Borrowers have may choices when shopping for the right lender. Choices include banks, mortgage brokers, home builders, and internet lenders. Each has its advantages and disadvantages, and rates vary from lender to lender.
Type |
Advantages |
Disadvantages |
Banks |
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Mortgage Brokers |
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Home builders |
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Internet Lenders |
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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. Compare mortgage rates.
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 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.