We all are daydreaming of a big and beautiful or small and cozy, but our own house. The process of buying a house can be, and in fact it is, very confusing and stressful. State and federal laws, current mortgage rates, tax considerations, your personal preferences and your financial situation – all these only add more headache to you.
One of the most confusing parts of the mortgage process can be figuring out all the different kinds of lenders that deal in home loans.
So, in order to get the best deal, or you have other special circumstances to address, understanding the different types of lenders can be a big plus.
There are direct lenders, retail lenders, mortgage brokers, portfolio lenders, correspondent lenders, wholesale lenders and others.
First, let’s define a lender and what he does. It is someone who lends money to another; it can be individual, public or private group. The money that was borrowed should be repaid with additional interest.
- We’ll start with mortgage lenders. Those are the lenders that actually make loans and give money to buy a house, and set their mortgage interest and other loan terms. You have to meet certain criteria in terms of creditworthiness to be qualified for a loan.
- Mortgage brokers, are those who find lenders who will offer the best deal for you. They actually don’t make loans, they act as agents. Usually, wholesale lenders, are those who work through mortgage brokers.
- Wholesale lenders - bank or other institutions, that do not work with clients directly. They offer their loans through third parties, such as mortgage brokers. Frequently, these are large banks that also have retail operations that deal with clients directly.
- Retail lenders – offer mortgages directly to individual clients. They may lend their own money or simply act as agents for wholesale brokers.
- Warehouse lenders – are similar to wholesale lenders. The main difference between them is that, warehouse lenders lend money to banks or other mortgage lenders, instead of providing loans through third parties. The warehouse lender is repaid when the mortgage lenders sell the loan on their own terms.
- Mortgage bankers – lenders who don’t lend their own money, but borrow them at short-term rates from warehouse lenders. The vast majority of U.S. mortgage lenders are mortgage bankers. Once the mortgage is made, they sell it to investors and repay the borrowed money to warehouse lenders.
- Portfolio lenders – lenders who use their own money and set their own terms for the loans they issue. Characteristically, they maintain their own books or portfolio with the loans they’ve issued. This type of lenders may deal with those who don’t fit the typical lender profile, because they are seeking a jumbo loan, or are considering a unique property, etc.
- Hard money lenders – often private individuals with money to lend, though they may be set up as business operations. Typically, that kind of lenders are used for short-term loans, as their interest rates tend to be quite high.
- Direct lenders – as a matter of course those lenders are retail lenders as well. A direct lender simply means a lender that originates its own loans, either with its own funds or borrowed funds. It can therefore be either a mortgage banker or portfolio lender. It does not, therefore, act as an agent for a wholesale lender.
- Correspondent lenders – correspondent lenders are defined by what happens after the loan is issued. Correspondent lenders work with an investor, called a sponsor, who purchases any mortgages they make that meet certain criteria. Often, this is either Fannie Mae or Freddie Mac, in their roles as the major U.S. secondary lenders.
Knowing and understanding all different types of lenders is not enough, so if you decide to get a mortgage loan, make sure you contact a qualified real estate lawyer who will advise what option would be the best for you. A mortgage agreement is a very significant and serious document, so having an experienced lawyer in that field who will review and explain it to you is very important. Make sure, you don’t sign any documents before a lawyer revised them. In order to find a good, qualified, experienced real estate attorney, if you still don’t have one, visit Legal Bistro website, where you can find the best lawyers, absolutely for no fee.
Moreover, you are more than welcome to watch our video, which provides you with the information about all types of mortgage lenders, description of their duties and their role in the real estate mortgage industry, as well as, the results of NAR (National Association of Realtors) Home Buyer Survey, etc.