Mortgage Lender Categories & Types In Texas
Finding the right lender isn’t always easy when searching for a home loan. There are a lot of different kinds of mortgage lenders out there, which can make it difficult to know which option is best. One way to simplify the decision-making process is by learning more about the various types of lenders that are available.
While it is important to search for the best loan terms, it is equally as important to choose the right lender. A good lender simplifies the borrowing process as much as possible, reducing your expenses and helping you get your money quickly. Comparing all of your options is essential. Some of the different types of lenders you may encounter include mortgage brokers, direct lenders, correspondent lenders, retail lenders, and wholesale lenders. Some types of lenders cross over between several of these categories.
The Difference Between Mortgage Brokers & Mortgage Lenders
When researching home loans, you probably have encountered both mortgage lenders and mortgage brokers. It is important to understand the difference between the two. A mortgage lender is a bank or organization that lends money. Before agreeing to give you a loan, lenders require you to meet certain predefined borrowing standards. This includes checking your credit and verifying that you have the financial capacity to pay the loan back. They determine the interest rate, the schedule for repaying the loan, and other terms or conditions of the loan.
A mortgage broker, on the other hand, acts as a go-between, working with both you and the mortgage lender. Brokers don’t have any control over the terms of the loan or the approval process. Their job is to help their clients apply for mortgages. Along with working with their clients to put together the necessary documentation, they also provide advice about credit problems or other financial issues that could negatively impact their chances of getting approved. Mortgage brokers frequently are employed by independent companies, which means that they can compare loans from more than one lender to ensure you are getting the best deal. In most cases, the lender pays the broker once the loan closes. Sometimes, however, the commission is paid by the borrower at closing.
Mortgage brokers have relationships with many types of lenders. As a borrower, you should have a thorough understanding of the various available products. Remember, brokers, don’t work with direct lenders. Consider contacting several direct lenders yourself in addition to working with a mortgage broker. That way, you can be sure you are getting the best possible deal.
How Mortgage Brokers Are Paid For Their Services
Mortgage brokers usually charge a fee for their services that fall somewhere in the range of 1% of the total amount of the loan. Lenders also sometimes charge a similar fee. Depending on the broker, the commission is either paid by the lender or the borrower. If you take out a loan at the par rate, you generally don’t have to pay an origination fee for the loan and the lender will handle paying the broker. Remember, however, that the interest rates charged by mortgage lenders are usually higher. With brokers, you may be able to agree on a flat fee ahead of time. Always find out more about how a particular broker handles their fee before agreeing to work with them.
The Benefits Of Using A Mortgage Broker
Mortgage brokers can compare loans from multiple lenders, making it faster and easier to find a loan that is a good fit. They also are an excellent choice if you have credit blemishes or if you don’t have a very large down payment. Brokers usually maintain relationships with many different lenders, often numbering in the hundreds. Usually, at least some of these lenders are willing to work with borrowers who have unique challenges. Brokers generally go above and beyond to help their clients find a loan since they only earn a commission if the loan actually closes.
The Downside To Using A Mortgage Broker
After the broker connects you with a lender, the rest of the process is out of their hands. The lender controls everything from processing the loan to determining whether or not you are approved. If the closing is delayed, this can be quite frustrating. If you opt for a loan at par pricing, you may also have to pay a higher interest rate to the lender to cover the cost of the broker’s commission. This could increase the amount of money that you have to spend.
This category includes the vast majority of mortgage lenders in the United States. Direct lenders and retail lenders both fall into this category. This includes credit unions, Internet-based lenders, and traditional banks.
Organizations like these obtain money for the mortgages that they provide by borrowing from warehouse lenders at short-term rates. Once the loan closes, the banker sells it to independent investors or to an agency that backs mortgages in the United States. They then use that money to repay the warehouse lender.
Lenders in this category work with borrowers directly rather than with organizations. Some common types of retail lenders include mortgage bankers, credit unions, and traditional banks. Lenders like these also provide other financial products along with mortgages including car loans, personal loans, and checking or savings accounts.
Lenders in this category either use the money of their own or money that they borrow from someone else to originate loans themselves. Portfolio lenders and mortgage bankers both are sometimes direct lenders. The difference between a retail lender and a direct lender is the fact that they specialize only in home loans.
Retail lenders have a variety of financial products available for their customers. They also have strictly defined rules regarding underwriting. Direct lenders, on the other hand, have a little bit more flexibility when it comes to helping borrowers qualify for mortgages since they work exclusively with home loans. Similar to retail lenders, direct lenders don’t work with mortgage brokers. That means that you need to apply directly with them if you want to compare rates. Direct lenders are usually based primarily online. If you like the idea of being able to meet in person with your lender, this may not be the best option for you.
Lenders in this category use their own funds to provide loans to borrowers. Since lenders like these don’t work with other investors, they are free to set their own terms or standards regarding borrowing. This may make them more attractive to some types of borrowers. For instance, people who are purchasing investment properties or who require jumbo loans often find that portfolio lenders are a lot more flexible to work with than other types of lenders.
Wholesale lenders don’t work with borrowers directly. Instead, they provide loans through credit unions, traditional banks, or mortgage brokers. These lenders fund, originate, and occasionally service the loans. Since the wholesale lender is responsible for establishing the terms of the loan, their name is the one printed on the loan documents – not the name of your mortgage broker. Mortgage banks frequently have two different divisions – one in charge of retail lending and one in charge of wholesale lending. Loans like these are typically sold after they close on the secondary loan market.
Correspondent lenders usually fund and originate their own loans. In some cases, they also service them. Usually, however, they turn around and sell the loans to sponsors or investors. These investors then sell them to other investors through the secondary mortgage market. When a loan closes, correspondent lenders take a fee for themselves. They then attempt to sell the mortgage to an investor right away. This allows them to earn money while at the same time eliminating the risk of having to deal with borrowers who default. If they can’t find an investor to purchase the loan, they have to hold it themselves or find another sponsor to buy it.
These lenders provide short-term funding to other lenders so that they can fund loans for borrowers. Lenders who use lines of credit like these typically repay them as soon as they sell the mortgage to a buyer on the secondary market. Warehouse lenders don’t work directly with borrowers. The mortgages are held by these lenders as collateral until the correspondent lenders or mortgage banks repay the short-term funds they have borrowed.
Hard Money Lenders
These lenders are either individuals or investment companies that have a lot of cash on hand. They lend money to people who have a hard time qualifying for loans through portfolio lenders. They also work with borrowers who fix up properties and flip them for a profit. Hard money loans typically have to be paid back within several years. Usually, loans from hard money lenders close right away and have flexible terms. However, the origination fees and interest rates are usually quite high – sometimes climbing to anywhere between 10 and 20%. Borrowers also have to provide a significant down payment. The property is typically used as collateral for the loan. If the borrower fails to repay the money, the lender will then take them home.
Comparing Mortgages On The Internet
The majority of mortgage brokers and lenders offer online applications. This makes it easy to compare loans, even for people who are extremely busy with their jobs or families. Many lenders also have modern tools like apps available that allow you to apply for, keep track of, and manage your mortgage using your phone or another mobile device.
If you search for mortgage lenders on Google, you will get close to 72 million results. In addition, you will also be bombarded with ads for lenders who claim to be the best. With so many options out there, trying to decide which lender to work with isn’t easy. Spend some time looking at websites from a variety of lenders. This will give you a chance to familiarize yourself with the different types of loans that are available as well as the borrowing process and the current rates. Lenders who only provide loans through the Internet are a good option if you don’t want to meet in person with a banker. You can also check to see what options are offered by your current credit union or bank. To find the best deal, it is important to compare all of your options.
When browsing through your options online, you probably will see different websites recommending certain lenders. Remember that these sites typically only have relationships with a small group of lenders. In many cases, they also earn commissions for referring borrowers to the lenders that they feature. It is always best to look around on your own rather than relying solely on recommendations.
You can make the process of choosing a lender a little bit less intimidating by learning as much as you can about the different types of lenders ahead of time. To accurately compare loans, you may need to submit applications with several different lenders. Gather together your documentation ahead of time. If you have any problems with your credit report, income, or finances, mentioning these issues upfront will improve your chances of finding a loan that will work for your specific needs.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Feel free to contact us or call us today!