What are the Common Types of Home Mortgage Lenders?

Glowing real estate financial services sign.Just as the variety of mortgage loan options has increased over time, as has the variety of sources for mortgage financing. It’s no longer just the neighborhood banks that supply mortgage loans; numerous types of traditional and non-traditional lenders are available to homebuyers.

Regardless of where you go for funding, there are a few questions that any potential borrower should ask a mortgage lender.

Key Questions to Ask a Mortgage Lender

  1. What are your fees, and will I need to pay them upfront, or will they be included in the loan?
  2. Which of the mortgage options offer the lowest interest rates?
  3. Is the interest rate quoted variable (will change) or fixed (will not change)?
  4. If the interest rate is variable, when and by how much will it change? What is the highest it can go?
  5. Would putting more money down qualify me for additional savings, or a lower interest rate?
  6. How many years will it take to pay back the loan?
  7. What amount will the monthly payment be?

5 Common Types of Mortgage Lenders

1. Traditional Bank

A local bank is the most traditional lending source for a new home mortgage loan. In this situation, the bank will review your credit score and other financial details, including income and employment history, then make the decision whether to lend you money.

Although in the past this type of loan would then stay at the bank where you applied, these mortgages are now most often sold to the secondary market or sold off to larger institutions, which then pool many mortgages together for use in other financial instruments.

2. Mortgage Broker

A mortgage broker is a person or business who, in theory, will use their vast knowledge of various lenders to match your financial circumstances with the best possible option. The mortgage broker will not usually hold on to your mortgage loan or lend any money. They act merely as the middleman between you and the ultimate loan originator, and all of the shopping around for the best interest rates and fees, so you don’t have to.

3. Internet Lender

An Internet lender, much as the name implies, is a firm that mostly uses the Internet to reach a large demographic of people not in their confined geographical area. These online lenders either loan money directly or shop around for the best rate and match you with the best option in their network, much like a mortgage broker. This is typically done through automated computer systems on the back end after you submit your application online.

Given the lenders are from across the country (or globe), the annual percentage rates (APR) offered can be more competitive. However, a downside is the lack of personal interaction, which, in times of confusion or distress, there is no primary person to go and have a face-to-face conversation with.

4. Credit Union

A credit union is a nonprofit financial cooperative, with membership aimed at providing low-interest rate loans to its members. The main difference between a credit union and a traditional bank is that credit unions often hold home mortgages in their own portfolio, as opposed to selling them to the secondary market. For this reason, the credit unions do not need to cater their mortgages or underwriting standards to the larger banks and can often lend at times other banks cannot.

If a traditional bank cannot sell the mortgage to the secondary market, it will often not lend to a borrower regardless of the quality of the applicant or property. The credit union, not having to worry about the later sale of their mortgages, can continue to lend, and are not reliant on a larger institution for their real estate transactions.

5. Home Builder

Oftentimes, the home builders will provide financing to attract homebuyers to their properties. These builders typically have a mortgage subsidiary whose goal is to provide financing to the buyers of their homes. These mortgages are often attractive to home buyers who cannot obtain more traditional financing, as the builders are then the deciding factor in the loan and may be able to offer special incentives to get the homebuyer approved.

Sometimes even borrowers who would qualify for traditional financing will be drawn in by a lower rate or added incentives to secure financing with the home builder. One must be careful, however, as some of these types of loans from custom home builders have been in the news recently for fraudulent real estate lending practices and schemes.

Final Thoughts on The Popular Types of Mortgage Lenders

As with any lending institution, be sure to fully review all the details of the mortgage loan offers or hire a professional to review them for you. Each type of home mortgage lender comes with its own pros and cons, and one may be more beneficial than another depending on a borrower’s particular financial situation and needs.

Borrow up to $50,000 with low fixed rates!

Posted on February 1, 2021 by in Mortgage Lending

Comments & Discussion



2 Responses to “What are the Common Types of Home Mortgage Lenders?”


  • On June 20, 2011, Wes wrote:

    Thanks, ODC.

  • On June 20, 2011, ODC wrote:

    Interesting article regarding mortgage lenders. The variety of mortgage options seem to have increased overtime. Good post.




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