There are tons of mortgage lenders available to you, so you don’t have to limit yourself to your local bank or credit union if you’re looking for the best mortgage lender for your situation.
You might even qualify for a loan faster, save money, or close sooner if you choose an alternative. The correct lender can ease the stress during an otherwise confusing process.
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What is a Mortgage Broker?
During the mortgage loan process, a mortgage broker acts as a middleman between the lender and the borrower. They establish connections between lenders and borrowers without using any of their own funds.
High risk mortgage brokers attempt to match the borrower with a lender who offers a favourable interest rate and is a good fit for the borrower’s financial situation.
A mortgage broker should gather all relevant documents from the borrower and forward them to the potential lender.
The following information describes the different types of mortgage lenders:
Mortgage Brokers
A mortgage broker works with a variety of lenders, but it’s important for you to know what services each lender offers. Direct lenders do not offer products to brokers. A couple of lenders, along with a mortgage broker or two, are the best ways to find the best loan offer for you.
Mortgage Bankers
In the U.S., mortgage lenders are primarily mortgage bankers. Banks, credit unions, and online lenders can be mortgage banks, whether they are retail or direct lenders. In order to fund mortgage loans they make to consumers, they borrow money at short-term rates from warehouse lenders.
Retail Lenders
These lenders provide loans to consumers directly, rather than through institutions. The most common retail lenders are banks, credit unions, and mortgage lenders. Retail lenders offer other products, such as checking and savings accounts, personal loans, and auto loans, along with mortgages.
Direct Lenders
This type of lender originates its own loans. They borrow funds from elsewhere or use funds they have on hand. Direct lenders can be mortgage banks or portfolio lenders. Direct lenders specialize in mortgages, as opposed to retail bank lenders.
The underwriting rules of retail lenders tend to be more stringent because they sell multiple products to consumers.
The main focus of direct lenders is on home loans, having more flexible qualification guidelines and alternative solutions for borrowers with complicated loan files. Like retail lenders, direct lenders only offer their own products, so if you want to compare direct lenders, you will have to apply to several of them.
Portfolio Lenders
These lenders fund borrowers’ loans with their own funds. Therefore, such lenders are not dependent on outside investors. Some borrowers may be drawn to portfolio lenders because of their flexible loan guidelines and terms.
Wholesale Lenders
There are wholesale lenders who offer loans to third parties, such as mortgage brokers, credit unions, or other banks. The wholesale lending industry does not deal directly with consumers but instead originates, funds, and sometimes services loans.
Correspondent Lenders
These lenders are involved in the mortgage process. It is they who make the initial loan and might even serve it. The typical correspondent lender, however, sells mortgages to investors (also known as sponsors) who resell them to secondary mortgage investors.