Finding a lender can seem overwhelming and confusing. You might feel overwhelmed by the sheer number of companies and types available to you. You can narrow down your search by understanding the main differences between lenders, as well as what they do. By so doing, you find out if the type of lender you are going to meet to solicit for a loan would be the perfect one for what you intend to do.
While choosing the type of loan is crucial, it could also save you time, money and frustration. For instance, if you as a farmer know that you require a Farmers home mortgage, you know where to go after reading this article. This is why it’s important to shop around. It can be overwhelming. There are direct lenders, correspondent lenders, wholesale lenders, retail lenders, and mortgage brokers. Some of these categories may overlap. You may have heard the terms “mortgage broker”, and “mortgage lender” when you’re carrying out your extensive research on purchasing a home. However, these terms have different meanings.
A mortgage lender can be described as a mortgage bank or any other financial institution that helps people to source loans for their home buying. Lenders follow specific borrowing guidelines that verify your creditworthiness, capacity to repay the loans you source for. They will determine the terms, interest rates, repayment schedule, and other important aspects of your mortgage.
On the other hand, a mortgage broker is an individual or entity that intermediates between the one who wants to source for the loan, and the mortgage lender. The mortgage broker does not control the final loan approval, timeline or borrowing guidelines, and more often than not, has little to no power over the proceedings that go on in the processing of the loan proper.
Short-term financing is provided by warehouse lenders to help other mortgage lenders pay their loans. Warehouse loans are usually repaid once the loan is sold on a secondary market. Warehouse lenders do not interact with customers, just like correspondent lenders. Warehouse lenders hold the mortgages until the clients (smaller banks of mortgages and correspondent lenders), repay the loan.
A “direct lender” is another type of mortgage lender you will commonly find on the market. A direct lender is simply a lender that gets the loans it gives out using its funds obtained from their own wallets, or funds they have borrowed. It is possible for a direct lender to be either a portfolio or mortgage lender. It is not an agent that caters to the needs of a wholesale lender. Because direct lenders do not bring in middlemen or third parties, they are undoubtedly retail lenders.
Portfolio lenders on one hand use their own money for home loans. This is usually done through their “portfolio”. They are able to set their terms for the loans that they issue because they do not have to meet the needs of outside investors.
Portfolio lenders can be a great option for “niche” borrowers, who may not fit the usual lender profile. This could be because they are looking to get a jumbo mortgage, are looking at unique properties, have poor credit but good finances, or even consider investing in property. Although you may be charged higher rates for this service sometimes, portfolio lenders can lend at very low rates.