Types of Lenders
There are many places you can go to get a home loan, so you need to find the one that fits you the best. Talk to the lender. Make sure the lender understands your needs and is willing to meet them. The following are types of lenders who make mortgage loans.
Banks are the most common source of mortgage loans and are one of the places you should start looking for a loan. They usually have many loan products including car, business, personal and home improvement loans. They also offer checking and savings accounts, credit cards, insurance and other services. The advantage from borrowing from your local bank is that you can keep all your financial business at one location. These banks are regulated and insured by the Federal Deposit Insurance Corporation (FDIC). FDIC protects the money deposited at the bank against theft and loss.
Mortgage banks are banks that only offer mortgages. These banks can be independent or part of a larger corporation. Mortgage banks either lend their own money or act as a broker for out-of-town lenders. These banks are not regulated by FDIC, but they are regulated by the U.S. Department of Housing and Urban Development (HUD), states and other agencies.
A credit union is a private bank run for its members. The members are usually part of a large group, such as teachers or autoworkers. Credit unions usually offer their members good mortgage loan terms, fees and interest rates. Check with your employer to see if there is a credit union you can join.
Mortgage brokers are loan finders. They don’t lend their own money, but they help you apply for a loan, and then find a lender who will make the loan. The lender and/or the borrower may pay the mortgage broker. Ask about the fees that the mortgage broker will receive for its services. Most brokers are reputable and provide a valuable service by helping you shop for the very best loan. However, mortgage brokers collect fees from both you and the lender. Some brokers place loans with lenders who pay the highest fees even if it isn’t in the borrower’s interest. Before you begin working with a broker, you can check to see if the broker is licensed by going to the Tennessee Department of Financial Institutions’ Web site.
Secondary Market Investors
Secondary market investors insure that lenders have money to help homebuyers by purchasing loans from banks and mortgage companies. While they don’t deal directly with borrowers, they are important to the housing market. Secondary market investors can control interest rates and types of loans that are available by telling lenders what types of loans they will buy and what interest rates they will pay. The biggest secondary market investors are Fannie Mae and Freddie Mac, which have many affordable loans for low-income and first-time buyers.
Federal Housing Administration (FHA)
FHA insures loans made by mortgage providers. These loans usually have lower interest rates because the government insures the lender in the event the borrower does not repay the loan. There is a cap on the limit of these loans. They require that the borrower bring a minimum of 3% of the purchase price as the down payment.
Veterans Administration (VA)
VA loans work much like FHA loans, but they are for veterans and current employees of the armed services. VA loans do not require a down payment.
USDA/Rural Development Loans
USDA/RD is a federal agency that provides loans for homes in rural areas.
Tennessee Housing Development Agency
THDA is a state agency that provides loans and grants to low- to moderate-income individuals, particularly first-time homebuyers, seeking to purchase a home.
City of Memphis and Shelby County
The City of Memphis and Shelby County provide down payment assistance to homebuyers. These small loans or grants help individuals with the initial down payment of a mortgage.
Nonprofit Community Housing Organizations
Community housing organizations rebuild neighborhoods that have fallen into disrepair or help low- to moderate-income families buy homes. Often loans are available from government or private grants. The interest rates for these loans are often lower and the repayment terms are more flexible for first-time homebuyers.
Special Programs for Low- to Moderate-Income Homebuyers
There are several programs that help low- to moderate-income homebuyers with down payment and closing costs, which are often barriers to homeownership.