Types of mortgage lenders and how to choose between them

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If you are looking for the perfect mortgage lender for your situation, you have a lot more options to consider than your nearest bank or credit union.

Some alternatives may even simplify qualifications, help you save money, or allow you to close faster. In other words, choosing the right type of lender can relieve stress during a potentially confusing process.

Here’s everything you need to know about the different types of mortgage lenders available to you:

What is a mortgage lender?

The mortgage lender is the company you turn to when you need get a home loan… Whether you are looking to buy or refinance, cash out, or get a home equity loan, a mortgage lender can provide you with the money you need.

Mortgage Lenders vs Mortgage Brokers

A mortgage lender is a separate company that offers its own home loans. A mortgage broker is a company or individual offering home loans from multiple lenders.

Many people turn to mortgage lenders when they need a home loan because they know the names of these companies. But work with a mortgage broker could be a faster way to find the best mortgage deal. Instead of applying multiple times to collect quotes from multiple lenders, you can apply once and receive multiple bids.

Tip: You can still compare the mortgage rates you can get yourself with the quotes your broker gives you. Since most brokers only work with a small group of lenders, it doesn’t hurt to look for quotes from other lenders that your broker doesn’t work with.

To maximize your savings, you usually need to get three to five offers before taking out a loan.

Trustworthy lets you easy to compare rates… In just a few minutes, you can receive a simplified pre-approval letter and view loan details from all of our partner lenders. We also provide transparency of lender fees, which other brokers usually do not.

Credible makes it easy to get a mortgage

  • Instant simplified pre-approval: It only takes 3 minutes to see if you are eligible for an Instant Pre-Approval Simplified Letter, without compromising your credit.
  • We keep your data confidential: Compare rates from multiple lenders to keep your data from being sold or spammed.
  • Modern approach to mortgages: Complete your mortgage online with bank integration and automatic updates. Talk to a loan officer only if you like.

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8 types of mortgage lenders

While there are many types of mortgage lenders, not all of them work directly with consumers. However, it is useful to know the differences so as not to waste time on the wrong path when buying a loan.

1. Mortgage bankers

  • At a glance: Individuals or Home Loan Companies

Mortgage bankers can use their own money to make home loans or help borrowers get mortgage financing from a bank. However, unlike a mortgage broker, a loan application is processed by a banker, underwriting, and assertion directly.

Mortgage bankers can get everything from government-backed loans, for example FHA mortgage, for secondary housing loans. They also have more options for issuing mortgages to non-traditional borrowers.

Examples: Mortgage 1, Ideal Home Loans, Paragon Home Loans

2. Retail lenders

  • At a glance: Banks or mortgage companies that work directly with consumers

When most people think about getting a home loan, they are probably thinking about retail lenders. These include banks where you may already have a savings account. Many retail lenders have regular offices and offer other types of loans as well.

Examples: chase, Wells Fargo, Bank of America, SoFi

Learn more: 5 types of mortgages: which one is right for you?

3. Wholesale lenders

  • At a glance: Mortgage Sponsors for Retail Lenders

If you are into a bargain, you may have found a way to wholesale some of your favorite items. However, you cannot do this with a mortgage. Wholesale mortgage lenders don’t work directly with consumers; they work with retail lenders.

Retail lenders may choose not to lend their own money for mortgage loans. They can get this money from another source, such as a wholesale lender. Some companies have both retail and wholesale divisions. This is the case, for example, with Caliber and Freedom.

Examples: United wholesale mortgage, Mortgage Freedom Wholesale, Home Loans Caliber

4. Direct lenders

  • At a glance: Specialized mortgage companies that work directly with consumers

A direct lender is a mortgage company that provides its own loans. Direct lenders overlap with some of the other types of lenders on this list – for example, a direct lender might be a mortgage banker or portfolio lender.

Unlike a retail lender, which may offer several different types of loans, a direct lender specializes in mortgages.

A direct lender is also much less likely than a retail lender to have a physical location; many only work online. But you will find all types of mortgages through direct lenders, from 30 year regular loans to adjustable rate mortgage and giant loans.

Examples: Quicken loans, credit, PennyMac

5. Portfolio lenders

  • At a glance: Lenders with more flexible underwriting for non-standard borrowers

After your loan is closed, the mortgage lender usually sells it on the secondary market to Fannie Mae or Freddie Mac. But a portfolio lender does not – instead of selling the debt, he keeps the loan in his portfolio.

Since they do not sell their loans, portfolio lenders decide for themselves who is eligible for a mortgage and under what conditions. They can be a good choice if you do not meet some of the more stringent requirements set by traditional lenders, or if you want a larger loan amount.

Examples: Axos Bank, Emigrant Mortgage, First Bank

6. Online mortgage lenders

  • At a glance: Efficient and cost-effective lenders for tech-savvy borrowers

Online mortgage lenders don’t have physical branches. They simplify the application and approval process by doing everything online. You will apply through their website or app and then upload documents such as tax returns, bank statements, and proof of income for underwriting approval.

You can contact the loan officer by phone or email. In some states, you can even close a loan remotely… An online lender can also be a hard money lender, a direct lender, a retail lender, a portfolio lender, or a mortgage banker.

Examples: Rocket mortgage, Ally, It is better

7. Lenders with hard money

  • At a glance: Short-term financing companies with high interest rates for real estate investors

If you are buying a home and want to pay for it for 15 or 30 years, the lender is not for you. But if you are a real estate investor who only needs to borrow money for a few months to buy a house, renovate it and resell it, then a hard money lender may be a good option.

While they charge high interest rates and registration fees, they are less demanding on the condition of the property and can close loans quickly… They will also loan you money for repairs, not just the purchase price.

They may need proof of your track record as a successful flipper, or they may require more if you’re new to the practice. A hard money lender can also be a direct lender.

Examples: Garden financing, anchor loans, home loans

8. Credit unions

Credit unions have a reputation for providing more personalized services than major banks. As far as mortgage lending is concerned, you can see this in the loan programs they offer.

For example, one of the nation’s largest lenders, the Navy Federal Credit Union, has loans that require no down payment or private mortgage insurance (PMI). You won’t find this option at Wells Fargo unless you meet VA loan requirements

Not every credit union and major bank will fit these templates, but if you really need more help getting a mortgage, you might be in better luck with a credit union.

What’s the catch? To get a credit union mortgage, you must become a member of the credit union. Some credit unions are open to everyone, but others require you to work for a specific company or live in a specific area. However, you are bound to find someone in your area or on the Internet that you are eligible to join.

Examples: Navy Federal Credit Union, Pentagon Federal Credit Union, Alliant Credit Union

How to choose the right mortgage lender

Choice best mortgage lender for your circumstances, it may mean searching among different types of mortgage lenders. But many people shop only from one category of lenders, such as online lenders, without even knowing how a mortgage banker, mortgage broker, or portfolio lender can expand their options.

Comparing quotes from multiple lenders is key when you want to get the right loan, the best interest rate and the lowest closing costs. On average, getting at least five quotes could potentially save you thousands of dollars.

Here are some points to consider when choosing between mortgage lenders:

  • Loan offers
  • Interest rate
  • Closing costs
  • PMI requirements
  • Loan processing time
  • Minimum down payment
  • Customer service
  • Reputation

Finding a home loan can be stressful. Fortunately, Credible simplifies this process and makes it easy to compare multiple lenders. You can see the pre-qualified rates from our partner lenders and generate a simplified pre-approval letter in just a few minutes using the table below.

about the author

Amy Fontinel

Amy Fontinel is a mortgage and credit card agency and sponsor of Credible. Her work has been featured in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual and others.

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