The Pros and Cons of Different Types of Mortgage Lenders
The most puzzling part for most home buyers is figuring out the advantages and disadvantages of all the different kinds of mortgage lenders. One of the most important questions you should ask yourself is which one would work better for you? To help you answer this question we have put together a guide to the three main lender categories:
Direct Mortgage banks
A mortgage bank is or works for a specific lending institution, like a bank that provides the money for your mortgage or they borrow funds at short-term rates from warehouse lenders to cover the mortgages they issue. They are able to originate loans and create pools of loans that they sell directly to Fannie Mae, Freddie Mac, Ginnie Mae, jumbo loan investors, and other mortgage lenders
A mortgage banker can match you to the best mortgage product available within that specific lending institution and is responsible regarding all the aspects of the mortgage process, such as gathering your financial information, advising you of different mortgage options and overseeing the entire application process.
The main disadvantages of sourcing your loan from a mortgage banker is the limited number of available options compared to those available through a mortgage broker. Also in case your mortgage application is declined; your mortgage banker will not be able to point you to a different loan institution as they are only familiar to their company’s products.
Portfolio lenders are savings and loan institutions, and even banks that use their own money when making home loans and do not sell the loan on the secondary market. Mortgages are often maintained on their own "portfolio." As portfolio lenders don't have to gratify the requirements of outside investors, they set their own terms for the issued mortgages.
Portfolio lenders are a good choice for those borrowers who that have an untypical profile or are searching for a particular jumbo loan or are considering an investment property. You may pay higher rates for this service, but not always - because portfolio lenders tend to be very careful who they lend to, their rates are sometimes quite low.
Before considering a portfolio loan that cumulates several of your properties you should also take into consideration that tracking the principal and interest for each property can be a very time consuming task making it very difficult to administer. Another major drawback is revealed when you decide to sell one of the properties that are under the same mortgage.
Mortgage brokers or a Correspondent Lender
According to Investopedia.com
a mortgage broker “is an intermediary working with a borrower and a lender while qualifying the borrower for a mortgage. The broker gathers income, asset and employment documentation, a credit report and other information for assessing the borrower’s ability to secure financing.”
A broker or a correspondent can rate shop for you across many banks; they are able to offer you wholesale rates and can help you save a lot of time. Due to their ability to shop for your specific profile in case you have had any credit issues in the past. If you don’t have time to shop for the right mortgage, a broker or correspondent lender can save you a lot of time. He or she can also handle a lot of the paperwork and interaction with the lender
They look at the whole of the market offering you a lower rate than what you could get if you would go directly at a bank as they represent mortgage programs from many lenders. They can advise you if it would be best to submit your loan application to a portfolio lender or to a mortgage banker. Another major strength of a mortgage broker or correspondent is that, in case your loan gets declined they can simply reassemble the loan and submit it to a different wholesale lender.
In addition to the above advantages a mortgage broker can also access preferential deals or negotiate better interest rates or lower fees from the mortgage lender.
Loaded with this knowledge, you should be able to choose the mortgage lender that best suits your needs. As each type of lender has its own strengths and weaknesses carefully compare the proposed rates and services offered. Remember to always work with well-established mortgage lenders! Casey Moseman, CMPS can process your file as either a Correspondent Lender or a Mortgage Broker. She can decide for you which avenue is best given your specific situation.