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Understanding The Different Types of Mortgage Lenders – Direct Vs Brokers Vs Bankers

Mortgage brokers, retail, direct, wholesale and correspondent lenders - and more. What are the differences between them and how it can affect your mortgage?
Author: Russell White
Russell White

Writer, Contributor

Experience

As a finance geek and Content editor with 13 years of journalism experience, Russell makes sure every article has the right flow, edits for accuracy, and consumer value. In addition, Russell contributes his own ideas about budgeting, savings, and credit cards.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Author: Russell White
Russell White

Writer, Contributor

Experience

As a finance geek and Content editor with 13 years of journalism experience, Russell makes sure every article has the right flow, edits for accuracy, and consumer value. In addition, Russell contributes his own ideas about budgeting, savings, and credit cards.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

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When it comes to getting a mortgage one of the most important things to look at is just who is going to be responsible for it. Who are you looking to work with in order to get that mortgage?

For most people, the idea is to get the best rate possible and the best terms, rather than looking at the types of lenders that are actually out there. But you should be looking at the different types of lenders. And that’s especially true if you are looking to get any special form of mortgage.

1. Direct Lenders and Correspondent Lenders

Correspondent lenders are ones that will fund loans but not directly to the person who wants the loan. Instead, they sell that loan to the direct lender and then the direct lender provides the loan to the person who wants it. In general, they’re a type of extension to a large lender, but they do have the ability to sell loans through a secondary system. These mortgage lenders will resell different products that they get from another company under their name.

Where they tend to fall behind is that they don’t do as well with less common loans. These types of lenders need everything to be done in a specific way and if that’s not the way it’s done it can be sent back all the way to the correspondent lender. This can make it difficult for the borrower to get the loan processed.

On the other hand a direct lender doesn’t have to worry about any additional rules. Instead, they can underwrite the loan and then they can service the loan entirely on their own. This makes it easier for them to get through the process and means that there are fewer steps to go through in order to get it taken care of.

The downside with these types of lenders is that they may not offer you quite as many options as you could get with a correspondent lender. They also don’t have any kind of secondary market dealings, which means your loan isn’t going to be sold off down the road.

When it comes to getting a mortgage you want a process that’s going to keep things as simple as possible and that will give you in-house features and options all the way around. That’s where the process is going to be the simplest and the smoothest for you.

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2. Mortgage Lenders and Mortgage Brokers

Another common area where you’ll need to look at the differences is between mortgage lends and brokers. If you’re like many people you may have seen these terms or even used them yourself relatively interchangeably. But the truth is that these are two different types of people.

A mortgage lender is the financial institution that is offering the loan. They have guidelines and rules that you have to follow or fit in order to prove that you can pay back the loan and then they choose things like your repayment schedule and interest rate.

When you’re talking about a mortgage broker, however, you’re talking about someone who plays a role between you as the borrower and the mortgage lender.

These are the people who will help you go through the process of getting a mortgage and they will help you figure out what you need to do in order to get an even better offer for the mortgage that you want. You can work with them through your chosen mortgage company or through an independent company to help you find a good mortgage.

3. Mortgage Bankers

A mortgage bankers are a type of mortgage lender in that they offer their own loans and they can offer them to a borrower. But they also have the option to sell those mortgages to others, and even to investors. These could be large companies like Freddie Mac that you’ve likely heard of or even to private investments.

These bankers are also able to finance loans using different types of lines of credit, at least, if they’re not a bank they can do so. Banks are held to specific regulations and rules that they must follow under the Federal government.

Most mortgage lenders in the United States are actually considered mortgage bankers, though the term isn’t one that’s used quite as commonly. It means that they’re not actually lending out money that they own. They’re lending out money that they have borrowed from a so-called warehouse lender. They make a mortgage, they sell the mortgage and then they repay the amount of money that they’ve borrowed. Then the agencies are able to sell the mortgage out again.

This is important if there’s ever a housing crisis because it ensures the right level of collateral for the organization that owns the mortgage.

A mortgage banker is generally someone who is responsible for dunging a mortgage loan, even though it’s not as common to hear as a mortgage lender.

4. Wholesale Lenders, Warehouse Lenders and Retail lenders

A wholesale lender is a bank or institution that provides loans to third parties. These third parties are people like the credit unions and banks that you go to in order to get a mortgage or the mortgage brokers we just discussed. They might be large banks that don’t deal directly with customers and consumers.

These lenders make the loan and their name will show up on all of the documentation that you have. However these lenders won’t do all of the work. The third party organization that you work with is going to do all of the work and they will get a small cut as a result.

A retail lender is a lender that offers the mortgage straight to the consumer. Like a retail store, the consumer or borrower is able to go directly to these companies and get the money. The retail lender is able to choose whether they want to act as an agent that will offer loans of third party money or if they will end out the money that they have. They could also be part of a wholesale lending institution.

Finally, there are the warehouse lenders. These companies lend money to mortgage lenders and retail lenders but they don’t have any control over the loan itself. Instead, they offer the money and let the retail lender take control over how the mortgage should be laid out and they get their money once the mortgage is sold.

5. Portfolio Lenders

The final type of lender is the portfolio lender, who offers their own money to the borrower. They don’t have to worry about other investors or what others want out of the mortgage because they get to set all of the rules and terms.

These companies are able to offer just about anything they want because they are completely in charge of the money and the loan that is being offered. They don’t need to follow anyone else’s rules or instructions in order to offer money to a customer.

These are definitely going to be a great option for someone who needs a little more flexibility and options to the loan that they’re trying to get.