A lender is a person or institution that lends money for purchase of a home or any other asset. Also known as a credit grantor, or simply a creditor, a lender makes loans either directly or through an individual or company that intermediates between the borrowers and the loan providers. When your loan provider disburses funds at the closing table, then you are dealing with a direct lender.
What are the steps to choose the right mortgage lender?
Wholesale Lender
A wholesale lender usually serves as a fund provider for mortgage brokers and correspondents to make loans.
Mortgage Broker
A broker is defined as someone who mediates between a buyer and a seller, for example a real estate broker who helps negotiate the sale of a house. A mortgage broker is a licensed individual or firm that acts as a mediator between a lender and a borrower.
One advantage with a mortgage broker is that you can shop across several lenders and find the best deal. However, the best deal is not guaranteed unless you have a broker work for you at a fee known as a broker fee.
A discount mortgage broker, on the other hand, is compensated entirely by the lender, charging you absolutely no service fee.
Shop around to find the lenders with best offers
Correspondent
A correspondent lender works for one or more wholesale lenders, which are big with branches in several states. The correspondent can offer more personalized services and may also let you shop across different lenders. Note that the wholesale lender has a prior price commitment, allowing a correspondent to compete with other lenders.
Bank or Mortgage Company
Most banks have separate mortgage divisions that originate loans and sell them on the secondary market. Such banks or companies are usually represented by loan officers and may or may not service the loans they originate. Examples include Bank of America and Chase Bank.
Loan Officer
Also known by names like loan representative, account executive and loan rep, a loan officer usually represents a bank or a mortgage company and is responsible for soliciting homebuyers, and qualifying and processing of loans.
Credit Union
Credit Unions are non-profit financial institutions that are regulated by the federal legislation and owned by the individuals who use their services. You need to become a member if you want to obtain a mortgage loan from a particular credit union in your locality.
Mortgage Banker
A mortgage banker is a company that originates loans, but doesn’t hold them long, reselling them finally on the secondary mortgage market, generally to institutions like Fannie Mae and Freddie Mac.
What are Fannie Mae and Freddie Mac?
Portfolio lender
A portfolio lender holds the loans it originates rather than selling them on the secondary market. The same company originates as well as services the loan.
Temporary lender
A temporary lender sells the loans it originates. The servicing company will be different from the company that originates the loan.
Warehouse lender
A temporary lender gets the funds from a warehouse lender, which is a firm that lends money against the collateral of closed mortgage loans before they are sold on the secondary market.
Retail Lender
When a big bank or company decides to offer mortgage loans directly to the public, then it becomes a retail lender.
Lead-Generation Website
A lead-general website allows you to compare different lenders and find the one that meets your requirements. The site refers you to the lender’s website where you can complete the application. Such websites are sometimes also called mortgage auction sites as you can have lenders compete and post prices directly to you.
Sub-prime Lender
A sub-prime lender specializes in offering sub-prime loans for borrowers with less-than-perfect credit. Beware of high interest rates and exorbitant fees.
Improve your credit to avoid a sub-prime lender
Predatory Lender
You must identify and keep yourself away from a predatory lender who offers loans to someone who does not have the ability to repay, such as a NOHO who lives paycheck to paycheck. The predatory lending tricks also include repeated refinancing and charging of high interest and fees with each refinance loan.
What are the federal rights that protect borrowers from predatory lending practices