Which Mortgage Lender is Right For You?
Looking for a lender when buying a home can be confusing and sometimes intimidating. With so many companies and types of lenders to choose from, it is important to choose a lender that offers the best service for your unique needs. Understanding the differences between the types of lenders can help you make the best decision.
Choosing the right lender can save you time, money, and frustration. It’s important to take the time to get to know each type of lender and shop around. There are banks, both regional and national or international, mortgage brokers, and even online lenders to choose from. While many lenders share some similarities, there are some lenders who offer specialty services.
What is a Mortgage Lender?
A mortgage lender is a financial institution or mortgage bank that offers and underwrites home loans. Mortgage lenders set key aspects of your mortgage, including terms, interest rates, and repayment schedule. Mortgage lenders are an essential part of most home buying processes and they are typically that first party that a prospective home buyer will work with.
What are the different types of Mortgage Lenders?
1. Local or Regional Banks
Local or regional banks, also called portfolio lenders, are for-profit lenders that originate (initiate) service and sell a wide variety of mortgage products. You should consider your local or regional bank as your mortgage lender if you are looking for a specialty product such as commercial lending or if you are a high net worth individual with a standing relationship with your bank. Borrowers who need a much larger loan, such as a jumbo loan, which exceeds the limits set by the Federal Housing finance Agency, may also want to work with a portfolio lender. Portfolio loans may often require higher interest rates, closing costs, and fees.
2. Credit Unions
Credit Unions are not-for-profit organizations that members own. They focus on serving their members instead of earning a profit. Therefore, you must meet membership requirements to get a mortgage with a specific credit union. Consider a credit union for your mortgage if you are already a union member. For example, teachers, veterans, police, and firefighters often obtain mortgages with their credit union. Credit unions also offer a variety of loan services including Adjustable-Rate Mortgages (ARMs), Fixed Rate Mortgages, and government – backed mortgages.
3. Large National or International Banks
Large national and international banks are easily accessible lenders because they often have branches throughout the country and the world. You should consider working with a large national or international bank if you are a high-net-worth individual and need access to your lender from anywhere in the world. Much like local or regional banks, larger banks offer a wide variety of loan options.
4. Mortgage Brokers
You can think of a mortgage broker as a licensed, regulated financial professional who works with you and a mortgage lender. The major difference between a mortgage banker and a mortgage broker is that mortgage bankers work directly with homeowners and mortgage brokers act as the intermediary between you and that institution. Mortgage brokers do not loan money themselves. A mortgage broker may save you time and money when you don’t have the time or opportunity to find the right lender for you on your own. Mortgage brokers do most of the work for you – they gather documents from you to get information about your income, assets, and liabilities. They also pull your credit history and put all the details together to give you information about loans. Mortgage brokers will also negotiate terms for you and may save you time and money when you don’t have the time or money to find the right lender on your own. If you need a loan with a low down payment requirement or your credit is not so pristine, brokers can look for lenders that offer products tailored for your situation. Brokers typically have well-established relationships with dozens, if not hundreds, of lenders. However, once paired with a lender, mortgage brokers do not have much control over your loan, how long it takes to process, or whether you will be approved or not.
5. Direct Lenders
Direct Lenders originate their own loans. These lenders either use their own funds or borrow from somewhere else. Direct Lenders can walk you through the mortgage process without intermediaries, like mortgage brokers, getting involved. They underwrite, process and close your loan on their own. Mortgage banks and portfolio lenders can be direct lenders. What distinguishes a direct lender from a retail bank lender is specialization in mortgages. Direct lenders also tend to have more strict underwriting rules, with a narrowed focus on home loans, direct lenders tend to have more flexible qualifying guidelines for borrowers. Many also operate online or have limited branch locations, a potential drawback if you prefer face-to-face interactions.
6. Internet Based Lenders
Online lenders offer an alternative to a traditional bank. An online mortgage lender originates loans either entirely online with a completely digital experience or operates through a brick-and-mortar institution that has in-person locations. With the ability to work with online hard money lenders, you will be able to conduct business from the comfort of your home. You will also be able to shop around very easily and make sure that you find the best deal. When you are looking online for lenders, you want to make sure that you find a hard money lender that does business in your geographic area. Many of them are licensed to do business only in certain states, and you do not want to start the process if they cannot finish it.
What's the Bottom Line?
You can choose from many different types of mortgage lenders, including local banks, mortgage brokers, and internet-based lenders. While all these choices can seem overwhelming, the most important thing you can do is choose a mortgage lender that offers the best service, depending on your own unique needs. In addition to working with a local real estate agent, be sure to have your documentation organized and be transparent about any challenges you have with credit, income, or savings so lenders and brokers offer you products that are the best match.