officer how he or she will determine a loan that best fits your needs and circumstances. Once you get a rate quote, it’s a good idea to compare it to your other offers. And once you’ve chosen your lender and submitted an application, pay close attention to the Good Faith Estimate – if it looks incomplete or you find the fees seem very high, it may be a red flag. See our related article on How to Read a Good Faith Estimate.

http://www.getsmart.com/loan-resources/Mortgages/How-to-Choose-a-Mortgage-Lender.aspx

The good, the bad, and the ugly. Sounds like a title for a good movie, but this also fits what has happened in the mortgage industry in the past few years. Many people desired to be homeowners, and that dream was made a reality by the subprime mortgage market. People were put into homes they couldn’t afford all in the name of “the great American dream.” There was a price to be paid, however, because these buyers were granted loans called Adjustable Rate Mortgages (ARMS) that started out with lower interest rates which in turn, reduced the monthly payments. The number of years the rate was guaranteed  was typically 2, 3 or 5 years. When the term expired it went to a higher interest rate which resulted in higher payments. To add insult to injury, the economy cratered and many people have been left unemployed with no way of making their mortgage payments.

How did this happen?

The growth in subprime lending represented an evolution of the credit markets. Two decades ago subprime borrowers would typically have been denied credit, as lenders were restricted by usury laws that prevented them from charging rates high enough to compensate them for the risk. However, the adoption of the Depository Institutions Deregulatory and Monetary Control Act in 1980 eliminated rate caps and made subprime lending more feasible for lenders.

It wasn't until the mid-1990s that subprime lending began to gain speed.  Rising interest rates in the mid-1990s led to declining origination volumes and intense financial competition in the prime market. Adjustable-rate mortgages were heavily sold by mortgage brokers and bankers. Many borrowers looking for low payments eagerly signed the loan papers. The ARM mortgages which offered low introductory interest rates and low payments equaled the “ Land of Opportunity” for some prospective homeowners at that time. Of course, the downside to all the ARMs sold during that time did not become evident until the rates started adjusting and homeowners saw their monthly payments increasing.  What had looked like a great opportunity became nightmares for many.  It's left politicians and lawmakers fighting over who to blame. The word foreclosure has become the current day buzz word. 

What is an ARM?

An adjustable-rate mortgage differs from a fixed-rate mortgage in many ways. Most importantly, with a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.

To compare two ARMs, or to compare an ARM with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps on rates and payments, negative amortization, payment options, and recasting (recalculating) your loan. You need to consider the maximum amount your monthly payment could increase. Most importantly, you need to know what might happen to your monthly mortgage payment in relation to your future ability to afford higher payments.

Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than would be a fixed-rate mortgage for the same loan amount. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage--for example, if interest rates remain steady or move lower.

Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It’s a trade-off--you get a lower initial rate with an ARM in exchange for assuming more risk over the long run. Here are some questions you need to consider:

 Is my income enough--or likely to rise enough--to cover higher mortgage payments if interest rates go up?

 Will I be taking on other sizable debts, such as a loan for a car or school tuition, in the near future?

 How long do I plan to own this home? (If you plan to sell soon, rising interest rates may not pose the problem they do if you plan to own the house for a long time.)

 Do I plan to make any additional payments or pay the loan off early?

http://www.federalreserve.gov/pubs/arms/arms_english.htm

How Do Homebuyers Choose Their Mortgage Lender? I started pondering this question and started doing research.

Before I give you the answers, what do you think are the main reasons people choose a mortgage lender?

Most brokers believe homeowners use the following criteria in choosing a mortgage lender:

Lowest rate/fees

Referrals

Advertising

What are your top three?

The National Association of Realtors mailed out an eight-page questionnaire to 35,000 recent homebuyers. The survey resulted in 2,703 usable responses with an adjusted response rate of 7.7 percent. Customer names and addresses were obtained from Experian.

Here are the results:

75% of all buyers bought their house through a Realtor. 14% bought directly from a builder.

76% of all buyers used only one agent to help them search for a home.

69% of buyers received a recommendation from their agent about where to get their mortgage. The majority of first time buyers asked the agent for help in finding a lender.

14% of buyers chose the lender on price.

16% of buyers chose the lender on reputation.

14% of buyers used a lender they had used before.

13% used the lender they were recommended to by a friend or relative.

What's your criteria? 

What is a foreclosure? By definition a foreclosure is the forced sale of a piece of real estate to pay off a loan that the owner has defaulted on. Simple enough, right? It’s not quite that simple if it happens to you. People may face foreclosure for many reasons. Extreme changes in life situations — job loss, death, divorce, prolonged illness and many others — or because they must immediately relocate. Foreclosure can occur when payments become three to four or more months late, depending on the mortgage terms.

What if you are unable to make your mortgage payment? Be proactive as soon as possible. Any action is better than no action. Below are tips from HUD (Department of Housing and Urban Development)

1. Don't ignore the problem.

The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.

2. Contact your lender as soon as you realize that you have a problem.

Lenders do not want your house. They have options to help borrowers through difficult financial times.

3. Open and respond to all mail from your lender.

The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notices of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.

4. Know your mortgage rights.

Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and time frames in your state.

5. Understand foreclosure prevention options.

Valuable information can be gained by simply sitting down with a loan specialist.

www.hud.gov/foreclosure/

Whether you’re looking a foreclosure now or concerned about it for the future, these tips will help you get ready for the process.

What You Will Need

• Gather all your current financial documents
• Proof of your current income
• A list of all you current expenses
• A copy of your credit report
• A list of your assets and current debts
• Gather all your original mortgage documents

Having all this information available will help you to understand the refinancing process and have you ready to do battle. Lenders understand the cost of foreclosure is high and the jeopardy of foreclosure is also increasing day by day. It benefits your creditor to help you stay in your home.

Don't Give Up Hope

This may seem new to you and even aggravating and stressful, but let's face it if you're in this predicament, you'll need to take some action soon. With the help of an expert experienced in dealing with creditors you'll be able to keep your dignity and help your family through this stressful situation. Ultimately, your monthly payments may be reduced and your family will be able to remain in the home which is filled with years of irreplaceable memories.

The past few years has seen some difficult economic times. The word “foreclosure” has been a word we have heard repeatedly. With the economy still floundering and millions of homeowners struggling to keep their homes, the question many are asking is “where can I get help?

When you are facing difficult times

The emotions we might experience when facing difficulties are numerous and can be absolutely overwhelming. One of the most common things people do when facing crisis is to bury their head and hope for the best. They become paralyzed and don’t look for a good solution. Fear is a natural emotion when setbacks occur. Many homes have been lost because the homeowners simply waited too long to take action. Take some action even if it doesn’t clear up the entire problem. It’s a shame to sacrifice your home if there are options for recovery.

Getting your head around the problem

Today we will continue with the credit scoring process which is one of the most important elements in being granted approval for a mortgage and determining what interest rate you will pay. We may have a love-hate relationship with these scores, but benefits of the credit score outweigh the negatives as far as lenders are concerned. It’s important to note that raising your credit score is a little bit like losing weight. It takes time and there is no quick fix. In fact, quick fix efforts can backfire. The best advice is to manage credit responsibly over time.

Payment History Tips

· Pay your bills on time. Delinquent payments and collection can have a major negative impact on your credit score.

· If you missed payments, get current and stay current as soon as possible. The longer your history of paying bills on time, the better your credit score will be.

· Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for 7 years.

· If you are having trouble making ends meet, contact your creditors to see if they have any options available.

It seems we have become a society dictated by credit cards, and if handled responsibly they can substantially raise your credit score. They can also be your greatest downfall if abused.

Tips for credit card use

· Keep balances low on credit cards and other “revolving debt.” High outstanding balances can lower your credit score.

· Pay off your debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down revolving credit.

· Don’t open a number of new credit card accounts you don’t need in an effort to increase your available credit. This approach could backfire and actually lower your credit.

For years, consumers have had little knowledge about how credit scores were calculated and what negative actions would affect their credit scores. Thanks to some recently released information from FICO, developer of the most widely used credit score, we know a little more about how many points will be lost from some of the most common mistakes.

Two FICO Scenarios

To illustrate the lost points, FICO gives us two hypothetical credit scenarios, one of someone with a 680 FICO score and another of someone with a 780 FICO score.

The person with the 680 score has:

· Six active credit accounts, which consist of three credit cards, an auto loan, a mortgage, and a student loan

· Eight years of credit history

· A 40% to 50% credit utilization

· Two late payments, a 90-day late credit card payment two years ago and one 30-day late payment on the auto loan one year ago

· No accounts have been sent to collections and there are no public records (bankruptcy, foreclosure, etc.)

The person with the 780 FICO score has:

· Ten active credit accounts, which include seven credit cards, an auto loan, a mortgage, and a student loan

· Fifteen years of credit history

· 15% to 25% credit utilization

· No late payments ever

· No collections or other public records from

Although the above scenarios are hypothetical, you can quickly see how one person can develop an outstanding credit score while another creates one 100 points lower. By law consumers are entitled to one free credit report each year from each of the 3 credit reporting agencies. These free reports do not show the specific credit number, but that can be obtained for a small additional fee

http://www.myfico.com/CreditEducation/CreditScores.aspx