If you’re financing your home purchase, choosing the right mortgage provider could streamline the process. However, there are many types of mortgage lenders, including retail lenders, direct lenders, and online lenders.
Although many steps of the mortgage process are consistent across lenders, there are key differences that could affect the all-in cost. To help narrow your search, this guide will explore common mortgage lenders and explain what they do.
Table of Contents
- Key Points
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Mortgage lenders include direct, retail, wholesale, portfolio, warehouse, online, and hard money lenders, each with unique roles.
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Direct lendersmanage the loan process internally, offering their own products.
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Mortgage brokers help borrowers find suitable home loans, managing paperwork and communication.
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Retail lenders issue mortgages directly to consumers, while wholesale lenders work through third parties.
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Hard money lenders focus on property value for loans, suitable for quick financing needs such as property flipping.
Mortgage Lender, Defined
A mortgage lender is a bank, credit union, mortgage company, or individual that grants home loans to borrowers. Mortgage lenders evaluate an applicant’s creditworthiness and ability to repay the loan. Based on the buyer’s qualifications, the lender sets the interest rate and mortgage term.
After closing, a mortgage servicer may manage the loan. The mortgage servicer vs. lender difference is that the mortgage servicer is responsible for sending statements, collecting monthly payments, and allocating funds between the loan principal, interest, and escrow account, while the lender is loaning you money.
Financial institutions can act as both lenders and mortgage servicers.
Mortgage Lender vs. Mortgage Broker
Both lenders and mortgage brokers can assist with home purchases. However, there are significant differences to understand when comparing a mortgage broker vs. direct lender.
Mortgage brokers do not originate or approve loans. Instead, they help borrowers find a home loan that best fits their financial situation. They often have connections with many lenders and find solutions for less-qualified borrowers. A mortgage broker also helps organize required paperwork and manages communication between the borrower and lender.
A mortgage broker earns a commission for these services from either the borrower or lender after the loan closes. Licensing is required to operate as a mortgage broker, and the Nationwide Mortgage Licensing System & Registry (NMLS) maintains a database of licensed professionals across the U.S. Search for NMLS consumer access.
You should always obtain loan quotes from at least one broker and one direct lender when you shop for a mortgage.
Online Mortgage Lender vs. Bank
Borrowers can work with a bank or mortgage lender to fund their home purchase.
Banks can offer mortgages along with other financial products, including checking accounts and commercial loans. A borrower may receive benefits, such as a reduced rate or lower closing costs, when applying for a bank mortgage if they’re an existing customer. As larger financial institutions, banks tend to use a mortgage servicer for their mortgage loans after closing.
On the other hand, banks may have stricter lending criteria than mortgage companies, due to federal regulations and compliance requirements. Borrowers may also have fewer loan options with a bank, since mortgage lenders specialize in mortgage products.
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Common Mortgage Lender Options
If you’re in the market for a home loan, there are several types of mortgage lenders and terms to become familiar with. Here are the most common.
Direct Lenders
Direct lenders, such as mortgage lenders, banks, credit unions, and portfolio lenders, fund, originate, underwrite, process, and close the loans on their own. They work directly with buyers and refinancers, meaning there is no broker involved.
Retail Lenders
Banks, credit unions, and mortgage companies commonly function as retail lenders. Retail lenders issue mortgages directly to consumers.
Homebuyers may receive more personalized assistance from a mortgage loan originator to find a home loan that fits their situation. But because retail lenders handle loans in-house, they generally only offer their own loan products.
Besides mortgages, retail lenders provide other credit products, including savings accounts, personal loans, and credit cards.
Wholesale Lenders
Wholesale lenders offer home loans through third parties, such as retail lenders or mortgage brokers, instead of directly to consumers. They fund the mortgage and set the loan terms, while the third party facilitates the application process and communicates with the borrower. After closing, wholesale lenders typically sell their home loans on the secondary mortgage market.
Portfolio Lenders
A portfolio lender, such as a community bank, uses its own funds to originate nonconforming mortgages — those that do not meet Fannie and Freddie standards for purchase, such as jumbo loans. A portfolio lender has more flexible lending standards than a conventional direct lender because it holds its own home loans in a portfolio. However, portfolio loans may come with higher interest rates and closing costs.
Warehouse Lenders
Warehouse lending provides short-term funding for mortgage originators to finance home loans. The mortgage serves as collateral until the lender — often a small or midsize bank — repays the warehouse lender. With warehouse lending, the mortgage lender is responsible for the loan application and approval process. After closing, the mortgage lender sells the loan on the secondary market and uses the proceeds to repay the wholesale lender. Mortgage lenders profit from this practice through origination fees and mortgage points.
A mortgage financed through a warehouse lender may provide faster funding and more flexibility than a conventional loan. For instance, borrowers could apply for construction financing with warehouse lending.
Online Lenders
With an online lender, the mortgage application process, processing, underwriting, and closing — can be completed virtually. Opting for a digital borrowing experience can get you to the closing table faster. No overhead means online lenders can offer lower rates and fees. On the other hand, borrowers may find it more difficult to build a working relationship with a loan officer when completing the process online.
Recommended: Prequalification vs. Preapproval: What’s the Difference?
Hard Money Lenders
Hard money lenders — individuals or private companies — offer hard money personal loans based on the value of the property rather than the borrower’s creditworthiness. The property serves as collateral, and borrowers must repay the loan in just a few years.
While hard money lenders can offer faster financing, these loans usually come with higher down payment requirements and interest rates because of their risk. Borrowers may benefit from a hard money lender if they plan to flip a property.
How to Find the Right Mortgage Lender for You
While there’s no shortage of options, finding the right mortgage lender takes some shopping around.
When choosing a lender, it’s useful to consider your financial situation and needs. For instance, can you afford a down payment on your own or with help from a family member or friend? Is your credit score high enough to buy a house?
Checking the fees and interest rate is important to determine how much you’ll have to pay upfront and over the life of the loan.
Applying to several lenders and/or working with a mortgage broker can let you compare rates and fees to negotiate better terms. Apply to all within a 14-day window to minimize damage to your credit score.
There are also first-time homebuyer programs. The definition of first-time homebuyer is broader than it seems. It includes anyone who has not owned a principal residence in the past three years.
Recommended: Mortgage Loan Help Center
The Takeaway
There are many types of mortgage lenders to choose from. Understanding your financial situation and goals will help you pick a mortgage lender that offers terms that fit your budget.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What does a mortgage lender do?
A mortgage lender offers home loans to borrowers with the expectation that they will repay loans with interest. They set the loan terms, including the interest rate and repayment schedule.
Are mortgage underwriters the same as the lender?
Underwriters assess a borrower’s income, assets, and debt to determine mortgage approval. Most lenders manage the underwriting process in-house.
What factors should you consider when choosing a mortgage lender?
Key steps include comparing total costs — interest rates and fees — and exploring different lender types and loan products to find the best fit for your financial situation. Verify the lender’s reputation, and confirm their ability to meet your closing timeline.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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