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Mortgage Lender Options

Mortgage Lender Options

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

    It is important to realize that you have lender options when shop for a mortgage.  You can use these options to create competition for your mortgage business and make sure you are getting the best loam terms.  There are several types of mortgage lenders including banks, mortgage brokers, mortgage bankers, credit unions and private money lenders. 

    • Banks such as local, regional or national banks, use their customer deposits to offer mortgages.  Banks usually offer attractive loan terms, especially if you are an existing customer, but they tend to apply stricter qualification requirements and offer a more limited range of loan programs.
    • Mortgage brokers are not direct lenders, which means they work with a network of wholesale lenders to fund your loan.  Because mortgage brokers have relationships with multiple funding lenders they are able to comparison shop on your behalf to find you the most attractive loan terms.  Also, because mortgage brokers work with many lenders, they are usually able to offer a wider variety of mortgage programs.  Mortgage brokers may not always offer the best terms but we recommend that you contact one when shopping lenders because of the unique benefits they provide.
    • Mortgage banks are direct lender which means they provide you the funds for your loan.  Unlike traditional banks that offer deposits, credit cards and other financial products, the only product mortgage banks offer is mortgages.  Depending on their size and scope, mortgage banks can offer highly attractive loan terms, potentially even better than terms offered by traditional banks.  Borrowers are well served to get a loan quote from a mortgage bank. 
    • Credit unions are another direct mortgage lender option borrowers should consider.  While credit unions tend to specialize in home equity loans and lines of credit, many offer mortgages as well.  Credit unions tend to focus on specific niches and may not provide the same breadth of loan programs as other lenders.  You also are required to be a member of the credit union so you may be required to meet an eligibility requirement.  The positive news for borrowers is that most credit unions are not for profit organizations which may allow them to offer better mortgage terms.
    • Private money lenders, also known as hard money lenders, are a non-traditional mortgage lender option. A private money lender uses capital from investors to provide mortgages and other loans to borrowers.  Private money lenders focused on credit-challenged borrowers and niche loan programs.  For example, if you have recently exited bankruptcy and cannot qualify for a mortgage with a traditional lender, you may be able to get a loan with a private money lender.  Or if you need a fix and flip loan to buy a property to renovate, private money lenders may be a good option.  Private money lenders charge significantly higher interest rates and fees than traditional lenders so borrowers should be sure to understand the extra cost involved with a private money loan.

    Use the FREEandCLEAR Lender Directory to search over 3,900 lenders by type.

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  • Each type of lender offers borrowers advantages and disadvantages. Some lenders offer more competitive mortgage rates while other lenders offer a wider range of mortgage programs. Some lenders offer more flexible qualification guidelines while different lenders work with credit-challenged borrowers. Because lenders have strengths and weaknesses, we recommend that borrowers contact different types of lenders to understand the mortgage options available to them.

    The table below outlines the positive and negatives for different types of mortgage lender. Some lenders such as banks, mortgage bankers and credit unions are direct lenders, which means they lend you money directly for your mortgage, potentially allowing them to offer you a lower interest rate. Other lenders such as mortgage brokers do not fund mortgages directly but instead act as a personal mortgage shopper for borrowers and compare rates and fees from multiple funding lenders to find you the best loan terms, so you benefit from lender competition. Private money lenders charge the highest interest rates and fees and are used by borrowers who have poor credit, who are unable to qualify for a mortgage with other types of lenders or who are seeking specialized loan programs.  Review the table to learn what type of of lender best meets your mortgage needs.

  • Mortgage Lender Options
    Lender Type Definition Example Pros Cons
    Banks
    • Take deposits from customers and loan money to borrowers
    • Banks fund mortgages, which means they actually provide you the money for your mortgage
    • They may keep your mortgage or sell it to a third party in the secondary mortgage market
    • Wells Fargo
    • Bank of America
    • Chase
    • Direct lender
    • May be more difficult to qualify for mortgage
    Mortgage Broker
    • Personal Mortgage Shopper
    • Work with multiple lenders to offer borrower the best mortgage product
    • Also referred to as third party originators
    • Do not fund loans but work with a number of funding lenders
    • Typically smaller, local companies
    • Compare mortgage offers from multiple, competing lenders
    • Does not fund loans
    • May not offer better mortgage terms
    Mortgage Banker
    • Originates and funds mortgages using a corporate line of credit
    • Does not take deposits from consumers
    • Sells all loans into secondary mortgage market
    • Quicken Loans
    • Direct Lender
    • Alternative to using a bank
    • May have limited resources
    • May not offer better mortgage terms
    Credit Union
    • Takes deposits from customers and loans money to borrowers
    • Typically not for profit institutions which may allow them to offer more competitive mortgage rates
    • You must be a member to obtain a mortgage from a credit union
    • Membership eligibility may require employment with a specific organization (active military, etc.)
    • Typically sells loans into secondary mortgage market
    • Navy Federal Credit Union
    • State Employees Credit Union
    • Potentially lower rates and fees because of not for profit status
    • May need to meet eligibility requirement
    Private Investors
    • Individual investors who offer mortgages to borrowers
    • Typically require low Loan-to-Value ratios and charge higher interest rates
    • Typically used by individuals with poor credit histories
    • Individual investors
    • Access to mortgage when no other options exist
    • More expensive type of mortgage financing
  • After you review your lender options, you should treat the mortgage process like you would any other major purchase, such as buying a car -- shop around, compare proposals from multiple lenders and negotiate the best terms for your mortgage.  Gathering and comparing proposals from several lenders -- including different types of lenders -- ensures that you receive the lowest mortgage rate and closing costs.  It takes extra time to compare lender proposals but spending an extra hour or two shopping for your mortgage can save you thousands of dollars.

    The table below shows mortgage rates and closing fees for leading lenders. We recommend that you shop multiple lenders to find the best loan terms. Comparing loan proposals enables you to find the lender and mortgage that are right for you.

  • %
    Current Mortgage Rates as of January 23, 2019
    • Lender
    • APR
    • Loan Type
    • Rate
    • Payment
    • Fees
    • Contact
    View All Lenders

    %

    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.
  • Review our instructional video to learn more about your mortgage lender options.

  • FREEandCLEAR Mortgage Instructional Video

    Mortgage Lender Options Instructional Video

  • Sources

    Lender Options: http://myhome.freddiemac.com/buy/find-lender.html

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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