Mortgage Lesson 1: The 8 Types of Mortgage Lenders
Most people only think about rates and terms when it comes to mortgages, but it's also important to note that there are many different types of lenders, each with specific loan programs. Knowing the differences is the first step in understanding the mortgage loan process. Following are the 8 most common types of lenders:
Mortgage Lenders: Lenders are the ones who make the loan and provide the money you'll use to buy your home. When meeting with lenders, you'll have to provide a lot of financial background information. The lender will then set the mortgage interest rate and other loan terms accordingly.
Mortgage Brokers: Brokers work with multiple lenders to find the loan that will offer you the best rate and terms, so when you take out the loan, you're really borrowing from a lender, not a broker. This is often one of the most confusing parts of the mortgage process for prospective buyers.
Mortgage Bankers: Most mortgage lenders are mortgage bankers, which means they don't lend their own money, but borrow funds at short-term rates from warehouse lenders. Larger mortgage bankers will originate their own loans, which they'll then sell directly to Fannie Mae, Freddie Mac, or investors.
Hard Money Lenders: Hard money loans are typically issued by private investors or companies. If you're having trouble getting a mortgage and working with a portfolio lender, a hard money lender may be a last resort. These loans are generally interest-only for a set term, which ends with a balloon payment.
Wholesale Lenders: A wholesale mortgage lender works with independent mortgage brokers and loan officers to originate loans. Brokers and loan officers work on the retail end with borrowers, and once they secure a deal, they send that deal to a wholesale mortgage lender for underwriting and processing.
Correspondent Mortgage Lender: These lenders originate and fund home loans in their own name. Shortly after the loan closes, they sell these loans to larger mortgage lenders who service the loans and may also sell them to the secondary market.
Direct Mortgage Lenders: A direct mortgage lender is simply a bank or lender that works directly with a homeowner, with no need for a middleman or broker. Mortgage bankers and portfolio lenders usually fall under this category if they have retail operations.
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