A mortgage lender is a financial entity or organization that lends money to people who want to buy houses or other real estates. Mortgage lenders also provide what are known as refinances to their customers.
Existing homeowners can take advantage of these loans, which allow them to effectively replace their existing mortgage with a new one in the process. Homeowners take this action to cut their interest rate, reduce their monthly payments, or shorten the time it takes to repay their mortgage.
There are several different types of lenders to choose from when looking for a real estate loan, so it’s a good idea to learn everything you can about each one before applying. Mortgage brokers, direct lenders, and secondary market lenders are the three most common types of lenders.
A mortgage broker can submit a loan to several different lenders and often has access to numerous types of financing programs. A mortgage broker can search for the best and most reasonable mortgage rates and conditions available, tailored to match borrowers’ demands. Some mortgage brokers impose administrative or origination fees.
Mortgage brokers are lenders that are big enough to originate loans and develop pools of loans. Some corporations do not sell directly to those huge investors but sell their loans through mortgage brokers. They typically refer to themselves as mortgage bankers as well.
Direct lenders are those that create loans on their own behalf. This group of lenders either uses their own capital or borrows money from other sources. Mortgage banks and portfolio lenders are examples of direct lenders. A key distinction between direct lenders and retail bank lenders is the specialty in mortgage lending.
Retail lenders offer a wide range of products to customers and have stricter underwriting criteria than traditional lenders. Direct lenders, who specialize in house loans, are more likely to provide more flexible qualification criteria and alternative lending options for consumers with complicated loan files. Direct lenders only provide their own products, which means you’d have to apply to a number of different direct lenders in order to comparison shop.
Many direct lenders are only available online or have a limited number of branch locations, which might be a disadvantage if you like face-to-face contact.
Secondary Market lenders
There are several secondary market lenders, the largest of which are the Federal National Mortgage Association, the Government National Mortgage Association, and the Federal Home Loan Mortgage Corporation. A large number of retail lenders obtain their funds from a secondary market lending association.
While a lender may have originally obtained a loan for you, in many circumstances today, the lender is no longer in possession of the loan. As an alternative, it sells the loan into the secondary mortgage market, where it can be sliced up into any number of mortgage-backed securities in order to meet the demands of investors.
Searching for the correct lender and loan can be a difficult task. You will have greater confidence when approaching lenders and brokers if you have done your homework and educated yourself before you begin the process.