Mortgage

What are the different types of mortgage lenders and how do you choose one?

What are the different types of mortgage lenders and how do you choose one?
Written by Publishing Team

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In the mortgage industry, there are many types of mortgage lenders, from retail banks to specialist lenders. (iStock)

Researching the different types of mortgage lenders can be a great first step toward buying a home. Not all mortgage loan providers are the same, and some lenders may be better than others in your situation.

Here’s what to know about the types of mortgage lenders you’re likely to encounter and why you might choose one over the others.

With credibility, you can Compare Mortgage Rates From different lenders in minutes.

What is a mortgage lender?

Few people can afford to pay cash to buy a house, especially if they are First time homebuyers. A mortgage lender helps you buy a home and pay for it over time, often 30 years. They have enough cash to pay the home seller and then sell your loan to an investor or manage the monthly mortgage payments themselves.

Mortgage Lenders vs Mortgage Brokers

One of the basic things to note while shopping for a mortgage loan: A mortgage lender is a financial company that offers a loan directly to you. On the other hand, the mortgage broker takes the mortgage application and finds the lender. The broker can work with multiple lenders, and you can get multiple loan offers after placing one application with a broker.

What are the different types of mortgage lenders?

you will find Variety of mortgage lenders in the market. Keep in mind that there is some overlap between the categories, and some companies may fall into more than one category.

Correspondent Lenders

The correspondent lender secures your loan and finances it with its own money, but then sells the loan to a direct lender or investors through government-sponsored entities Fannie Mae and Freddie Mac. A correspondent lender may continue to service your mortgage after it has been sold.

Examples: loan, mortgage

credit unions

Credit unions are financial institutions owned by their members. Many of them offer all the financial products you would expect from a traditional bank, such as checking accounts and retirement accounts. Because they are not-for-profit institutions, credit unions may offer lower rates and fees than other companies. You will need to be a member of a credit union to get a mortgage from the foundation, and you will need to meet certain qualifications to become a member.

Examples: PenFed, State Employees Credit Union

Direct Lenders or Retail Lenders

Direct lenders create home loans directly to you. They can be a traditional bank or a specialized mortgage company, and they usually handle all the processing and underwriting at home. These lenders may hold your loan in their portfolio for the life of the mortgage. Direct lenders are also known as retail lenders, and most retail banks fall into this category.

Examples: SoFi, Wells Fargo

Hard Money Lenders

Hard money lenders are private lenders that offer loans backed by real estate, usually with higher interest rates and a shorter loan term than traditional lenders. This makes these short term lenders a last resort for most people. Real estate flippers often use hard money lenders to quickly buy, repair, and resell a home.

Examples: CoreVest, Lending

Mortgage Bankers

Mortgage bankers can refer to companies or individuals who issue mortgage loans. Mortgage bankers may hold loans in their own portfolios or sell them to investors in the secondary market, such as Fannie Mae and Freddie Mac. Most traditional lenders fall into this category.

Examples: Chase, Wells Fargo

Mortgage brokers

A mortgage broker is different from a mortgage banker. Mortgage brokers do not finance the loans themselves, but instead work with the banks or lenders who do. Home buyers may fill out an application through a mortgage broker and then receive offers from multiple lenders.

Examples: Credibility, free mortgage

Online Lenders

Online lenders do not have real branches like many banks. Instead, they take applications and finance loans through their websites or mobile apps. Loan officers may work with clients over the phone.

Examples: Better, SoFi

You can use credibility Compare Mortgage Rates without affecting your balance.

wallet lenders

Portfolio lenders create and hold real estate loans for the life of the loan rather than selling them to investors. Large lenders may do this with their own loans that they issue that do not fit neatly into the rules established by Fannie Mae and Freddie Mac. Some lenders focus exclusively on these loans as an option for people who do not qualify for traditional mortgage products.

Examples: LendingOne, the North American savings bank

warehouse lenders

Warehouse lenders give lines of credit to mortgage bankers to help them finance new mortgages that are then sold to investors. As a home buyer, you won’t interact with warehouse lenders – but the mortgage banker you work with might. Large banks may create mortgage loans themselves and offer warehouse lines of credit to other mortgage bankers.

Examples: Axos Bank, Flagstar Bank

Wholesale Lenders

A wholesale lender is a company that does not deal directly with consumers, but insteadAnd Mortgage loans provided to it by a mortgage broker. Large banks and lenders may offer bulk lending as an option along with direct lending.

Examples: Liberty mortgage, loan

Pros and Cons of a Mortgage Lender

When you are deciding what type of mortgage lender to work with, here are some of the advantages and disadvantages of the main categories you may encounter.

credit unions

Positives

  • May have lower rates – Because credit unions are not-for-profit institutions, they may offer lower interest rates than traditional banks.
  • May have lower fees – Credit unions often offer lower fees than their competitors.
  • Personal service available Your local credit union may have branches and a mortgage bank nearby that you can meet in person.

Negatives

  • Membership required – Credit unions require you to become a member to access many of their services, usually through a small fee and opening a savings account.
  • May have fewer offers – Your credit union may have a smaller product offering than other lenders.
  • May only work in a small area – Credit unions often only serve customers in their immediate geographic area.

direct lenders

Positives

  • direct operation – Direct lenders usually carry out the entire process within the company, which means that the loan officer, underwriters, and other employees are part of the same company. This can make it easier to prevent things from falling through the cracks.
  • personal service – Many retail lenders have branches available across the country where you can meet the mortgage banker in person.

Negatives

  • You should shop early – Working with a direct lender means that you only get loan options from one company. You’ll want to shop early before settling on a direct lender.
  • Options may be limited – Depending on the direct lender you choose, you may not be able to access the loan product that is best for you. Your loan options will be limited to what this lender offers.

Mortgage brokers

Positives

  • Multiple offers can be obtained – Brokers often work with many different lenders, giving you the opportunity to evaluate offers from multiple sources to find the best deal.
  • single point of contact – Brokers will walk you through the mortgage process, and provide you with one person to contact when you have a question.
  • Variety of loan types – Mortgage brokers often have the ability to find the type of mortgage that works for you.

Negatives

  • You may have to work with multiple companies – Once you enter underwriting process, You may have a challenge figuring out who is responsible for contacting the lender.
  • Service fee – Brokers charge a fee to make loans to lenders, and lenders may pass this cost on to you.

wallet lenders

Positives

  • More lenient qualifications – Because portfolio lenders don’t sell their mortgages to investors, they don’t have to follow the strict guidelines of Fannie Mae and Freddie Mac. This may make it easier for you to qualify.
  • fixed service – Since your loan will not be sold, you will likely work with the same servants for the life of the loan.
  • Flexible terms – Portfolio loans often offer more flexible terms than the strict 30- or 15-year mortgages you might find elsewhere.

Negatives

  • May have higher interest rates – Because holding loans is riskier than selling them, portfolio lenders may charge higher interest rates than you would find elsewhere.
  • May have higher fees – Portfolio lenders may charge higher fees and closing costs on your loan.
  • It can be hard to find – You will likely have fewer options if you are looking for a portfolio lender than if you want to work with a direct lender.

How to choose a mortgage lender

As you begin the process of finding a mortgage loan, weigh the type of lender that might work best for your situation. Make sure to shop around for many lenders and even multiple types of lenders. Before getting started, consider these questions:

  • What type of loan is best for you? If you are a military service member or veteran and know you want to VA loanFor example, you may want to choose a lender that specializes in this product.
  • Do you want personalized service or are you comfortable working over the phone? Some lenders have mortgage bankers in your area, while others will manage your mortgage application online or over the phone.
  • Where can you get the best prices? This is the most important place for shopping. You can get quotes from multiple lenders without penalty to your credit score as long as you do so within 45 days.
  • Who offers the lowest fees? While shopping, pay attention to fees as well as mortgage rates. Consider how much you have in your budget to pay closing costs in addition to the down payment. Different lenders have different fee structures, and some may allow you to combine closing costs into your loan.
  • Who will serve your loan? Find out from the lenders you are considering who will end up servicing the loan. Make sure to research this company as well as the lender.

If you are ready to apply for a mortgage, Credible allows you to easily Compare Mortgage Rates from different lenders.

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