If you’re buying a house or condo, chances are you are going to need a mortgage, as having total cash on hand is rare.
Most people know you should shop around for a strong rate and lender before agreeing to terms, but many don’t realize the different people involved.
By understanding the lender community, you can get financing that makes the most sense for you. Here are some terms you should know:
Mortgage Lenders: This is probably what you immediately think of when you first hear talk of mortgages. Mortgage lenders are the ones that will provide the money you need to buy your home. Simply fill out some information on your financial background, and you’ll see what sort of mortgage interest rate you are eligible for.
Mortgage Brokers: Brokers don’t actually make loans, but they do deal with multiple lenders. You’re still utilizing a lender for the money, but the broker will help you find the one that will offer you the best rate and terms.
Mortgage Bankers: Almost all mortgage lenders can be classified as mortgage bankers, which means that they don’t lend their own money, but borrow funds at short-term rates from warehouse lenders. Larger mortgage bankers will originate their own loans, which they will then sell directly to Fannie Mae, Freddie Mac or investors.
Portfolio Mortgage Lenders: These lenders originate and fund their own loans, offering more flexibility in loan products because they don’t need to adhere to the guidelines of secondary market buyers.
Wholesale Lenders: Wholesale lenders cater to mortgage brokers for loan origination but offer loans to brokers at a lower cost than their retail branches offer to the general public. The result for the borrower is that the loan costs about the same as if he obtained a loan directly from a retail branch of the wholesale lender.
Hard Money Lenders: If you’re having trouble getting a mortgage and working with a portfolio mortgage lender, a hard money lender may be your last resort. These lenders are private individuals with money to lend, though interest rates are often much higher.
Correspondent Mortgage Lenders: These lenders have agreements in place with one or more wholesale lenders to act as their retail representative, so they lend directly to homebuyers and use wholesaler guidelines to approve and close loans with their own money. They also agree to buy back any loans they close that deviate from wholesaler guidelines.