What Are The Main Types Of Mortgage Lenders

A mortgage lender is a financial institution that offers and underwrites home loans. These lenders have principles and guidelines that help them qualify a borrower and know if they’re able to repay the loan. They’re responsible for setting the terms, conditions, interest rate, repayment schedule, and every other aspect of taking a mortgage loan.

There are different types of mortgage lenders and they’ll be explained in this article:

Types Of Mortgage Lenders

• Mortgage Bankers

Most mortgage lenders are mortgage bankers. A mortgage bank could double as a retail or a direct lender. These lenders borrow money from warehouses at short-term rates to be able to give mortgages to consumers. The mortgage banker then sells the loan after it closes on the secondary market or to other private investors so they can pay back the short-term note.

• Retail Lenders

Retail lenders provide their consumers with mortgages directly, not institutions. Retail lenders offer other products apart from mortgages such as checking, savings accounts, and personal loans. Banks, credit unions, and mortgage bankers can all be classified as retail lenders.

• Direct Lenders

Direct lenders use their funds to generate loans for their consumers. These lenders either use their money or borrow elsewhere but the difference between them and a retail banker is specialization in mortgages.

Retail lenders sell different products to consumers and they have strict underwriting rules while direct lenders have more flexible rules for consumers. Most direct lenders have mainly online or limited branch locations which is a barrier for consumers that prefer physical meetings.

• Portfolio Lenders

A portfolio lender provides mortgage loans for consumers with its own money. Portfolio lenders are not guided by the general principles that guide other investors; instead, they set their own rules and guidelines for borrowing loans. Their terms may not need to appeal to all types of borrowers but their borrowers find it better working with a portfolio lender.

• Wholesale Lenders

Wholesale lenders operate differently from other types of lenders; these types of lenders offer loans through third parties such as banks or credit unions. They do not deal directly with the consumers but they provide the funds for the mortgage loans. However, the wholesale lender’s name appears on the loan document, not the mortgage broker’s company. Many mortgage banks work both as retail lenders and wholesale lenders.

• Correspondent Lenders

Correspondent lenders are the initial lenders that make the loan and service the loan. Although, what they do mainly is sell mortgages to investors who resell them to investors on the secondary mortgage market. Correspondent lenders collect a fee from the loan when it closes then sell the loan to an investor to make money and avoid the risk of when a consumer refuses to pay back. If the investor refuses to buy the loan, then the correspondent lender can go ahead to find a new investor.

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