Financing a House or a Condominium:
Mortgages and other Property Loans
What they Cost and How to get One
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Financing a House or a Condominium:
Mortgages and other property Loans
What they Cost and How to get One


For most people, taking out a mortgage, is the single most important financial decision they make in their life. As a consequence, it should be the most scrutinized and most carefully considered decision you make.


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The combination of fast salesmen talk and a lack of awareness of how important such a decision is, has led to difficulties for many people, often ending in foreclosure and the loss of the house. Optimism about the future is one of the great American qualities. But, when optimism turns to recklessness, it becomes the cause of untold misery. The current worldwide financial crisis was principally caused by people here in the USA buying houses and spending on consumer goods that they could not afford. The "greedy Wall Street bankers" were not the cause, they just became the facilitators of the dreams that turned into nightmares.

You, as an individual, have the responsibility to prevent the nightmare. That is not a difficult task. There are a few ground rules one has to follow, when one embarks on the financial side of a house purchase. These can be summarized as follows:


The five Principal Ground Rules for Financing a House


The total monthly mortgage related outgoings (meaning mortgage repayment and interest plus house insurance and property taxes) should never exceed 25% of your net, after tax, Income.
Base the 25% outgoings on your current income without any bonus payments and not on what you may, or may not, earn in the future!
In financing the house, do not take potential future capital gain on the house into account. Base any financing on the current house price, not a projection into the future.
Create a personal month to month budget covering the next five years, to decide what kind of house you can afford. Include sufficient contingencies to cover potentially unforseen events. (see How to create a personal budget when you buy a House)
If possible, take out a fixed rate, rather than variable rate mortgage. Don't let yourself be convinced by the "fast talking mortgage salesman" that:".... you could save so much money, if only........". Remember the person "selling you" the mortgage is probably on commission! A fixed rate mortgage has fixed outgoings, so you know what it costs every month!

Some Fundamentals about Financing your Dream


Here in the USA, mortgages can be obtained, amongst others, from banks, through mortgage brokers, from finance companies, from savings and loan associations or from sellers. In most cases the person you deal with, be it in a bank, finance company or a broker is paid by commission.

As a consequence, he (male or female), is not your friend or impartial advisor: He is primarily after his commission and therefore, he is, to a greater or lesser degree, predatory and you are the "victim". This is an important factor to keep in mind. The worse your credit rating, the riskier your job situation, the more likely you will end up with a "high risk financial institution" (formerly known as sub-prime lenders) as your mortgage holder.

The recent financial crisis has not stopped risky lending, it has only changed its character.

It is therefore very important that you remain in the "drivers seat" when you are in the market to obtain a mortgage: You evaluate and you decide, not the "friendly" mortgage advisor!


1.1.The Documentation you need to obtain a Mortgage


One of the key factors in the sub-prime crisis was that financial institutions and mortgage brokers would accept mortgage applications which had rather less than complete documentation from the applicant supporting them. We have prepared a page (Documents needed for a Mortgage and your Mortgage Choices) that shows you what you need and how the lack of documentation will affect your choice of mortgages. Click here to see it!


1.2.The Total Costs of a Mortgage


The costs for a mortgage can be divided into two groups and it is useful to recognize the two groups separately. The first group of costs are the rate of interest and therefore the actual loan costs and payments associated with late and default fees etc. These are the costs of using someone else's money.


1.2.1. The Costs of using someone else's Money


The Rate of Interest, or the Periodic Rate or Corresponding APR (Annual Percentage Rate) you pay for your money is determined by
  • the prevailing costs for money in your market place. The basis of that costs is usually determined by the level of
    the Monthly Prime Rate, usually as published in the Wall Street Journal. The Prime Rate is the rate of interest at which your bank borrows money from the "lender of last resort" the Federal Reserve Banks; or
    the Monthly LIBOR Rate: LIBOR is the London Interbank Borrowing Rate. It is the market rate at which highly rated international banks borrow at the London, Zurich, Singapore, Frankfurt etc. In other words, it is a sort of International Prime Rate; or
    the Treasury LIBOR Rate is the London Interbank Borrowing Rate at which the US Treasury (and other highly rated national treasuries or National Reserve Banks) borrows money in the international market place. As a general rule the Treasury LIBOR Rate is some points lower than the banking LIBOR. The rational behind this is that Treasuries or National Banks carry a lower risk of default to lenders than a privately held bank
  • To this rate, the banks costs of using someone else's money, the bank will add its own margin. This will be determined by
    The internal profitability and cost consideration of the bank or mortgage company. The higher the administrative costs of the bank or mortgage company, the higher the margin needed to cover that. Similarly, the higher the profit goals of the investors in the bank the higher the margin. In addition, the margin will also vary with factors such as
    The amount of down payment you make on the property. The amount you are able to put towards the property purchase as a down payment is important. The more of your own capital you have in your property, the lower the risk for the bank. This will be especially important, if you buy a "fixer-upper", or a house in a marginal area. The amount you can borrow on any property is also related to the valuation and appraisal of the property. Usually the appraisal is done by a specialist who compares three or more comparable recent sales in comparable areas, with the house you are intending to purchase. Notwithstanding what you pay for the property, the lenders maximum mortgage amount will be related to the appraisal value and not to the amount you actually pay the seller. Unless, of the unlikely event, that the purchase price is lower than the appraised value.
    Your credit rating is a key factor in the banks risk assessment of you as a borrower. If you have a poor credit record, the bank may still lend to you, if you make a high down payment. Because a high down payment on the house would reduce the lender's risk.
    The neighborhood in which the property is located should should only have a peripheral influence on the size of the mortgage you can get in relation to the appraised value of the house. Obviously, house prices differ from neighborhood to neighborhood and so do lenders risks related to defaults, late payments and statistically average credit ratings. There is a narrow line here about what is reasonable risk assessment by the lender and what can be construed as discrimination.
    The type of property and the general condition of the the property should be reflected in the appraised value and hence, will influence the amount you can borrow. The lenders view of the condition of the house will not be based on its potential, but instead on the actual value he could get for the property, as is, where is, in a "firesale"!

    All of the above mentioned items will be the determining factors in the costs of borrowing the money for the mortgage of the property. The relative weights, or importance, the lender will attach to each item will vary from property to property and from lender to lender and, not least, from borrower to borrower.

    But these direct costs of using someone someone else's money to buy a property are only part of the deal.

Changes in the Rate of Interest. Mortgages come in many different forms. Besides the life time, or repayment period of the mortgage, 10, 15, 20 years or more, the next important aspects is whether you negotiate a fixed or variable interest mortgage.

With a fixed interest rate mortgage, the rate of interest paid on the principal remains the same over the lifetime of the mortgage. That is advantageous, when overall interest rates are low as at present (2009) and are likely to stay the same or, are likely to go up in the future. But even on some fixed rate mortgages, the lender can increase the rate of interest, if your repayments are late. So beware of, and understand any rules within your mortgage agreement that say how often, when and under what circumstances the lender can change the rate of interest.

The alternative, to that is a variable interest rate mortgage. Here, the interest rate reflects the prevailing prime rate plus the margin the bank adds. If the prime (or base) rate goes up, your interest rate on the mortgage will go up, and vice versa if the prime rate goes down. Usually that is expressed in the mortgage agreement as "prime plus X%" where "X" might be 2.5, or 5 or even 10%. Whatever the lender thinks is enough to cover his risks and his profit motive.

It is vitally important to be fully aware how often, under what circumstances and how, the lender can change the rate of interest. Look through the agreement and see if the mortgage agreement states that

(1) the rate of interest may be changed, 30 or 60 days after a change in the prime rate (usually as stated in the Wall Street Journal) is announced, and
(2) if there is a reasonable annual "cap" (a maximum of say 2%) for the maximum change to the rate of interest.

If this can be found in your agreement, there is really no problem, because the speed at which the bank can change your interest rate is predetermined and the maximum annual amount of increase (or decrease) is limited.

The borrowers maximum exposure is clearly limited within a timeframe where the borrower would have the possibility to get another mortgage from another lender. Under these circumstances, there might be a higher risk on a variation in your outgoings for the mortgage. But it is a predictable risk and one which is clearly limited. Most local banks, Credit Unions and Savings and Loan Associations, will offer loan agreements based on the above premises. If they do not, don't go to them!

However, one of the elements that contributed to the financial crisis we are in now, was the ability of many lenders to change the interest rates almost at will. These lenders intellectual argument was that they provided mortgages to high risk groups and therefore had to have a means to vary their "risk perception". It is an argument that allows "usury" (the charging of excessive rates of interest). Most countries have laws against that, but not the USA.

Beware of "Teaser Rates"

These lending practices also made the use of "teaser rates" common. A "teaser rate" is when the lender offers a borrower a low introductory rate of interest which at a later date (within 2, 4 or six months), will increase to a rate determined by the lender. The trigger that leads to an increase in the rate of interest the borrower pays for his mortgage, may not only be time but also late payments, changes in the borrowers credit report (credit scores) or similar occurrences. In the commercial credit world, these are known as "changes in the covenants".

The key to avoiding these potential problems is to read your loan agreement thoroughly and have a knowledgeable lawyer (not your friend who practices law and deals mainly with low level criminal cases, or works in some other unrelated field) explain to you passages that are not clear to you. The costs of doing that maybe worth it!

Payments associated with late mortgage repayments. Mortgage repayments are due on the exact date specified, not some days afterwards. Postal delays are no excuse! It is the borrowers responsibility that payments are with the lender on the specified payment day!

One would think, that this is clear to most people. Unfortunately, it is not! Late payments have become so widespread, that many lenders have introduced default, or late payment fees. This has become a substantial source of income, not only to credit cards, but also to mortgage lenders.

Repeated late payments may also change your rate of interest (in case of a variable interest rate mortgage) or can make the lender cancel your loan agreement. Some lenders, and not only small and marginal ones, may add fees to your principal, that exceed the amount of principal that you pay back with your monthly mortgage repayment.

Payments associated with technical defaults on your mortgage agreement. Some banks have started to add charges for technical defaults to your mortgage agreement. A technical default may be a lowering of your credit score (and hence, an increase in the risk for your lender) or similar occurrences. This is not yet widespread, but we are aware of cases where this has taken place.

When you read through the above items you might think you are safe if you use the local bank as your lender. You may or you may not be. Even large reputable banks have created finance offshoots that deal with more marginal customers. And in their hunger to expand their business and grow, they are not immune to some sharp practices. Therefore, read any mortgage agreement you intend to go into, thoroughly, and question any point you do not fully understand! Be aware that your mortgage officer, may have a direct interest in you getting the loan, since he is paid a commission!


If you really want to inform yourself about home buying and mortgages, there are some highly recommended books from amazon.com

Some Books about Mortgages from Amazon

1.2.2. The Costs of getting a Mortgage: The Closing Costs

The second group of costs are those associated with obtaining a mortgage or other third party financing for the purchase of a house. Here in the USA, these are generally known as the closing costs. As a borrower, you have to look closely at both of these groups.

A mortgage broker, mortgage company, or bank sells you a mortgage and puts all sorts of fees on top of the mortgage that you will see as the Closing Costs in a Statement known as the "HUD-1 Settlement Statement". Some of these costs vary from state to state and some are specific to certain states. Below is a list of the most common costs charged.

Loan Origination Fee is really the loan officers commission. It is usually around 1% of the loan and can therefore be quite a hefty sum. The loan officer in a bank or mortgage company is paid a fixed salary and usually a variable bonus as an incentive to "sell" loans to clients. The variable bonus is paid from the Loan Origination Fee. The amount is a tax deductible expense of your costs of purchasing the home.
If you obtain your mortgage through a broker, rather than directly from a bank or a mortgage company, you will have to pay a Fee to the Mortgage Broker. It is a sort of finders fee and is generally regulated by the state governments. In most states brokers are required to disclose their fees in writing. The amount can be substantial, usually 1 to 5%, but can be more, depending on market conditions.

The brokers fee may depend on your credit rating and other risk factors. If you are a "prime-borrower" and have good credit and 100% income verification, you could pay 1 to 2%. If, on the other hand, you have poor credit, and/or some of your income cannot be verified, you become a "sub-prime borrower" and you pay a higher brokers fee. The rational being that the broker has to do more work for a "difficult client". The justification argument is largely humbug, since most brokers have lenders on their books that give mortgages for different qualities of clients. But it gives a justification for a whole industry.

Points or Loan Discount is an upfront fee by the lender to reduce your interest rate. As a rule, each "point" will cost about 1% of the loan amount and will, if you have a fixed rate mortgage, reduce the interest rate charged by the bank by about 0.25%. Though this reduction amount is variable. The Loan Discount is a sort of prepayment of interest and, obviously, lowers the risk the lender is taking with the borrower.

If you intend to keep the property and the financing of it for a long time and you have the cash, this might be worthwhile. There maybe some tax benefit for you in paying for points. If you are purchasing the property, the amount you pay for points is fully tax-deductible in the tax year you sign the mortgage. If you are refinancing the property, the amount you pay for points is deductible over the life of the loan. In other words if you refinance with a 10 year mortgage, then you can charge 10% of the amount you paid for points every year!

Other Fees
  • Banks and mortgage companies have become quite inventive in charging "new fees" to clients. It is important that you understand what they are and that you can compare them between different lenders. Beware, names for these fees change and so does the stated reason for charging them. That makes mortgage quotes often difficult to compare!
    Administrative Fee: $250-$750. This fee should cover underwriting and document preparation. Some lenders lump the two together and call it their "administrative fee." Again, you may be able to negotiate.
    Underwriting Fee: $50-$450 Although it is supposed to be part of the Administrative Fee, some lenders charge the underwriting fee extra. You would think that underwriting a loan is part of the normal costs of banking! But in the scramble to "unbundled costs", this has become a special fee.
    Document Preparation Fee: $100-$400 Again, preparing documents for a mortgage loan is supposed to be part of the normal activity, and hence costs generating, for a bank.

    This "unbundling of costs" has become a common feature, largely driven by management consultants. Far from making the process more accountable, it is just a means for transferring costs to the client. Because the client does not have a choice. He cannot refuse to take the service, and therefore reduce the costs to him. If he does that, his loan application will almost certainly be denied.

    Obtaining a Credit Report: $35-$75. For the bank obtaining a credit report about a potential client is just good business sense. There are two services offered by credit bureaus:
    • The fully verified credit report, where the credit bureau phones every creditor and verifies the credit item, and/or
    • The standard credit report from the three credit bureaus

    Banks and brokers often subcontract this service and the borrower will end up paying an inflated fee.

    Fees related to the Valuation of the Property
    Appraisal Fee: $250-$750. The lending institution has to know what the true market value of the property being offered as the security is. Since few banks and mortgage companies here have the in-house capability to make such an assessment, they use Certified Appraisers. These utilize a number of methods to come up with a valuation number that represents their estimated market value. One of these methods is to compare recent sales of houses with similar square footage and similar plot sizes in similar overall condition, listing their sales/purchase price. But that kind of valuation is, relatively speaking, subjective!
    Survey Fee: $100-$250 A land survey is obviously a necessity, when one buys a property, so that the borders can be defined. It will also show easements, where third parties might have a right of access to the land.

    Condominiums generally do not need a land survey, Though, it has been known, that financial institutions have charged mortgage applicants for condo's for land surveys! So beware!

    Insurance Escrow, Property Tax Escrow and Flood Certification. In order to ensure that the borrower will pay hazard insurance and the property taxes, the lender will create escrow accounts and collect predetermined amounts for both which he will pay on behalf of the borrower, when they fall due.
    Property Tax Escrow Account: If the lender administers the escrow account, he will charge a small annual fee which he usually collects as part of the tax amount. This is usual with banks and large mortgage companies. However, recently it has become one of the items (the management of escrow accounts) that are subcontracted to third parties. The fee usually amounts to $80-$120 a year. The monthly amount collected for the taxes will obviously depend on the property taxes charged in the county you live.

    Beware: if you purchase the house in a company or a trusts name, your taxes might be twice the amount than, if you purchase the property as a homestead in your own name.

    Escrow Account for Hazard Insurance. The lender wants to protect the property which is his collateral and on which he has a security lien. Therefore he wants to be sure that you insure the property. Usually this is done, like the Property Tax through an amount which you pay, together with the monthly mortgage repayment into an escrow. From that the lender will pay the annual property insurance.

    You should however be aware that this insurance will not cover any of the contents of your property. It is therefore advisable to take out a complete homeowners insurance.

    Flood Certification. If you are buying a house rather than a condominium, the lender is likely to ask for a flood survey to ensure that your property is not in a flood plain. The charge for this is minimal, usually about $20-$50. You should not be charged that if you purchase a condominium on a higher floor.

Title Agent and Attorney Settlement Fees
  • Fees related to title and title search are some of the most important items you pay for.
    Fees related to the Title of the Property
    Abstract or Title Search: $250-$350 - A title search is performed by the title agent or one of his assistants, is the search for all the legal impediments that exist for the ownership of a piece of land or a property (house, condo etc). It is supposed to make
    • sure who is the owner of the property and
    • what kind of limitations are associated with his ownership. Such limitations could be "easements", that is, rights of access to parts of the property by public utilities (gas, water, electricity, cable, sewage, etc.). Limitations on the property could also be ordinances that limit the holding of farm animals, the maximum height of any structure, mineral rights and other similar items. In addition there could be
    • legal encumbrances, such as liens, environmental clean up needs/demands, or similar items.

    The buyer has to be aware, that it is his duty (and his lender's to make sure, that his title to the property is free and unencumbered and that its value is not limited by any of the above. Or, at the very least, that he knows of any restrictions on his title.

    Title Examination: The Title Examination is really the above, but we have been told, that some title agents "create" a special fee for that. As a buyer, be careful and check that!
    Title Insurance Binder: $0-$100 - The insurance binder is another artificial fee. It is the promise that a title insurance will issue title coverage, once the sale is completed. It is in fact an insurance proposal, a sort of "invitation to treat" for the buyer and lender to obtain Title Insurance once the sale is completed.

    Title Insurance in this country is necessary, because public records are often poorly established and, before digitalization, which only slowly takes hold,even more poorly stored. Misspellings of names are not uncommon in entries on titles, nor are mistaken coordinates. This becomes more serious now that many municipalities use computer records. As you know, a misspelled name simply does not show up in a computer search. The insurance is supposed to protect you, the buyer, from such errors and omissions and insure you against claims which could possibly arise from such errors.

    The Costs of Title Insurance covers your title from the moment you acquire it, to the moment you sell or dispose of it. As a general rule, the buyer of the property will pay 0.025 percent to cover the lender. If you take out a mortgage for, say, $100,000, you will pay $250 to cover the lenders interest. You can also insure your title interest, as the homeowner for which you will pay 0.003% of the loan amount. This is highly recommended. In total this will then be $300. Though, you should be aware that different insurance companies offer different rates. Moreover, the rates are not the same nationwide, since insecurity with title records differs from area to area.

    Title Document Preparation: $0-$100 - Although the lender prepares the bulk of the documents required to close a loan and buy a home, the title agent prepares some documents too. Some, but not all, title agents charge for this. Some title agents show document preparation and courier fees as one item and call it an "administrative fee."
    Notary Fees: $10-$25 - Even though, most title agents are also notaries, or have at least one notary on staff, they will charge for every page that they have to notarize.
    Release of Lien Fee: $0-$150 - The release of a recorded lien, involves the county office of records to change the title record. Some, though not all counties will charge a fee to remove the old homeowner and the old lender from their record. Make sure that this is done, because some title agents charge for this, but never do it. The record then shows multiple owners for the same property.Technically, it is not serious, since you will have title insurance. But, for practical purposes, it is very annoying and sometimes quite difficult to rectify.
    Courier Fee: $0-$300 Lawyers and title agents use Couriers to get documents from one place to the other.For many, it is just another means of getting an additional fee from the home purchasers. Some home purchasers will ask for receipts and some are sometimes successful!

    If you have a mortgage for the purchase of your property, some of these items will be required by your lender. However, if you are a cash buyer, then you as the buyer have to check, either yourself or through your lawyer, that all these items related to the title on your property are carried out judiciously and accurately!

    Closing or Settlement Fees: $350 for a purchase (split between buyer and seller). $150-$350 for a refinance - This is sometimes also known as the Attorney's Fee. Your closing is the meeting where you sign all the paperwork to finalize your loan and purchase the home. Closings can be conducted by title agents or by real estate attorneys who double as title agents. In some parts of the country they are called "escrow agents." The government does not regulate these professionals when it comes to fees. It's up to you to shop around and find the best rate. Don't automatically hire the title agent recommended by your Realtor or mortgage broker.

    Some of the less scrupulous Title Agents have been known to charge Closing and Settlement Fee. Watch out for that!

Government Fees
  • Whenever you access government, it is bound to cost you a fee or a tax. Buying a house or taking out a loan based on the security of a property is no exception.
    Recording Fees - This fee is charged by the COUNTY RECORDER OF DEED'S office for the recording of your property transaction. The county recorder will record the change of ownership and the mortgage that has been raised on the security of the property. Whether you are recording a new mortgage or refinance, you have to pay this fee. The county recorder will be able to tell you the amount of the fee.
    Tax Stamps - Also known as STAMP DUTY, is the amount you pay when you record a change of ownership of a property to the County Recorder of Deed's. The amount will be based on the purchase price. Some counties will give you a reduction, if you are a first time buyer. In some places this is known as "Recordation Tax".

    Based on the location, you might have to pay this amount also for the refinancing of a property.

    Transfer Tax - Is another tax on the transfer of the property. Again it is based on the purchase price. Your county tax office will be able to tell you on what basis it is calculated and whether it applies to your transaction.

These three government fees sound like taxes on the same aspect of the transaction. But they are not. The Recording Fee is for recording the two transactions (change of ownership and change of lender); the Tax Stamp is a tax on the purchase of the property and the Transfer Tax is a tax on the transfer of the property!

The cost items shown above should cover all the costs of acquiring a property as well as an associated debt and the servicing of that debt. There are obviously other types of mortgages than the fixed and flexible interest rate mortgages mentioned above. But, they are far less common and not likely to be used by domestic house buyers purchasing a homestead dwelling.


Car loans for people with bad credit!


Information and Books about Mortgage Closing Costs from Amazon

Because of the recent turmoil in the mortgage market, be sure that when you buy a second hand version of a book related to mortgages and closing costs, it has a relatively recent publishing date (e.g. 2007, or later). It should reflect all changes in legislation and current practice that have affected the mortgage market.


Where to find a Mortgage

It is reported that more than half of all mortgages taken out in the USA are arranged by mortgage brokers. While each individual mortgage need, will depend on a variety of factors, a good place to start looking for a lender are your closest high street financial institutions. The best place to start are probably Savings & Loan Associations and Credit Unions, followed by the local bank, where you have your checking, or maybe even savings account.

Savings & Loan Associations are regulated through the The Office of Thrift Supervision (OTS), a part of the US Department of Treasury, set up in 1989. Their primary sources of funding comes from Savings and Money Market deposits on which they pay interest to their clients.

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The primary business purpose of an S & L is to accept deposits against interest and then, to lend these funds as mortgages and construction loans to the public. As a rule S&L's will not make business or commercial loans, other than mortgages.

Some clients find dealing with S & L's easier than with commercial banks. S & L's will sell your mortgage on the secondary market (e.g. Freddie Mac and Fanny May)

Credit Unions Commercial and Mortgage Banks do not like Credit Unions because, in their view, they have a commercial advantage. Because they are a kind of club, where members have, in some way to qualify, or share a common interest (for instance the same employer). Importantly, credit unions do not pay federal tax and have other tax advantages. The Primary Source of Business for Credit Unions is to accept checking and savings accounts from its members and then to make consumer loans for the purchase of cars and other consumer items, underwrite mortgages and often, they also issue credit cards

They are very competitive as mortgage lenders, since they have generally a low cost base. However, in order to obtain a mortgage you have to qualify as a member.

Most Credit Unions will not sell your mortgage on the secondary market. You will therefore usually deal with the owner of your debt, rather than just the administrator.

Commercial Banks in your high street offer many services. Although, making mortgage loans is not their main business, they often offer mortgages at competitive rates. If you are a checking/savings or investment account client, there may be special advantages and rates if you take out a mortgage at your bank. The Primary Business of most commercial banks is to act as commercial lenders to businesses. They accept checking and savings deposits from businesses and individuals and lend, primarily to businesses. They also issue credit cards and personal loans, both of which are highly profitable for them.

Recently, many large main street banks have created, as subsidiaries, special mortgage companies which cater to different risks that are inherent in mortgage lending. That way the main street banks could better package the mortgages as Collateralized Debt Obligations to Investors. The conditions under which mortgages were offered differed widely, and some of these subsidiaries of major banks were outright predatory. Therefore do not automatically assume, because you are dealing with a well know and recognized main street bank that all loan conditions are competitive and "have your well being in mind!"

Make sure that your lender is the main street bank and not some obscure company, associated with the bank. Main street banks will sell off your mortgage on the secondary market and will, in the end, only do the administration of the mortgage. Although, it is often said, that main street banks offer competitive rates, make sure that they are competitive and do not have any "specials", or little "nasties", such as "teaser rates", attached to the mortgage agreement.

But local high street banks have an advantage: They understand the local market and its peculiarities. Don't underrate that! It might even be worth a small increase in the interest rate offered!

Mortgage Brokers. Most lenders, almost 50% of them, in the USA, obtain their mortgage through a broker. The reason for that is simple: Realtors often have a broker attached to them so that they can easily arrange financing for their sales. Similarly, real estate developers associate themselves with brokers, sometimes in informal business arrangements, sometimes they become co-owners of brokers, to makie sure that their properties sell quickly in a competitive market.

Many of the mortgage companies that advertise, are in fact brokers and not mortgage companies at all. So, beware!

Don't forget that the broker works for a fee to bring lenders and borrowers together. The broker, therefore only acts in your interest, as long as his fee is not in jeopardy. Theoretically, the broker tries to match a borrower with his particular credit and income history with a suitable lender.

Brokers are usually paid a fee by lenders and an origination fee by the borrower. The lenders fee could be a straight percentage of the amount of the loan or a Yield Spread Premium of up to 2 percent. In other words, the lender offers a 7% mortgage and then adds a 2% ISP for the broker. The ISP can obviously be less than 2%. But it has to be disclosed to the borrower and it is often negotiable.

Using a broker can become a necessity. Especially, when other lenders, such as S & L's, Credit Unions and high street banks refuse to finance a particular property.

You can have a broker working for you as the borrower, if you negotiate an up-front fee with him. Usually, the fee is a percentage of the amount you borrow.

Mortgage Bankers are usually independent, often unlicensed, bankers that represent one or several banks and sell or arrange mortgages on their behalf. They are not employees of the bank and similar to mortgage brokers, they are paid by a commission from the bank. The loans mortgage bankers arrange are straight forward bank mortgages. The fee , interest rate and maturity structure is thus limited by what the bank, or banks, with which the mortgage banker works offer. The advantage of going to a mortgage banker, rather than to your high street bank directly is that the mortgage banker has often nationwide contacts and can tap into funding from major internet or other banks, such as ING.
Private Individual Any private individual with the money can offer you a mortgage. The loan agreement with the individual has to conform to your states (or the state in which the property is located) as well as federal regulations and disclosure requirements. Even though, you may not be required by the private lender to have an appraisal of the property made, it is worthwhile to do it.

Similarly, the private lender might not require a title search or a title insurance, it is highly recommended to go ahead and complete these formalities. This applies especially in cases, where the private individual financing the property is also the original owner of the property!

Stock Brokerages & Online Lenders - Since about the year 2000, some banks and stockbrokers have ventured into internet banking. Some of them offer mortgages to existing and new clients. This is an option for the more sophisticated borrower with a high FICO score (Credit Score) who knows what he wants and knows the options offered.

The major players in the Internet arena are:

Capital One - a credit card company that has expanded into banking and mortgage loans
INGDirect - The American subsidiary of a Dutch banking group
Ditech - a subsidiary of GMAC
Charles Schwab The discount broker
HSBC is in some areas a high street bank. But it is also a very large Internet bank. Their Web Site, at this time, shows that they are not accepting any loan applications

If you want the personal touch these companies are not for you.

More operators enter this business. The key is that you contact only reputable and known firms, since the internet is an ideal platform for more shady operations.

You should be aware that almost every mortgage loan these days, contains an ALIENATION CLAUSE. It is a clause in your mortgage agreement that states, "if the owner sells the property or transfers the title, the outstanding amount of the mortgage plus any fees, will immediately become due for repayment to the lender".

You cannot transfer the title, and the remaining unpaid mortgage to a third party!


Getting a mortgage is, relatively speaking, a technical issue. The more you know about the key factors and the market place, the more likely you will make the right decisions. Therefore, it is probably useful to spend a little money for the purchase of books that will explain some of the points mentioned in this page in more depth! Some of the suggested reading material is shown below.


More Books about Mortgages from Amazon

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