The 3 Types of Mortgage Lenders

The 3 Types of Mortgage LendersAttaining a mortgage is, for many prospective buyers, one of the most difficult parts of the home buying process. It is understandably overwhelming, with rate quotes and associated fees presented in many different ways, changing rates, economic conditions, and financial projections.

Thankfully, a lot of these complicated notions are cleared up when you work with the right lender. If you are able to work with someone you can trust, you'll feel more comfortable during the process and can be assured that their rate quotes are accurate.

There are 3 main sources for consumer mortgages which you'll want to consider when looking for a mortgage lender. Here is some helpful information in identifying the right source for you, recently detailed by Zillow.

1. Retail Banks

Retail banks can come from big name-brand institutions or smaller local banks and credit unions. Either way, these banks first underwrite, approve, and close loans for consumers, then either keep the loans on their own balance sheets or sell the loans to investment firms. If the later situation occurs, firms (like Fannie Mae or Freddie Mac) bundle the loans into mortgage bonds.

Your monthly mortgage statement would come directly from the bank, and your loan agent which originally handled your loan will remain your liaison for the rest of the future of your loan.

Retail banks are usually well-known brands, and tend to be more flexible on loan approvals. In addition, they also offer non-mortgage services for your finances, such as checking, savings, credit cards, financial planning, and more. You can usually find lowered mortgage rates from this source if you plan on using (or have used) some of these additional services.

2. Mortgage Banks

Mortgage banks also underwrite, approve, and close loans for consumers (like retail banks do). They then sell underlying loans to investment firms like Fannie Mae or Freddie Mac, who then bundle the loan into mortgage bonds.

Depending on the size of the mortgage bank, your servicing rights will be handled one of two ways. Larger mortgage banks tend to keep servicing rights, making it so you'd get your monthly statement from the mortgage bank and retain your loan agent for future contact. Smaller mortgage banks sell servicing rights alongside the loan, meaning you'll be contacting the new bank servicer for future inquiries.

This option serves as a one-stop rate shopping process for you, mostly because mortgage banks have their own underwriters. This is usually an option which moves more quickly than others as well.  

3. Mortgage Brokers

Mortgage brokers obtain loans through retail or mortgage banks. The loan is then funded (and usually serviced) by the retail or mortgage bank to which the broker takes the loan.   

An advantage to using a mortgage broker is that they can rate shop for you through many different banks. That said, the broker needs to be compensated as well, so their fees will be build in to this type of loan. They are also able to lend on more difficult borrower or property profiles for this reason.

It is useful to know that this was a model quite popular prior to the 2008 crash. Larger banks and mortgage banks outsourced to mortgage broker firms. Newer regulations, however, have caused banks to want to control their sales more stringently. Brokers are less popular than they used to be for this reason alone.

On the converse side, the brokers that are still remaining after the crash are typically highly experienced veterans with a wealth of experience. You may be able to take advantage of this as well.

Unsure where to begin?

It is always useful to consult with your real estate agent, as they will likely be able to offer you good referrals for your specific situation. If you are in the Chicagoland area, here are some professionals that we like.

Questions? Don't hesitate to send us an email or give us a call. We'd be happy to help you!

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