The Advantages of Different Types of Mortgage Lenders

 

If you ask a loan officer, “What kind of lender is best?” the answer will invariably be whatever kind of company he works for. REALTORS® will also have differing opinions, often recommending a specific loan officer who has demonstrated a track record of service and reliability. While this article discusses the advantages and disadvantages of different institutions, it's often more important to choose the correct loan officer, as they act as your representative and advocate.

PORTFOLIO LENDERS

Savings and loans and some banks often operate as portfolio lenders.

 

• Strengths: They generally promote their own adjustable rate loans and may offer easier qualification or larger loan amounts than fixed-rate lenders, making them effective niche lenders for borrowers who don't meet standardized underwriting guidelines (e.g., those with a strong savings history but less documented income).
• Weaknesses: They may not be as competitive in the fixed-rate market. If your loan is declined, you usually have to start the entire process over with a new company.

MORTGAGE BANKERS

Larger mortgage bankers often have strong brand recognition.

 

• Strengths: They are excellent at promoting special first-time buyer programs (state/local programs with lower rates and costs). They are also better equipped to handle government-backed loans (VA/FHA) for developments that still need approval. If a loan is declined, many allow their officers to broker the loan to another institution.
• Weaknesses: They can sometimes be too large to manage efficiently. If their internal loan is declined, the loan officer may lack familiarity with the best wholesale options for brokering the loan.

BANKS and SAVINGS & LOANS

Their major strength is brand recognition. They usually operate as a mortgage banker, a portfolio lender, or both, carrying the same corresponding strengths and weaknesses.

 

MORTGAGE BROKERS

Mortgage brokers act as intermediaries, connecting borrowers to wholesale lenders.

 

• Strengths: They can shop wholesale lenders for the best rate and are skilled at handpicking a lender based on a borrower's unique situation. They can easily switch lenders if a loan is declined. They also tend to attract a high number of the most qualified loan officers.
• Weaknesses: They can also serve as training grounds for inexperienced loan officers. Since their pay is commission-based, they sometimes attract the greediest loan officers who may charge higher fees, negating the benefit of shopping for the lowest rate.

WHOLESALE LENDERS

Borrowers cannot get access to the wholesale divisions of mortgage bankers and portfolio lenders without going through a broker.

 

When REALTORS® or Builders Recommend a Lender

If your REALTOR® or builder suggests a lender, talk to them. Their recommendation often stems from a history of reliability, which is critical in a real estate transaction.

However, be aware of the trend for real estate companies and builders to own their own mortgage companies or create “controlled business arrangements” (CBAs) to increase profitability. These lenders may not always offer the lowest rates or costs, as they essentially have a "captured market." While you should ask about any ownership relationship, don't automatically disqualify such a lender. They can often expedite matters and cut through red tape, especially with new home sales.

Builders are often forceful about using their lender because of the intricacies involved in closing a mortgage on a new home. Using an experienced loan officer familiar with these nuances is in your best interest.

Conclusion

Make sure to do a little shopping. By knowing the interest rates in your market and letting your loan officer know you are comparing rates, you can use that as leverage to ensure you get the best combination of service and the lowest rates.