Friday, October 30, 2009

Types of Lenders

Today's choices include banks, mortgage brokers, home builders, and Internet lenders. Each has its advantages and disadvantages, and rates vary from lender to lender.

Types of Mortgage Lenders
Type Advantages Disadvantages
Banks Regulated by state and federal agencies
Current banking relationship can get you a reduced mortgage rate
Numerous branches provide you with face-to-face access
Limited to products only the bank has to offer
May not have the best rates
May lack negotiation leverage when it comes to publicized rates

Mortgage Brokers Access to a variety of mortgages and lenders
Can save you money by shopping for the best rates
Can quickly find another lender if your loan initial application is turned down
Some function as the lender's agent and have the lenders best interest at heart
Free to set their own pricing and may mark-up wholesale rates to whatever they want
Service may vary from broker to broker

Home Builders Good way for the first-time home buyer to qualify
The buyer does not take title to the property until the home is completed
May favor certain lenders who offer higher rates
Can pressure you into getting their loan instead of using a different lender

Internet Lenders Allows you to shop for competitive rates online
A greater learning curve for the borrower to understand the lending process

Typically, most lenders do not keep money on hand but instantly sell conforming loans to third parties like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). The most common source of home lending is a retail financial institution or credit union. They offer specific loan products and handle their own direct financing by taking consumer deposits and lending them to home buyers.

Mortgage brokers, on the other hand, act as the middleman and don't fund the loans themselves, but handle the mortgage financing for the borrower. Most earn their fees directly as a percentage from the lender and some from the borrower, or a combination of both. Since mortgage brokers have access to a wide variety of lenders they are usually on top of the latest rates, fees and lending practices.

Home builder financing is common in new developments where there is a single builder. The builder carries the construction costs until the homes are built. The builder works with a lender to set-up financing for the buyer and finances the construction costs. The buyer doesn't make mortgage payments until the property is finished.

The popularity of finding a mortgage on the Internet mortgage has grown in recent years. Many lenders offer competitive rates and the convenience of tracking your application through the approval process. Some can save you a significant amount in closing costs, since everything is automated and the time to get approved can be shortened.

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