Acceptable Sources of Funds for Home Loans

Most homes are financed by banks, credit unions or mortgage companies.

One of the first steps in buying a home is getting approved for a mortgage loan. The money generally comes from a lending institution that is in the business of making home loans. The process for getting approved can drag on for more than a month and even longer as the lender thoroughly checks your credit, waits for an appraisal on your prospective home, and more.

Banks

Banks provide lending of all types, including home mortgages. Most banks can match any other lender on the different types of home loans, including low down-payment loans insured by the Federal Housing Administration, and loans with fixed or adjustable interest rates.

Mortgage Companies

Unlike banks, mortgage companies generally specialize in one type of lending -- mortgages. The mortgage companies get their funds from investors or even banks, and use the proceeds to lend money to you for a home mortgage. The mortgage company makes money off the finance charges you pay on your home loan, and uses some of that money to repay its bank or investors.

Credit Unions

Many credit unions offer the same kinds of loan products offered by banks. Credit unions are owned by their members, and as a result there are no stockholders to pay, or ever-increasing pressure to increase profits. That allows credit unions to sometimes offer mortgage loans with slightly lower interest rates and initial fees than those offered by banks.

Seller Financing

Seller financing is possible from a homeowner who owns his home free and clear. The seller may have a house that, for whatever reason, has been difficult to sell and he decides to offer seller financing as an incentive. Seller financing often attracts buyers who have the down-payment but cannot get approved for traditional financing because of bad credit. Seller financing is bound by a contract signed by the two parties, and the terms can be far more flexible than terms from a bank, mortgage company or credit union.

References

• Bankrate.com: How Mortgages Work
• HUD.gov: Buying A Home