Mortgages Part 5A: Types of Mortgage Lenders

Now that you are familiar with which loans are available, you should begin shopping for lenders. There are three types of mortgage lenders that you may encounter:

1. Direct lenders/ Mortgage banks

A mortgage bank, or a direct lender, lends you their own money. Typical direct lenders are the banks where you have your checking accounts, like Chase or Citibank, or a local credit union. There are also exclusive mortgage bankers that only make mortgages.

Pros of a mortgage bank:

• Relationship: You already have a relationship with the bank with years of banking. You may already know the people who will be handling your loan.
• One-stop shopping: The mortgage can be added to existing accounts. You can link them and make automatic payments from the accounts.
• Direct: You deal directly with the people lending you money. Only bank employees will review your application, following their own guidelines. There is no need to talk to people from different companies.
• Speed:  If you have any questions, or if any problems arise, you can easily drive to your bank and sort things out. The bank may also be able to process your loan faster than other providers.
• Savings: The bank may waive certain fees if you already have an account there.

Cons of a mortgage bank:

• Limited choice: Mortgage bankers only offer their own programs. They usually have more conservative guidelines and may not have the program you need.
• Time: To comparison shop, you will need to go to different banks and compare the different programs, rates, and fees.

Who should use a mortgage bank:

• Certain banks (usually small regional banks) have special loan programs for real estate investors.
• If you are denied a loan by a mortgage bank, go talk to a mortgage broker.

2. Mortgage Brokers

A mortgage broker is a middleman, and does not actually lend you any money. They represent mortgage products of hundreds of different lenders. The broker' will try to match you with the loan product that best meets your needs at the best price.

Benefits of a mortgage broker:

• Choices: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a mortgage bank. Sometimes the rate they can find (wholesale rate) is lower than what you can find from the bank.
• Time: A mortgage broker will comparison shop for you and save you time.
• Easier to qualify: Based on your financial and personal information, a mortgage broker can steer you to the lenders who will most likely approve your loan. Good brokers can find you financing, even in tricky situations, due to their vast knowledge of different lending partners and loan programs.

Cons of a mortgage broker:

• Hidden costs: Mortgage brokers make money by charging fees from you or from the actual bank lending the money. Some mortgage brokers attempt to increase their profit by charging very high junk fees.
• Professional oversight: Unlike mortgage bankers, mortgage brokers are not subject to the same licensing and regulation in all states. Some unethical mortgage brokers may make false promises to get your business.
• Less direct: Instead of everything being handled "in-house", everything is going through a middleman. So if the lending partner has a question for you, they have to find your mortgage broker, and the broker then finds you. Therefore, the loans are usually processed slower than a direct lender.

Who should use a mortgage broker:

• Anyone, especially if you do not have perfect credit.
• If you are self employed, and need a stated income or no doc loan.
• Real estate investors. Usually it will be easier for a mortgage broker to finance your deals because they have programs from many banks.

3. Internet Lenders

Internet lenders are not really a different type of lender. Some of them lend their own money and are direct lenders, while some are brokers. The only difference is that you will not get to meet with your loan officer face-to-face.

Benefits of an internet lender:

• Sometimes they offer the best rate.
• Less hassle: You do everything online, in the comfort of your own home. Usually you can settle at home as well.

Cons of an internet lender:

• No relationship: You never meet the loan officer. If they are located in a different part of the county, they are not familiar with the rules of your township, or even your state.
• You will need to be very careful with everything from the application process, fees, and rates. Getting a mortgage is a complicated process, and without any face-to-face meetings, confusions and misunderstandings can easily happen.

Who should use an internet lender:

• You probably should NOT use an internet lender if you are a first time home buyer. It is best for repeat home buyers who are financially savvy, who are looking for the best rates and terms.
• Best for refinancing. An internet lender from across the county may not be able to work with all the parties and deadlines involved with a sale.

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