Getting a Loan

Before taking on a large debt like a first or a second mortgage, take the time to investigate the lending market, your own credit history and rating, and a number of lenders and programs. These simple steps, set forth below, can save you thousands of dollars and protect you from predatory practices.

1. Assess your needs: First, determine what your primary financial need is. Do you need money to buy a home, make home improvements, consolidate debts, or find additional cash for personal needs? There are different types of loan programs and services available depending on the type of loan that you need. Next, determine how much money you need to borrow. Be wary of lenders that push you to take out a larger loan than you need.
   
   
2. Assess your financial status: There are two critical elements to your current financial situation. First, determine how much cash you have available for a down payment or other fees. Next, look at your credit history so that you can understand what a lender will see. To do this, you want to check your credit report and credit score. You can order your credit report (a history of your financial transactions), from any of the three major credit reporting agencies, Equifax, Experian, or TransUnion. TransUnion and Equifax will also provide you with your credit score, a number between 300 and 850 that lenders use to help them evaluate your credit history. Many consumers who are eligible for prime loans incorrectly assume that they are not. By reviewing your own credit history, you can better determine if you might qualify for a prime loan. You should also correct any errors you discover in your credit reports before applying for loans.
   
   
3. Finding the loan: You will need to research and comparison-shop to find the best loan. If you are purchasing a home, the real estate broker who has helped you find the property may recommend sources or assistance in finding a loan. A mortgage broker, mortgage shopping Web site or community group can help you in this process as well. For a fee, brokers and Web sites take your financial information and needs and attempt to find an appropriate loan. If you have a prior financial relationship with a bank or credit union, you may want to check with them first. However, you do not need to have a current or prior relationship with a bank in order to be considered for a loan. You will need to compare the true costs of the different loans - the annual percentage rate (or APR), fees, costs of any insurance, and the term of the loans, not just the monthly payments. For example, your monthly payments may be lower for a longer-term loan, but you will pay more money in interest over the life of the loan than you would with a shorter-term loan. Once you understand the terms, you can make the best decision based on your financial situation.
   
   
4. Document review: The mortgage broker or mortgage lender will draw up documentation for the loan. Before signing, make sure you understand the documents including the amount and number of monthly payments that are required, the fees being charged, and whether or not there are any penalties if you want to repay the loan early. An attorney or trusted advisor can assist with this process. Remember, if you have a question or are unsure of something, don't be afraid to ask!
   
   

What happens if you don't qualify for a prime loan?

If you don't qualify for a prime loan, there are a number of other, legitimate lending options. You may still qualify for a subprime loan. Subprime loans are an important source of credit for consumers who do not qualify for a prime loan, and you should compare offers from subprime lenders in the same manner outlined above.

There are also a number of federal and state programs that can help you qualify for a loan. Agencies such as the US Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA), the Veteran's Administration (VA), Fannie Mae, and Freddie Mac may have loan programs that meet your needs. These organizations do not make loans directly to consumers; they insure and/or purchase loans from private mortgage lenders, encouraging them to make loans to consumers who might otherwise not qualify for loans. These loans are often available with low down payments and flexible requirements for qualification. You should contact these organizations for additional information on their programs, and to find lenders approved to make these loans in your area. See the resource pages at the back of this brochure for contact information.