Understanding the different types of lenders is important. Each type of lender has strengths and weaknesses. Quality within each branch or office can vary, depending on the loan officer, the support staff, and a variety of other factors. It is often more important to choose an ethical institution you can trust.
Direct Lender is a term that applies to lenders who fund their own loans. A "direct lender" can range from the biggest lender to some pretty small companies. Banks and savings & loans obviously have deposits they can use to fund loans with, but they usually use "warehouse lines of credit" from which they draw the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans. This category can include mortgage bankers, portfolio lenders, or small lending companies.
Mortgage Brokers are individuals or companies that unite borrowers and lenders together, and then facilitate the contact with each other. The lender offers a lower rate to the broker, the broker adds on his compensation, and the rate is usually about the same as you would get using a mortgage banker. Sometimes the rate is lower, sometimes higher, depending on how much compensation the broker adds.
A mortgage broker should evaluate the different types of loans available to youand give you insight as to which banks or financial institutions offer the most competitive rates and the terms most compatible with your particular situation. One additional advantage is that mortgage brokers tend to attract a high number of the most qualified loan officers. When you enlist the services of a mortgage broker, you often have to pay an initial fee or commission once you obtain your loan.
Mortgage Bankers generally have several strengths. Usually, larger mortgage bankers are much better at promoting special first time buyer programs, cooperating with states and local governments. These programs tend to have slightly lower interest rates and costs. To qualify for these programs, your income must fall below a median average for the area and you must not have owned your residence for the last three years.
Mortgage bankers may have problems just because they are "too big" or they may operate like well oiled machines. A lot depends on the branch or office you deal with.
If your home loan is declined for some reason, many mortgage bankers allow their loan officers to broker the loan to another institution. However, because your loan officer is so used to promoting his own company's product, he often loses track of the "niches" offered by certain wholesale lenders.
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