Applying for a Mortgage? Learn the Lender Lingo! (#1-Types of Lenders)

Shopping for a home before you’ve nailed down your price range is not only unwise but can be truly disappointing. You may have a vague idea of what you can afford, but before you’ve talked with a lender, it’s hardly possible to grasp all the costs involved or the options available to you including those for downpayment assistance or closing costs. It’s likely that a self-calculated purchase price estimate will be either way to low or way to high.

Which mortgage lender is right for you? Be aware that all lenders are not the same. Aside from offering different rates, some lenders are able to extend more lenient qualifying terms, others offer access to down payment assistance grants, still others have programs for folks with challenged credit. Even if you’ve been turned down by one lender, another may have a program that will adequately meet your needs. It pays to do your homework.

Most Realtors are familiar with of a wide selection of trustworthy, dependable local mortgage lenders, and are aware of which ones offer which loan products. Your Realtor can provide you with a list of companies, and more importantly individual loan officers who are licensed in your state, and are aware of local Real Estate market conditions.

So who should you talk to first? Probably your Realtor, but the article below from RIS Media describes various kinds of lenders you may consider, and why you might choose them. I’ve added a few editors notes to clarify.

This is the first in a series of articles related to mortgages and lenders. Watch for our second Lender Lingo post detailing the mortgage options available to First Time Home Buyers.

Get to Know the Language of Lenders

article from RIS Media

If you’re buying a house or condo, chances are you are going to need a mortgage, as having total cash on hand is rare.

Most people know you should shop around for a strong rate and lender before agreeing to terms, but many don’t realize the different options available.

By familiarizing yourself with the lender community, you can get financing that makes the most sense for you. Here are some terms you should know:

Mortgage Lenders: This is probably what you immediately think of when you first hear talk of mortgages. Mortgage lenders are the ones that will provide the money you need to buy your home. Simply fill out some information on your financial background, and you’ll see what sort of mortgage interest rate you are eligible for.

Editor’s Note: Mortgage Lender is a general term covering an array of institutions that set rates and terms, underwrite the mortgage, control the timeline, and distribute funds for closing.

Mortgage Brokers: Brokers don’t actually make loans, but they do deal with multiple lenders. You’re still utilizing a lender for the money, but the broker will help you find the one that will offer you the best rate and terms.

Editor’s Note: Consider a Mortgage Broker to be your own personal shopping service. They collect the necessary information from you, then determine which lender can find you the best overall financial arrangement or mortgage loan offered by the lenders they deal with. One caveat, Mortgage Brokers do not have access to all lenders.

Mortgage Bankers: Almost all mortgage lenders can be classified as mortgage bankers, which means that 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 will then sell directly to Fannie Mae, Freddie Mac or investors.

Editor’s Note: In almost every instance, the Mortgage Lender or Mortgage Banker who funds your loan at closing, will not be the same institution that will collect your monthly payments. Your loan will likely be sold on the secondary market, sometimes more than once.

Portfolio Mortgage Lenders: These lenders originate and fund their own loans, offering more flexibility in loan products because they don’t need to adhere to the guidelines of secondary market buyers.

Editor’s Note: Portfolio Lenders are not nearly as common as other types of lenders. Oftentimes they are providing funds for home buyers with more challenging circumstances and terms and conditions may not be as advantageous as they would be for a borrower with a higher credit score or more stable finances.

Wholesale Lenders: Wholesale lenders cater to mortgage brokers for loan origination but offer loans to brokers at a lower cost than their retail branches offer to the general public. The result for the borrower is that the loan costs about the same as if he obtained a loan directly from a retail branch of the wholesale lender.

Hard Money Lenders: If you’re having trouble getting a mortgage and working with a portfolio mortgage lender, a hard money lender may be your last resort. These lenders are private individuals with money to lend, though interest rates are often much higher.

Editor’s Note: a Hard Money loan is widely considered a last resort, generally made available by a separate entity or a private party. Repayment terms are ordinarily much more rigid.

Correspondent Mortgage Lenders: These lenders have agreements in place with one or more wholesale lenders to act as their retail representative, so they lend directly to homebuyers and use wholesaler guidelines to approve and close loans with their own money. They also agree to buy back any loans they close that deviate from wholesaler guidelines.
Reprinted with permission from RISMedia*. ©2020. All rights reserved.
*Original article may have been modified to meet AZ Real Estate Commission regulations and REALTOR guidelines. Modifications are identified as Editor’s Note.