The real estate market is already saturated with mortgage lenders that deal with home mortgage and refinancing. For a home buyer, the process may get confusing and overwhelming if you’re trying to figure out whose services will benefit you the most.
Here are the different types of mortgage lenders to give you an idea who you should look for:
This entity (a person, a company or a third-party firm) can provide money to finance the purchase of your home. The term itself may describe a cornucopia of individuals depending on how they reach borrowers and what they do with the loan once they have funded it.
Based on customer acquisition:
- Retail lenders are referred to as direct lenders who conduct personal contact with the consumer. The connection may be done through phone, online, or face-to-face meeting. They usually offer their own money to be loaned or may act as agents for large institutions.
- Wholesale lenders are large institutions whose operations do not deal directly with borrowers but instead through third-party entities such as brokers, other banks and credit unions to offer their loans. In the event of signing the contract, it is the name of the wholesale lender that will appear on the loan document, while the third-party institutions will merely serve as agents.
- Correspondent lenders are a hybrid of mortgage brokers and retail lenders. These entities work with a sponsor or investor who buys loans from whom they collect a point or two. They fund loans using borrowed money and put rates on lockdown with lenders. That is how they earn and reduce the risks of a default by the borrower since they can easily sell the loan to another interested party.
Based on loan processing:
- Mortgage bankers fund loans from money they borrow from banks, which they pay in return after the loan has been sold.
- Portfolio lenders are composed of credit unions, community banks, and loan companies who use the borrower’s money in issuing home loans that they can keep in their book. Portfolio lenders are able to set their own terms for mortgages they issue since they don’t have to conform to the biddings of outside investors.
2. Mortgage Broker
Mortgage brokers are good in shopping for different lenders and connecting them to prospective borrowers. As a borrower, you get to be exposed to various lender choices, and the broker will try to find the best rates and terms to suit your needs. Unfortunately, the mortgage broker leaves the table when you’re already paired up with a lender. It may pose some difficulty for you to keep in touch with the loan funder.
3. Loan Officer
Mortgage loan officers may work either for a private bank/lender or independently, but can still deal with various lenders. They can help you as the borrower to choose the best lender by evaluating your credit and presenting you with available mortgage options. They earn through commission on your approved loan. Some loan officers may also function as mortgage brokers because they can also do loan processing.