Learning About Mortgage Lenders
Lending companies come in all shapes and sizes. Perhaps the first lender any of us ever used was the "Bank of Mom and Dad." Whether we were trying to buy a video game player, a stereo, or even a car, the parental vault was cracked open to help make it happen. Rates were great. We could borrow money with little or no interest. Perfect!
Joking aside, we are facing bigger stakes now: loans for homes. Our needs could be to:
- Purchase a home
- Refinance an existing mortgage
- Take out a home equity loan, or open a home equity line of credit (HELOC)
For any of those choices, there are many companies out there — banks, mortgage brokers, and e-lenders — willing to help you find a loan. It's not because they think you'll be happy in that Craftsman or that two-bedroom condo in the coolest part of town. It's because they make money lending you money. It's called interest (and fees). That's why it's in your best interest to get the lowest rate possible, and the best terms, which are usually not one and the same.
Know Your Lenders
Before you get the low-down on amortization schedules or learn about new 40-year notes, it helps to understand your choices when it comes to types of mortgage lenders.
Lenders are the ones who give you the money — either directly or through a third-party — to fund your loan. Lenders have various names based on how they acquire their clients and what they do with your loan after it is funded.
Retail vs. Wholesale Lenders (how customers are acquired):
- Retail lenders reach out directly to consumers. For example, Wells Fargo has loan officers in local branches that perform all loan origination functions.
- Wholesale lenders fund mortgages acquired through brokers outside of their company. The brokers find customers, process loans, and then sell them to wholesale lenders to fund.
- Many banks, such as Wells Fargo, have both retail and wholesale channels
Mortgage Bankers vs. Portfolio Lenders (what happens to your loan)
- Mortgage bankers fund loans but typically turn around and sell them in the secondary market to secondary lenders such as Fannie Mae and Freddie Mac. This is very common. Mortgage bankers borrower money from banks to fund the loans and then repay the money when the loans are sold. Most large lenders such as Wells Fargo Mortgage are mortgage banks.
- Portfolio lenders include many community banks, credit unions, and savings & loans companies. Portfolio lenders use money from their customers' bank deposits to fund loans so they can hold onto the loans and keep them in their portfolios.
2. Mortgage Brokers
Mortgage brokers are like a matchmaking service since they match you, the borrower, with a lender. They review your personal financial information and look over an array of lenders to try to fit you with one who will give you the best rate and terms. Mortgage brokers usually make their money from the lender since they are bringing a client (you) to them, but fees may also be charged to the client. The advantage is choice since the broker will have lots of lenders to match you with; the disadvantage is that once the match is made, they're out of the picture.
3. Loan Officers
Loan officers are typically employed by lenders or mortgage brokers. They find new clients, counsel borrowers on how to choose the best mortgage, and fill out loan applications. They typically make their money through commissions on the loans. Loan officers can also be mortgage brokers if they also process and broker loans. Loan officers are sometimes called mortgage consultants, mortgage loan originators, home loan consultants, and mortgage planners.
4. Correspondent Lenders
Correspondent lenders are a mix between brokers and lenders. They technically fund loans with their own borrowed money but typically lock in rates with wholesale lenders at the same time. This mitigates their risk since they can quickly turn around and sell the loan. Learn more about correspondent lenders.
5. Internet Lending Resources
Internet lending resources have a wide presence on the Web and not all actually lend money, although it might appear that way. They consist of lenders, direct lenders, lending marketplaces, and content sites.
- Direct Lenders
Direct lenders lend their own money and include both traditional and online lenders. Many traditional banks provide helpful online information, including rates, calculators, and educational content. Online lenders, on the other hand, offer loans directly through the Web. They can offer very competitive rates and give you personalized help via phone, e-mail, and even online chat - but you probably won't meet anyone face-to-face during this process. So, if you are comfortable transacting online, this option is worth investigating. Keep in mind that some mortgage bankers offer loans both online and in local sales offices.
- Lending Marketplaces
Lending marketplaces let you fill in one form and then quickly compare quotes from several lenders Because lenders know you are comparing them side-to-side with others, they typically offer competitive rates. Once you have submitted your information, they will contact you - usually by phone - to begin the process of finding a loan that fits your needs.
- Zillow Mortgage Marketplace
Zillow Mortgage Marketplace brings borrowers and lenders together in an open marketplace that is secure and anonymous. Borrowers fill out a loan request and confirmed lenders respond with quotes. Borrowers do not need to supply a name, address, phone number or Social Security number to lenders. Only lenders who have registered, been confirmed as a lender and have created a public profile on Zillow may respond to the requests.
Lenders are required to disclose all fees and closing costs up front, and they compete on price and customer service, After reviewing the quote details and lender information, borrowers decide which lenders they want to contact, and when. Since borrowers are anonymous in the process, lenders cannot contact borrowers.
- Content Sites
Content sites focus on offering educational information, content, calculators, and tools. These sites usually make money from advertising and partnerships. Their partners frequently include direct lenders and lending marketplaces.