Mortgage Lenders

Consumers have many sources to choose from when seeking mortgage loan financing. But with so many choices, how do you know which mortgage lender is right for you? Here is a brief overview of the different types of mortgage lenders.

BANKS, CREDIT UNIONS:

• Where do they get the money to make mortgage loans?

These types of companies typically raise money by soliciting deposits. They will then use the money they have on deposit to make loans for people and/or businesses. Larger institutions may also sell securities in the financial markets (a.k.a. Mortgage Backed Securities) to raise money to offer mortgage loans to their customers. Each individual institution will set its own guidelines for mortgage loan approval, which can mean good news or bad news for the borrower with special credit needs. In many cases, they may offer their customers mortgage lending services through a trusted mortgage banker or a mortgage broker. You can find out if your local institution offers residential mortgage loan services by making a quick telephone call.

• What are the benefits of using a bank/credit union?

Many of these lenders service their own mortgage loans -- meaning you would send your monthly mortgage loan payment to them. If dealing with a local financial institution is important to you, ask what percentage of its mortgage loans does the lender service. In addition to ease of management, consolidating all of your financial affairs with one institution may give you some bargaining power in terms of obtaining favorable financing terms. Your local institution may wish to reward customer loyalty through an attractive mortgage loan interest rate or reduced mortgage loan fees to its customers.

-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at year’s end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you don’t really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.

• Where do they get the money to make mortgage loans?

These types of companies typically raise money through a substantial line of credit with a large financial institution. A mortgage loan banker will then loan this money to consumers via home loans.

• What are the benefits of using a mortgage loan banker?

Since mortgage lending is their sole focus of business, mortgage loan bankers tend to offer very competitive pricing and can arrange financing for most types of borrowers. Many of these mortgage lenders service their own loans--meaning you would send your monthly mortgage loan payment to them. If this is important to you, ask what percentage of its mortgage loans does the lender service.

-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.

• Where do they get the money to make mortgage loans?

Mortgage loan brokers do not actually loan money. They will take your mortgage loan request and find a mortgage lender for you. Although a mortgage loan broker will likely be the company represented at the loan settlement/closing, they will be providing you with another institutions' money (table funding).

• What are the benefits of using a mortgage loan broker?

Since mortgage loan brokers deal with several mortgage lenders, they are likely able to find a mortgage loan to fit your financial situation. Mortgage brokers can be extremely helpful for borrowers that have unique circumstances (i.e. self employed, bad credit, unique down payment source). Many mortgage loan brokers have a small staff and outsource many of their operations functions. Their limited staff can reduce overhead costs and provide the opportunity for the mortgage broker to pass on these reduced costs to its customers in the form of competitive mortgage loan pricing.

Your satisfaction/dissatisfaction with a mortgage lender will usually depend on the relationship that is developed between yourself and your mortgage loan officer (the individual representing the mortgage lender that is your primary point of contact). If the mortgage loan officer cannot answer all of your questions to your satisfaction, this may be a sign of problems down the road. If you have confidence in your mortgage loan officer and he/she is offering you an interest rate and costs reasonable to the marketplace, it may not matter what type of financial institution you are dealing with.