If you’re looking for the perfect mortgage lender for your situation, you have many more options to consider than your nearest bank or credit union.
Some alternatives might even make it easier to qualify, help you save money, or allow you to close faster. In other words, choosing the right type of lender can alleviate stress during a potentially confusing process.
What is a mortgage lender?
A mortgage lender is the company you turn to when you need to get a home loan. Whether you want to buy or refinance, cash out, or get a home equity loan, a mortgage lender can provide the money you need.
Mortgage lenders vs. mortgage brokers
A mortgage lender is a single company that offers its own home loans. A mortgage broker is a company or individual that offers home loans from multiple lenders.
Many people turn to mortgage lenders when they need a home loan because they recognize these companies’ names. However, working with a mortgage broker can be a faster way to find the best deal on a home loan. Instead of applying multiple times to collect quotes from multiple lenders, you can apply once and receive multiple offers.
Tip: You still might want to compare the mortgage rates you can get on your own with the quotes a broker gives you. Since most brokers only work with a small subset of lenders, it doesn’t hurt to seek quotes from other lenders that your broker doesn’t work with.
To maximize your savings, you’ll typically want to get three to five quotes before committing to a loan.
8 types of mortgage lenders
While there are many types of mortgage lenders, not all of them work directly with consumers. Still, it’s helpful to know the differences so you don’t waste time on the wrong path when you’re shopping for a loan.
1. Mortgage bankers
At a glance:
Individuals or companies that originate home loans
Mortgage bankers may use their own money to issue home loans, or they may help borrowers get mortgage funding from a bank. Unlike a mortgage broker, however, the banker will handle the loan application, underwriting, and approval directly.
Mortgage bankers may originate everything from government-backed loans, like FHA mortgages, to second home loans. They also have more flexibility to originate home loans to unconventional borrowers.
Examples: Mortgage 1, Ideal Home Loans, Paragon Home Loans
2. Retail lenders
At a glance:
Banks or mortgage companies that work directly with consumers
When most people think about getting a home loan, they probably think about retail lenders. These include the banks you might already have a savings account with. Many retail lenders have brick-and-mortar locations and offer other types of loans as well.
Examples: Chase, Wells Fargo, Bank of America, SoFi
3. Wholesale lenders
At a glance:
Funders of mortgages for retail lenders
If you love a good bargain, you might have found ways to buy some of your favorite products wholesale. You can’t do that with your mortgage, though. Wholesale mortgage lenders don’t work directly with consumers; they work with retail lenders.
Retail lenders might not lend out their own money to originate mortgages. They might get that money from another source, like a wholesale lender. Some companies have both retail and wholesale divisions. That’s the case with Caliber and Freedom, for example.
Examples: United Wholesale Mortgage, Freedom Mortgage Wholesale, Caliber Home Loans
4. Direct lenders
At a glance:
Mortgage specialty companies that work directly with consumers
A direct lender is a mortgage company that originates its own loans. Direct lenders overlap with some of the other lender types on this list — for instance, a direct lender can be a mortgage banker or portfolio lender.
Unlike a retail lender, which can offer several different types of loans, a direct lender specializes in mortgages.
A direct lender is also far less likely than a retail lender to have a physical location; many operate only online. But you’ll find all kinds of mortgages through direct lenders, from 30-year conventional loans to adjustable-rate mortgages and jumbo loans.
Examples: Quicken Loans, loanDepot, PennyMac
5. Portfolio lenders
At a glance:
Lenders with more flexible underwriting for outside-the-box borrowers
After your loan closes, it’s common for a mortgage lender to sell it on the secondary market to Fannie Mae or Freddie Mac. But a portfolio lender doesn’t do this — instead of selling the debt, they’ll keep the loan in their portfolio.
Since they don’t sell their loans, portfolio lenders get to decide exactly who qualifies for a mortgage and on what terms. They can be a good choice if you don’t meet some of the more stringent requirements set by traditional lenders, or if you’re seeking a larger loan amount. Use a home affordability calculator to determine how much you can afford.
Examples: Axos Bank, Emigrant Mortgage, First Bank
6. Online mortgage lenders
At a glance:
Efficient and cost-saving lenders for tech-savvy borrowers
Online mortgage lenders don’t have any physical branches. They streamline the application and approval process by doing everything online. You’ll apply through their website or app, then upload documents like tax returns, bank statements, and proof of income for underwriting approval.
You’ll be able to communicate with a loan officer on the phone or over email. In some states, you can even close your loan remotely. An online lender could also be a hard money lender, direct lender, retail lender, portfolio lender, or mortgage banker.
Examples: Rocket Mortgage, Ally, Better
7. Hard money lenders
At a glance:
Short-term, high-interest financing companies for real estate investors
If you’re buying a home and you want to pay for it over 15 or 30 years, a hard money lender isn’t for you. But if you’re a real estate investor who only needs to borrow money for a few months to buy the home, fix it up, and resell it, then a hard money lender can be a good option.
While they charge high interest rates and origination fees, they’re less picky about a property’s condition and can close loans quickly. They’ll lend you money for renovations, too, not just the purchase price.
They may want proof of your track record as a successful flipper, or they may charge more if you’re new to the practice. A hard money lender can also be a direct lender.
Examples: Orchard Funding, Anchor Loans, Haus Lending
8. Credit unions
At a glance:
Offer friendlier terms for lower-income borrowers or first-time homebuyers
Credit unions have a reputation for providing more personalized service than big banks. When it comes to mortgage lending, you can see that in the loan programs they offer.
For example, one of the country’s biggest lenders, Navy Federal Credit Union, has loans that require no down payment and no private mortgage insurance (PMI). You won’t find that option at Wells Fargo unless you meet the VA loan requirements.
Not every credit union and big bank will fit these molds, but if you do need extra help qualifying for a home loan, you might have better luck going through a credit union.
What’s the catch? To get a credit union mortgage, you must become a credit union member. Some credit unions are open to anyone, but others require you to work for a certain company or live in a certain area. Still, you’re bound to find one either in your area or online that you qualify to join.
Examples: Navy Federal Credit Union, Pentagon Federal Credit Union, Alliant Credit Union
How to choose the right mortgage lender
Choosing the best mortgage lender for your circumstances might mean shopping around with different types of mortgage lenders. But many people only shop with lenders in one category, like online lenders, without ever knowing how a mortgage banker, mortgage broker, or portfolio lender might expand their options.
Comparing quotes from multiple lenders is key when you want to get the right loan, the best interest rate, and the lowest closing costs. On average, getting at least five quotes can potentially save you thousands of dollars.
Here are some items to consider when choosing between mortgage lenders:
- Loan offerings
- Interest rate
- Closing costs
- PMI requirements
- Loan processing time
- Minimum down payment
- Customer service
- Reputation
