When we go ahead with the home buying process it is confusing and a little intimidating to shop for a lender.
choosing from so many companies and types of lenders could be difficult. But when you understand the differences between the main types of lenders it would be helpful to narrow down the search.
Choosing the right type of loan is obviously important, but when you chose the right lender it could save you money, time, and effort. Hence taking the time to shop around is important.
There are different types of mortgage lenders like – retail lenders, direct lenders, mortgage brokers, correspondent lenders, wholesale lenders, and others, and some of these categories overlap.
In your home-buying research you would have seen the terms “mortgage lender” and “mortgage broker“, but their functionality and meanings are different.
A financial institution or mortgage bank that offers and underwrites home loans is known as a mortgage lender. There are specific borrowing guidelines for lenders to verify a borrower’s creditworthiness and ability to repay a loan.
The terms, interest rate, repayment schedule, and other key aspects of the mortgage are set by the mortgage lenders.
A mortgage broker works as an intermediary between borrowers and lenders. The mortgage brokers do not have a say in the borrowing guidelines, timeline, or final loan approval.
The brokers are licensed professionals who collect borrower’s mortgage applications and qualifying documentation, they can counsel borrowers on things to address in their credit reports and with their finances to strengthen their chance of qualifying.
As many mortgage brokers work for independent mortgage company they can shop multiple lenders on behalf of the borrower, helping them to find the best possible rate and deal.
After a loan closes the mortgage brokers are usually paid by the lender; sometimes the broker’s commission is paid upfront at closing by the borrower.
The Mortgage brokers work with different lenders, and it’s important for the borrower to find out which products those lenders offer.
One thing to know is that brokers do not have access to products from direct lenders. A borrower would need to shop at a few lenders to get the best loan offer.
Many mortgage brokers and mortgage lenders charge a fee of 1% of the loan amount. These commissions are either paid by the borrower or lender.
A borrower can take a loan where they won’t pay a loan origination fee and the lender will pay the broker fees. However, mortgage lenders charge higher interest rates which are negotiated by some brokers for an up-front fee to the borrower in exchange for their services.
Before going ahead with a prospective broker they need to be asked how much they charge and who pays for the fees.
A borrower saves time and effort because the mortgage brokers can help by shopping multiple mortgage lenders for the borrower.
If the borrower needs a loan with a low down payment requirement or if his credit is not so great then the brokers can look for lenders that offer products tailored for such situations. Brokers typically have well-established relationships with lots of lenders.
Their connections can help the borrower to score competitive interest rates and terms. And since their compensation is tied to a successful loan closing, brokers deliver personalized customer service.
Once a mortgage broker ties the borrower with a lender, they don’t have much control over how the loan is processed, and the time it takes, or whether the borrower will receive final loan approval.
This can end in to delay in the closing process. Sometimes the lender might charge a higher interest rate to cover the broker’s commission, leading to more cost.
Mortgage bankers in the U.S. are mostly mortgage lenders. The mortgage bank could be retail or direct lenders like large banks, online mortgage lenders, or credit unions.
To fund the mortgages they issue to consumers these lenders borrow money at short-term rates from warehouse lenders.
And after the loan closes, the mortgage banker to repay the short-term note sells it on the secondary market Fannie Mae or Freddie Mac, or to other private investors.
Mortgages are provided not to institutions but directly to consumers by Retail lenders. Banks, credit unions, and mortgage bankers are retail lenders.
Along with mortgages, retail lenders offer other products, like checking and savings accounts, personal loans, and auto loans.
Direct lenders originate their own loans. They at times use their own funds or borrow them from another place. Mortgage banks and portfolio lenders are direct lenders.
Their specialization in mortgages distinguishes a direct lender from a retail bank lender.
Consumers are sold multiple products by retail lenders, they tend to have more stringent underwriting rules. With their focus only on home loans, direct lenders have more flexible qualifying guidelines and alternatives for borrowers who have complex loan files.
Just like retail lenders, the direct lenders, offer only their own products so one needs to apply to multiple direct lenders for comparison shop.
The only potential drawback if you prefer face-to-face interactions is that many direct lenders operate online or have limited branch locations.
Borrowers’ are funded for their loans with their own money by a portfolio lender. So a portfolio lender isn’t obliged to the demands and interests of outside investors.
Portfolio lenders have their own borrowing guidelines and terms, which could be appealing to certain borrowers. For instance, if a borrower needs a jumbo loan or is buying an investment property then he might find more flexibility while working with a portfolio lender.
Banks or other financial institutions that offer loans through third parties, like mortgage brokers, other banks, or credit unions are called wholesale lenders. They don’t work directly with consumers but originate funds, and many times service loans.
It will be the wholesale lender’s name and not the mortgage broker’s company which will appear on loan documents because the terms of your home loan were set by the wholesale lender.
Many mortgage banks run both retail and wholesale divisions. Shortly after closing the wholesale lenders usually sell their loans on the secondary market.
When a borrower’s mortgage is issued the correspondent lenders come into the picture. They are the initial lender that makes the loan and perhaps service the loan.
Correspondent lenders sell mortgages to investors/ sponsors who re-sell them to investors on the secondary mortgage market.
The main investors being Fannie Mae and Freddie Mac. A fee is collected from the loan when it closes by the correspondent lenders, who immediately sell the loan to a sponsor to make money and eliminate the risk of default in case of payment failure.
The correspondent lender must hold the loan if a sponsor refuses to buy the loan, and find another investor.
Other mortgage lenders are helped by warehouse lenders to fund their own loans by offering short-term funding. As soon as a loan is sold on the secondary market the warehouse lines of credit are usually repaid.
They too don’t interact with consumers. The mortgages are used as collateral until their clients who are smaller mortgage banks and correspondent lenders, repay the loan.
Hard money lenders are often the last alternative if a borrower can’t qualify with a portfolio lender or if they renovate homes to resell quickly. Hard money lenders usually are private companies or individuals with significant cash reserves.
These loans generally must be repaid in the shorter term so only investors interested to buy, repair, and quickly sell homes for profit are interested in it.
While these lenders are flexible and fast, they charge heavy loan origination fees and their interest rates are quite high they also require a substantial down payment.
The property is used as collateral to secure the loan by hard money lenders and if the borrower defaults, the lender will seize the home.
With the automation of the application process, it is a huge time-saver for busy families or professionals who are searching for a home, with their busy lives.
A few lenders provide apps to apply, monitor, and manage the loan from a mobile device.
It is always good to browse through different lenders’ to know their products, rates, terms, and lending process.
When you compare shop, along with working on your credit and financial goals, will help you find the best loan for your needs.
Searching for the right lender and loan can be a tiresome process. When you do your research before starting the process will help you with lenders and brokers.
To compare mortgage rates, terms, and products you might have to go through the pre-approval process with a few lenders. Having your income, savings, and document ready will help your lenders and brokers to offer you the best rates and products.
Today in this post we will learn and understand about mortgage lender vs mortgage servicer and find out some amazing differences
A bank or financial company that lends money to borrowers to purchase a home is called a mortgage lender.
A company that handles the payment processing and sends the monthly statements to the borrower is the mortgage servicer.
The loan provider, i.e. mortgage lender or bank can also be both the mortgage servicer.
The mortgage lender and the mortgage servicer have specific policies and procedures to follow and they both are regulated by the federal government.
The bank or credit union that most people interact with when applying for a mortgage is the mortgage lender.
The various types of mortgages, the interest rates for each product as well as how much to spend for the downpayment are all explained by the mortgage representative at the local bank to the borrower.
When applying for the loan the borrower will have to submit proof of income such as pay stubs and other financial information.
The lender reviews the borrower’s credit history which is called a credit check, where all information about the number of accounts open, amount of debt, and payment history is seen.
Things like late payment have a negative picture on the credit report and will impact the chance of approval and the interest rate charged by the lender.
After the approval, the local bank or lender will go in for the closing, where the paperwork is signed, and the mortgage is legally put on the books.
The borrower for the life of the mortgage loan will owe the amount borrowed to buy the home, plus interest to the lender.
Every month payments will go for paying down the mortgage where a portion of each payment will pay the interest owed on the loan, and another portion of the payment will go to paying the principal or original amount borrowed on the loan.
Sometimes a lender hires another company to handle all the payment processing of the borrower once the loan is booked, these companies are mortgage service companies.
An outside company that helps with the processing of the loan, and also includes making sure the loan is awarded to the borrower and that the borrower applies the loan to the intended purchase is known as a mortgage servicer.
A mortgage processing includes keeping track of loan payments, sending reminder notices for missed payments, and in the event of default in the loan then filing foreclosure documents.
When the payments haven’t been paid for a length of time and are unlikely to be paid in the future then it is termed as Default.
Then the home loan goes into foreclosure if a renegotiation of the terms of the loan can’t be worked out. In the process of foreclosure, the bank takes possession of the house and resells it to recover back any losses they faced from the loan.
The mortgage lenders can also function as mortgage servicers.
When the lender is able to handle deposits, such as a bank or financing company, then his company can also service the loan.
When a lender cannot hold deposits then the mortgage servicing company can come into play. Each state in America has its own laws and regulations of how mortgage loans are serviced and what is the roles of banks and service companies.
You’ll have a new service provider if your mortgage is sold, and according to the Consumer Financial Protection Bureau or CFPB, they should notify you of their name, contact details, and address to send payments within 30 days from the date of transfer.
The Consumer Financial Protection Bureau suggests checking the top of your statement or payment coupon book for the return address of the company if you want to know whether a particular mortgage servicing company is involved in your mortgage or not.
If you don’t see the address of the bank that originally gave you the loan, then it’s likely the loan is being processed by a service company.
You can also, visit the MERS Servicer Identification System website that will be able to help you identify the service provider.
Some banks keep the loans that they originate, while others sell the mortgages to service companies.
These service companies handle all the payments by taking over the loan process. Why do the banks do that? when the banks sell the mortgage it allows them to initiate new loans.
Because the banks have limitations on how much they can lend, which is based on numerous factors, like how much is the bank holding in deposits.
When they are servicing existing ones the banks don’t make that much profit as when initiating a new mortgage.
Secondary mortgage market buys and sells mortgage loans —many of the loans are sold to Fannie Mae or the Federal National Mortgage Association (FNMA).
Multiple existing mortgage loans which are called mortgage-backed securities (MBS) are packaged as investments by Fannie Mae.
Based on the mortgage interest rates in the investment, individuals can invest in an MBS and earn a rate of return.
So now we can sum it up by saying the financial institution that loaned you the money is your mortgage lender.
And the company that sends you your mortgage statements and handles the day-to-day tasks for managing your loan is your mortgage servicer.
And a leader can also be your servicer.
Selecting the right mortgage lender in Texas could be a task. There are many mortgage loans in the market, like FHA, VA, USDA, Conventional, Jumbo, etc.
If you are looking to get a mortgage or to refinance your existing mortgage, you might want a loan officer who can assess your situation and suggest the best mortgage loan according to your requirements.
Below are a few tips on how to select the right mortgage lender in Texas and explore your options together.
It is always suggested to do your research before finalizing a mortgage lender or a loan officer. Please make sure you speak to multiple mortgage lenders and ask them questions.
Always check for testimonials, reviews, or ratings for the loan officers you are working with. This gives you a better prospect of selecting the right mortgage lender.
You can always search the information for the loan officer on google and get more knowledge on his or her reputability.
If you do your homework well, you will get the right mortgage lender possibly with a great deal as well!
If you want to compare apple to apple, you might want to get all the quotes from the mortgage lenders that you are talking to on the same day.
The reason being, the interest rates fluctuate on a day to day basis.
So if you are talking to 3 different mortgage lenders at a time, we would suggest you take the quotes from all three on the same day possibly within a 4-hour window.
This way, when the mortgage lenders provide you with the quote, the interest rate they are referring to, is the same based on, the market for that specific day.
After you get the quotes from the mortgage lenders on the same day, it would now make, the right sense to compare and see which is the best for you.
For example, If you get a quote from Lender A on Monday who is offering you 3.875%, and from Lender B on Thursday who offered you 4.00%.
It could be possible that the market rate was good on Monday, and that is why Lender A quoted 3.875%.
If you had taken the quote for Lender B on Monday, he could have provided a better quote.
So, get the quote from all the lenders on the same day and select the right mortgage lender in Texas.
You can get the rates over the call. However, if you are talking to multiple loan officers, meeting in person with all of them for a rate quote could be time-consuming.
You could get a rate quote from the loan officer in minutes based on few details like property type, loan amount, credit score, and down payment (in case of purchase).
Get the rates from all the loan officers you are talking to and select the right mortgage lender in Texas based on their quotes.
When it comes to refinancing or property purchase, there are always some fees attached to it.
Make sure you ask the lenders you are talking to, about what are their fees and ask them to mail that information on your email so that you can do a side by side comparison on who is charging what.
Few fees are beyond your lender’s control like Title, Escrow, and appraisal fees. No matter which mortgage lender you pick these fees would remain the same.
The fees that you need to look for comparison are underwriting, origination, app, Credit report, processing, etc.
These are the fees that are under your lender’s control so you may question them and conclude on which lender is giving you the best deal.
Once you follow the tips, you should be able to find the right lender for your home mortgage refinances or property purchase.
Also, there are no ‘dumb questions’ when it comes to mortgage loans.
A proper loan officer should always be able to answer any questions that you may have. Remember, when you Compare you win.