Lender Types
Types of Lenders
-
Portfolio Lenders: These companies are called Portfolio Lenders because they tend to keep the loans they issue in their portfolio of assets (rather than selling them on the secondary market).
-
Smaller, Local Banks: It used to be that all lenders were portfolio lenders, but now most are mortgage bankers. The companies who still work this way are usually small, local financial institutions like small town banks, savings & loans and credit unions.
-
Specialized Markets: They often offer a more limited range of loan types, at somewhat higher rates, but their loans can be easier to qualify for, since they are tailored to the local market.
-
Specialized Loans: These lenders often offer niche loans targeting specific types of customers (non-traditional credit, first-time homebuyers, investors, reverse mortgage customers) or properties (investment properties, multi-family dwellings, lofts). They can be the perfect lender for you if you are looking for something other than a mainstream loan.
-
-
Mortgage Bankers: The larger financial institutions which do the bulk of the mortgage lending in this country are mortgage bankers. This means that they lend their own money and process the loans in-house. In some parts of the country, these companies are called “Direct Lenders.”
- Competitive Rates: Having large volume and doing everything themselves means that they can set their own rates (since they decide how much profit they want to make on each loan).
- Streamlined Paperwork: Mortgage bankers can often process a loan faster and more efficiently than another lender.
- “Vanilla” Loans: It can be harder for the larger institutions to do more complicated loans (loans with non-traditional financing or property type) and they tend to stick with very mainstream loans.
-
Mortgage Brokers: a mortgage broker is a “middleman,” like an insurance broker: he or she usually works with several different lenders and works to match the borrower(s) with the best loan from one of these lenders.
- How They Work: The broker takes the borrower(s)’ information, provides it to the lender and manages much of the paperwork and details of the loan processing.
- Other People’s Money: brokers don’t lend their own money, they represent the lender who will issue the loan.
- Flexibility: Being able to choose from multiple lenders gives the broker great flexibility: if one lender turns a borrower down, the broker will submit the loan application to another company
- Difficult Loans: Most brokers work with a variety of lenders and so can usually find a mortgage for a borrower, even when the borrower has some unique or difficult circumstances
- For a Fee: Of course, brokers charge a fee for these services. So the borrower pays the lender’s origination and processing fees, and also the broker’s fee.
- Government Agencies: you should also consider the many government programs for helping buyers, especially first-time buyers, purchase homes.
-
Faith Financing: recently, a few financial companies have started offering mortgages to people whose religion doesn’t allow them to participate in any transaction involving the charging or paying of interest.
-
How it Works:
- Instead of the buyer getting a mortgage from a lender and paying monthly principal and interest payments to repay the loan, the bank buys the property and immediately sells it to the buyer with a large markup in price.
- The structure of the loan looks most like a lease-to-own deal, where the borrower increases their equity with each payment.
- The bank makes a profit with the markup, which is usually equal to the amount a buyer would end up paying the bank in principal and interest payments for a conventional 30 year fixed mortgage.
-
Who Uses These Loans:
- Muslims: the Koran bans the charging or paying of interest in any kind of financial transaction
- Other religions with the same or similar bans on interest
-
How it Works:
Print this Page