What Are the Different Types of Mortgage Lenders?

Mar 30, 2022

3

min read

M

ortgage lenders play a crucial role in borrowing home loans. They facilitate borrowing the mortgage loan by keeping the homes as collateral and providing the fund to purchase and construct the home.

Although the type of loan you choose is necessary, selecting the appropriate lender is equally vital for you to save money, time, and hassle.

That is why it is critical to take the time to shop around to find the best lender type which meets your needs and requirements.

This article has covered everything you need to know about types of mortgage lenders such that you have a clear idea of which one fits right for you.

What Is A Mortgage Lender?

A mortgage lender is a bank or financial entity that provides house loans. It provides you with the funds required to purchase or construct a home by keeping the same home as the collateral.

Several mortgage lenders offer various rates, fees, and repayment terms to the borrower.

How Do Mortgage Lenders Work?

Mortgage lenders would require you to fill up a home application form to apply for the loan. With the information in the form, the lenders check your background and your financial situation to determine if you are qualified for the loan or not.

There are two types of applicants for mortgage lenders: high-risk and low-risk applicants. The interest rates and amount are set on which criteria you belong to.

The high-risk applicant may have their loans rejected or face high interest rates. On the other hand, low-risk applicants can borrow a good amount of money with low interest rates.

If the lenders find you as a qualified borrower, then the lender would lend you the money based on your credit score, repayment capability, and the value of your home.

After successfully settling the loan, you have to pay the interest and monthly payments to the lenders against the home loan borrowed. In case of default, the lender has full authority to seize the property.

Types Of Mortgage Lenders

Retail Lenders

A retail lender is a financial institution that provides loans to people, not institutions. Retail lenders include banks, credit unions, savings and loan companies, and mortgage bankers. It also consists of third-party lenders that partner with retailers to provide loans to individuals.

Banks

Providing loans is the primary function of a bank and thus, providing a mortgage lending service is one of the crucial functions of the bank.

Bank directly deals with the consumer for the loan process, and it generates the loan through its assets.

Usually, the bank deposits are the bank's liabilities through which the bank generates the loan and lends it to the consumers.

For example, Bank of America, Chase, and Wells Fargo are some banks with mortgage lending services.

Credit Unions

Credit Unions provide a similar function to the bank; however, they are member-owned, non-profit, and tax-free, unlike banks. To borrow a loan from a credit union, you must be a credit union member.

To help you purchase a property, the credit union may need to partner with a bank or another lender to lend you the loan, depending on the mortgage you need.

For instance, PenFed, Connexus, Navy Federal, San Diego County Credit Union are some of the popular mortgage lending credit unions.

Mortgage bankers

A mortgage banker is a firm, person, or organization that finances mortgages with their own money or money borrowed from a commercial lender.

They may decide to keep a mortgage in their portfolio or sell it to an investor once it has been created. The main goal of a mortgage banker is to earn profit from loan origination.

Mortgage banks could be retail or direct lenders, including banks, online mortgage lenders, or credit unions.

Wholesale Mortgage Lender

A wholesale mortgage lender is a financial entity that finances mortgages and sells them to third parties such as banks, credit unions, mortgage brokers, and independent mortgage companies or professionals.

The borrower normally does not communicate directly with the lender in wholesale lending; instead, the borrower interacts with a third party responsible for supporting the loan origination and application process.

A wholesale lender informs these third parties of their lending alternatives and conditions and connects applicants with suitable loans.

Wholesale lenders generally sell the loans in the secondary mortgage market to free up capital to fund other mortgages.

For example, Carrington Mortgage Services, Freedom Mortgage Corp, Stearns Lending, and United Wholesale Mortgage are some of the popular wholesale mortgage lenders.

Consumer Direct Lenders

A direct lender is a financial institution or a private company that originates a mortgage loan and directly lends the loan to the consumers without the involvement of any middleman or broker.

Direct lenders are private firms that specialize in providing mortgage loans to the general public, and many of them even operate online.

For example, Banks and other financial institutions such as Bank of America, Chase, Wells Fargo, etc., are examples of direct lenders.

Mortgage Brokers

A mortgage broker is a middleman who links mortgage borrowers and lenders but does not originate mortgages.

They are more like financial counselors who connect clients with lenders and find the greatest match for their financial circumstances and interest-rate requirements.

In addition, the mortgage broker collects documentation from the borrower and forwards it to a mortgage lender for underwriting and clearance. As a result, the broker receives a commission from the borrower, the lender, or both.

For example, C2 Financial Corporation is a popular mortgage broker.

Conclusion

Finding the right lender and loan can be a hassle. But, if you research and understand these types of lenders and loans before applying for the loan, it will give you a clear picture to know which one fits right for you.

There is a pool of lenders in the market with tempting offers and rates, but you must choose the one that fits your needs and requirements.