If you’re trying to buy a home, you’re going to hear about mortgage lenders. For the most part, people assume there’s only one type of mortgage lender, but there are a number of them. You’re about to learn about them so that you know what’s available to you. This can help you make an informed decision.
One type of mortgage lender is the mortgage broker. The broker works on the borrower’s behalf. They are there to help you find the best loan for your specific situation.
They don’t just work with one lender but a number of them to get you the best deal.
Think of these folks as insurance brokers. They aren’t working for anyone in particular except you. You have to submit a loan application with the broker. Then, this person will use that information to figure things out.
They’ll study your financial situation and use the information to curate the best options for you. Once they find several options, they will present them to you, giving you the pros and cons of each.
You decide what you want. After that, the broker makes everything else a little easier for you. Yes, there is a broker fee you might pay or the lender might have to pay. If you’re concerned about who’s going to pay the broker fee, then ask before you work with someone.
The mortgage bank is just a bank that offers mortgages. They sometimes offer loan products through independent brokers, but usually, they have their own brokers who help clients find the money they need to purchase a home.
Think of the mortgage bank as a bank with its own branch of mortgage brokers that work for the bank. People like to go to these brokers because they trust the bank. It could be a bank they’ve done business with for years, so there’s inherent trust.
The direct lender is the entity lending you the money. They don’t represent a multitude of lenders, just the one they belong to.
This could be a bank like those mortgage banks you just learned about earlier, or it could be a private entity that provides loans for folks like you.
The reason many people like to work with direct lenders is that the loan process is much smoother. You won’t talk to someone who has no say in whether or not the lender approves your request, which is the case with a mortgage broker. You’re talking directly to the people who will say yes or no to your request.
Retail lenders could be traditional or national banks. They could also be those local banks you’ve seen in your community. They could also be credit unions.
The retail lender is basically any banking institution that offers loan products to customers. Sometimes, this is done when the customers come into their location, but it could be done online or through the phone as well.
Most of the time, these lenders are prepared with their own brokers or loan officers that work directly with the bank. These folks are direct lenders, which you learned about a little earlier.
The portfolio lender is a banking or financial institution that offers mortgage loans to its customers. The key here is that these loans are kept in a portfolio of loans.
Some lenders lend you the money only to sell that loan to another entity. In essence, you end up paying this loan and the interest on that loan to a new entity whenever your loan is sold in this secondary market.
This won’t happen here. The loan is kept by the institution that issued that loan. The interest on the loan will be paid directly to the financial institution. The good thing about these types of loans is that you always know who to talk to concerning your loan and interest.
A wholesale mortgage lender is pretty much what it sounds like. This is a financial institution that funds mortgages and offers them to all viable third-party institutions.
A viable institution is the kind of financial institution people trust. These are the companies that everyone turns to when they need a mortgage, so this includes credit unions, banks, mortgage brokers, and any other type of institution that offers loans.
You, the person borrowing, will never have any contact with the actual lender. You’ll always go through the third-party entity. The communication you’ll have with the wholesale lender is through underwriting.
The third-party lenders know everything about the wholesale lenders. They are informed about the loan options, the terms, and everything else.
This type of lender originates the loan. On top of that, this lender underwrites the loan and funds the entire mortgage for you.
A regular mortgage broker doesn’t do any of this. They are just a middleman. They don’t originate the loan nor do they fund it. Now, it should be pointed out that the loan doesn’t stay with the correspondent lender. This entity ends up selling the loan after the closing.
The loan is then kept with a larger primary lender or is sold to whoever is willing to carry it.
Okay, so loan originators don’t always have the cash to lend you anything. You might wonder how they get money.
Well, they use warehouse mortgage lenders. A line of credit is offered to loan originators so that they can promise loans to borrowers like you.
When you get approved, it’s because of that line of credit. The originator only gets paid through the fees that are charged to the borrower when the loan is made. The lender keeps the loan and makes money off of it or sometimes sells it to an interested party like an investor.
Hard Money Lenders
A hard money loan is usually secured. These loans are made only after the borrower offers real estate property in return. Most of the time, these loans are skipped because most people want to keep their property.
Still, every so often, these are the only types of loans available to some people for whatever reason. These loans are usually done through private entities or between individuals who are just trying to get their feet wet in the real estate market.
Now, you know more about mortgage lenders, and you can make a better decision about who to work with. Hopefully, this information makes it easier for you to navigate this world and understand terms as you go along.