When you consider applying for a mortgage, one of the first questions you may ask is what types of home lenders are available. There are numerous different institutions that lend money to prospective homeowners; however, most of these different types of home lenders have a lot in common. Still, it is important to understand the difference between the types of home lenders so you can fully valuate your options.
What are the Different Types of Home Lenders?
There are a number of technical distinctions when it comes to different types of lenders. For example, some lenders issue loans from their own capital reserves or money that they have on hand. These lenders are often called portfolio lenders. Other lenders issue loans from a line of credit and then sell the loans on the secondary market. These lenders are referred to as mortgage bankers.
While these distinctions can be important, in most cases, homeowners are not primarily concerned with exactly where their lender is getting the money from or with what happens to the loan after they negotiate the terms and originate the mortgage. Therefore, most homeowners are primarily concerned with which types of lenders they can go to in order to qualify for a loan in the first place.
Different types of home lenders that may provide a mortgage include:
- Banks, credit unions or savings and loans
- Mortgage brokers
- Wholesale lenders
Banks, Credit Unions or Savings and Loans
Banks, credit unions and savings and loans usually work directly with home buyers, although you can use a mortgage broker to put you in contact with a savings and loan as well. You can use a local bank, credit union or savings and loan or find one online. If your bank services the mortgage loan themselves, you will send your monthly payments directly to them. If they sell the loan off, you may need to send your check to a different place each month, but the terms of the loan will still remain the same as the deal you negotiated with your original lending institution.
Mortgage Brokers
Mortgage brokers work with a number of different lenders to originate loans. They can typically engage in more creative financing methods and may be able to help you choose from a wider variety of loans than a standard savings and loan. Mortgage brokers can also provide you with access to wholesale lenders, who issue mortgages to brokers at a lower rate so the broker can then add on his fee. Be aware that you will have to pay a commission to a mortgage broker; however, the broker may be able to help you save money on interest and that may make the commission worth the cost.
Wholesale Lenders
Wholesale lenders rarely work with individual buyers, preferring instead to work with mortgage brokers or loan officers. If you have excellent credit, it may be possible to approach a wholesale lender directly to qualify for a lower interest rate loan. However, this is not always possible and it may be difficult to find a wholesale lender willing to offer this option.
What about Government Types of Home Lenders?
Many people believe that the government is one of the types of home lenders. However, although government agencies such as the Federal Housing Administration, the Departments of Veterans Affairs and the Department of Housing and Urban Development will insure or guarantee loans, the government works with private lenders to issue these loans.
Fannie Mae and Freddie Mac, for example, are known as government sponsored entities but also work with other lenders who actually issue the loans. Therefore, the government is technically not one of the types of home lenders, and you cannot apply directly through a government entity to borrow money to buy a home.
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