Choosing the Right Loan

There are many types of loan plans available. You have your choice of lender as well as a choice in loan plan; the combination of these decisions will influence not only your settlement costs, but the monthly cost of your mortgage.

Computer Loan Origination (CLOs) – CLO systems are computer terminals that are available in real estate offices that can help you assess the variety of kinds of loans offered by various lenders. The CLO operator may charge a fee for this service, but this also may be paid by the lender you select.

Loan Costs – Comparing APRs is a good way to begin shopping for a loan. However, you should also compare similar loan products with the same loan amount. For example, two 30-year fixed rate loans for $100,000.

Loan #1 has an APR of 8.35 percent and is less costly than Loan #2 with an APR of 8.65 percent over the term of the loan. However, before you select a loan, inquire about fees you are required to pay at the onset of the term.

A comparison of initial fees might show that one loan requires less cash up-front than another, but it is important to consider how long you plan to stay in the house, and your tax situation. Note: The more points you can afford, the more you can deduce from your taxes.

Flood Hazard Insurance – You may not realize it when you look at homes, but some may have been built in areas that are in danger of flooding. Your real estate agent should be aware of this, although you can also find out by checking with local authorities. Your lender also might make you aware of this when you are applying for your loan.

Government Programs – Depending upon your life situation, you may be eligible for a loan through the Federal Housing Administration or guaranteed by the Department of Veteran Affairs. Some of these programs require smaller down payments.

Mortgage Brokers – Mortgage brokers are individuals who will help you find a lender. This person operates as an individual business and may not act as your representative.

Mortgage Insurance – Private mortgage insurance may be required if the lender needs to be protected against default. This also allows the lender to make a loan for a borrower who has a higher risk attached to him or her.

Settlement Costs – Your lender may require that you sign on for a number of settlement services such as an appraisal or credit report. As you are choosing a mortgage loan, make sure your estimate the cost of the settlement.