How to Pick a Mortgage Type and Lender

There will always be a massive need for homes.

No matter the market, people are always buying, at least somewhere. Mortgage lenders are financial institutions that lend out specific loans called mortgages to help home buyers purchase their dream homes. The terms and conditions and interest and payback periods vary from lender to lender, and it can be a task to find the right lender for you who aligns with your interest and is willing to lend to you for the home you want.

Types of mortgage lenders include:

  • Direct lenders
  • Mortgage brokers
  • Hard money lenders
  • Portfolio lenders
  • Warehouse lenders
  • Wholesale lenders
  • Correspondent lenders

Direct lenders are institutions like banks, credit unions, or online organizations and other companies that lend directly to borrowers. These lenders service the mortgages directly and set interest and loan rates, as well as repayment schedules. These lenders can have strongly varying terms and are always worth looking into closely before making a choice. You might find one lender is far different from another and isn’t going to be suitable to your needs.

Mortgage brokers are independent third parties who help lenders and borrowers find each other with optimal terms. They charge a small amount, a percentage of the loan, as a fee. Mortgage brokers do not set interest rates or terms for the mortgage itself, and do not manage the payment of it. They can be very convenient for those who need a mortgage lender but aren’t sure where to start or how to find what they’re looking for.

Portfolio lenders commonly include credit unions, community banks, and savings and loan institutions. Portfolio lenders lend to borrowers with their own money, so they aren’t on the hook to outside investors. They can also set their own borrowing and repayment terms and conditions and have greater flexibility as a result.

Wholesale lenders are organizations like banks that offer loans through third parties like mortgage providers or credit unions and banks.

Hard money lenders are the least common and the riskiest. Hard money lenders are private organizations or individuals who lend from their cash reserves. As these loans are repaid quicker, people practicing house flipping are attracted to them as an option.

Warehouse lenders assist other mortgage lenders in funding their loans with short-term financing. Warehouse lenders are like correspondent lenders in that they don’t work directly with consumers. They make their money after the mortgage is closed.

While there are many different types of mortgage lenders and involved institutions to service the loan, the options that are best for each borrower vary tremendously based on things like financial status and home purchasing goals. The service and assistance provided by the mortgage lender are crucial aspects throughout the home buying process. Rates and terms are also varied across lenders, so it’s important to choose carefully when beginning the mortgage process.

How to Pick a Mortgage Type

As mentioned above, if you’re looking to flip a house after fixing it up, it’s likely you’ll look seriously at a hard money lender. The quick repayment and speed of the loan and its subsequent transactions make it the best option for those wanting to make money on an investment like a home quickly.

For everyone else, the other mortgage lenders will be a much more common and long-term sustainable option. Many people choose direct mortgage lenders because they’re very common and have varied but agreeable terms. If you have the credit and the financial status, banks, credit unions, and other direct lenders can be a convenient in-house process that is handled from beginning to end. There are many rules for such lenders, and the terms have laws in place to protect you and them, meaning the option is also very safe. The downside is that these institutions also set their own rates and terms and can vary enormously across institutions, meaning you could be on the hook for much more at one lender than you would at another. Doing your homework will be essential.

Mortgage brokers are able to work with multiple lenders on the borrower’s behalf, making the process simpler for the potential borrower. However, it’s important to pick a forthright broker who avoids conflicts of interest, as this can be a problem for many brokers and their affiliates.

If you have specific needs and require a potentially lower borrowing amount, or those with less favorable terms, a portfolio lender can be the way to go. They might help borrowers with unique circumstances, but it’s important to do the research on any portfolio lender before matching them as a potential funder.

When pursuing any mortgage loan, reading the terms and conditions is going to be your best bet. You’ll want to pick lenders who are honest and totally transparent from the get-go; don’t be afraid to ask the hard questions and pursue exactly what you want.

Many people find they aren’t able to do it all on their own. If this is the case, please give GNB Bank a call. Our experienced lenders can help you determine your budget. We can give you a good place to start and some background so you’re able to know what you’re looking for. We're happy to share feedback and advice on what to do in pursuit of your home buying journey.