Compare the Four Main Types of Mortgage Lenders

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	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 lowest 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 initial loan application is turned down.	Some function as the lender's agent and have the lender's best interests at heart. Free to set their own rates and may mark-up wholesale rates or charge additional points. 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 and pressure you into getting their loan instead of using a different lender Less lenders to choose from which may offer a higher interest rate
Internet Lenders	Allows you to shop for competitive rates online. Compare mortgage rates.	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. 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.