Types of Mortgage Lenders

There are several types of mortgage lenders for those who are seeking financing for either buy a home or refinance a home. Each type of lender has its advantages and dis-advantages, but anyone getting ready to buy a home, or refinance their home, should be aware of the financing options that exist in the real estate market today. Most all lenders who do mortgage loans are going to require the same application package from the borrower, and accompanying documents as most loans are sold by the lenders to Fannie Mae or Freddie Mac, so all mortgage financing requires the same paperwork and borrower qualification standards.

1    BANKS
Advantages:

• Regulated by state and federal agencies
• Current banking relationship can get you a reduced mortgage rate
• Numerous branches provide you with face-to-face access

2    MORTGAGE BROKERS
Advantages

• Access to a variety of mortgages and lenders
• Can save you money by shopping for the best rates
• Can quickly find another lender if your loan initial application is turned down
  Disadvantages
• Some function as the lender’s agent and have the lenders best interest at heart
• Free to set their own pricing and may mark-up wholesale rates to whatever they want
• Service may vary from broker to broker

3    HOME BUILDERS & REAL ESTATE DEVELOPERS

Advantages

• Good way for the first-time home buyer to qualify
• The buyer does not take title to the property until the home is completed

Disadvantages

• May favor certain lenders who offer higher rates
• Can pressure you into getting their loan instead of using a different lender

4    INTERNET LENDERS (ONLINE LENDERS)

Advantages

• Allows you to shop for competitive rates online

Disadvantages

• A greater learning curve for the borrower to understand the lending process

The most common source of home lending is a retail financial institution, like a bank or credit union. They offer specific loan products and handle their own direct financing.

Mortgage Brokers, act as the loan processors, taking care of everything needed to get the loan funded, like ordering appraisals, getting credit reports, opening escrow, and other details. Mortgage Brokers don’t fund the loans themselves, but handle the mortgage financing arrangements for the borrower. Most Brokers earn their fees (called points)  from the lender, and in some cases from the borrower also, or a combination of both. Since mortgage brokers have access and work with a wide variety of banks, credit unions, and other sources of financing, they are usually on top of the latest rates, fees and lending practices, and know who has the best overall mortgage loans to meet each individual loan requirement.  Mortgage Brokers also know which lender will best match the borrowers financial qualifications.

Home builder, or home developer financing is common in new home developments where there is a single builder. The builder carries the construction costs until the homes are built and are ready to be sold and permanent financing put in place to pay off the construction loan. The builder works with a lender to set-up financing for the buyer and finances the construction costs. The buyer doesn’t make mortgage payments until the home is completed and bought off by the building department, and approved as complete by the construction lender.