Home loans are simple right? After all, it's just a loan secured by a mortgage against a house. Many people go into the home buying market with very little understanding of the many different types of home loans out there.
For instance, many people don't really understand the very
first thing about looking for a loan. What's the very first
thing? Is it the interest rates, or the size of the down
payment, or the equity required? Nope, the very first thing you
need to understand is the marketing and sales industry that
surrounds this whole area of money lending.
For instance, do you know the difference between a loan broker,
a loan originator, and a direct lender? Did you know there can
be a really huge difference in the cost of a loan depending on
where it comes from and how many middle-men get their take?
A loan broker is similar to a real estate agent. The agent
doesn't own any houses for sale. They simply have developed
methods of finding houses that are for sale and helping you
narrow down your search. Same with a loan broker; he doesn't
have any money to loan, and doesn't even buy and sell debt, he
simply acts as an agent to help put you together with a lender
-- and he will charge you for his services.
The next step up the food chain in the business of lending money
for houses is the "loan originator". This is a company that does
lend money, but only for a very short time. These lenders simply
create new loans, and then "sell" the loans to large banks.
Here, as with the broker, you have to pay the loan originator
for their time, either through increased closing costs or
through a slightly higher rate than you might get from a direct
lender. The highest volume loan originators manage to get pretty
good deals from the banks they sell their "paper" to, so often
you can still do pretty well going directly to a loan
originator.
The top of the food chain in this arena is the direct lender.
This is company like a bank or investment company that has real
loot. They have money from investors or money from savings
accounts and Certificates of Deposit, and they need something
relatively safe to do with this money to make more money with
it. These direct lenders will often ultimately be your best
deal, though they are harder to find than the other people in
the industry.
So the first thing you need to do is learn a little bit about
the marketing and sales of home loans in order to find the right
type of company to do business with.