All Lenders Are NOT Created Equal.

Yes, I know I am stating the obvious here.

How can this affect getting a home loan?

Let’s get to know the players.

Four Basic “Types” of Mortgage Lenders..  

  • Bank or Credit Union
  • Mortgage Company
  • Mortgage Broker
  • Online Only Lender

Bank or Credit Union

They offer other products such as checking, savings, car loans, etc. for those of you that prefer “one stop shopping.”

Occasionally they can offer incentives for if you take other services like a checking account.

Be careful not to fall for incentives on other products. They are minor compared to the financial consequences of not getting a good mortgage.

Insider Secret – just because you are a customer of a bank or credit union does not mean you’ll get any preferential treatment.

Your bank or credit union will put a home loans together under the same basic criteria as everyone else.

The mortgage must be saleable to an investor. [see How To Get The Lowest Home Mortgage Interest Rate]

Banks and credit unions lend mortgage money from their own resources.  Selling that loan to an investor, replenishes those funds.

They have their own processing, underwriting and closing staff.

Mortgage Company

A mortgage company only offers home loans – period.  It’s their sole focus and purpose.

Because of this, they tend to be specialists. Their loan officers also have a higher degree of education and licensing requirements.

Mortgage companies lend money from their own resources. They also sell that mortgage to an investor to recoup those funds for the next deal.

They have their own processing, underwriting and closing staff.

Mortgage Broker

This is a term quite often misused.

Every loan officer is NOT a mortgage broker.

A mortgage broker acts as an intermediary between you and a chosen lender. Like a Mortgage Company, they tend to be more of a specialist.  They have higher standards for required education and licensing.

They don’t have their own funds to lend you; but rely on various relationships with other banks, credit unions or mortgage companies.

They can shop between a variety of lenders to find you a good deal – maybe.

Insider Secret – when a mortgage broker says they can shop your loan with hundreds of lenders; that may be partially true.

The truth is – you find the lenders that you can trust to get the deal done and have competitive loan programs.

It’s impossible for a mortgage broker to have a good working relationship with more than 10 lenders at best.

Based on my 15 years as a mortgage broker; a loan officer working for a mortgage broker most likely has 2 to 3 lenders who they have  developed a loyal relationship.

A mortgage broker can process the paperwork for your loan.  The underwriting (approval) of the loan must go through whatever lender is chosen and that lender will also supply the funds.

Online Only Lender

Online lenders can be tough for the inexperienced.

Here’s the real deal – if you are a “high quality” buyer with excellent credit; easy to document income and assets and you’ve done this a couple times – you may be okay.

Online lenders typically have their own funds to lend; yet still must sell the loan to an investor.

Like a mortgage company; they only offer mortgages.

BUT – unlike a mortgage company…

Their loan officers typically work out of huge call centers.  They rely on advertising to make the phone ring.

I was seeking a mortgage last year and decided to give online lending a try; more out of curiosity than anything else. After I submitted my loan application; my loan officer never even returned my calls!  After a couple weeks and still no word; I eventually made it up the ladder to talk with someone in management.  I was told that loan officer had quit.  Yet no one bothered to call me?  I promptly cancelled the application.

Be careful about applying online through an advertisement of interest rates.

Insider SecretAdvertised interest rates ALWAYS have some very fine print attached that most folks miss. They fail to reflect your situation and that, in my humble opinion, always makes them deceptive. They are designed to make you call.

Even inquiring about interest rates with online advertisement is most likely going to generate a TON of annoying phone calls from loan officers trying to get your business.

Here’s why …

Most online interest rate advertisements are nothing but “lead generators” for various lenders.

In other words; you inquire and then your inquiry is sold to lenders who purchase leads for new business.

The loan officers get the leads and start “dialing for dollars!”  Some of them are pretty good sales people; so be aware.

So, what is the best lender type to choose?

I recommend calling one of each.

Before you do; plan to have six specific criteria to tell them:

  1. Loan Program – just pick either Conventional, FHA or VA (if you are a Vet). You are not yet applying so it doesn’t really matter.
  2. Loan Term – how many years for your loan program. Typically it is 30 years.
  3. Credit Score – just pick a number if you don’t know your score. 720 is a good number to use.
  4. Down Payment – choose a likely percentage that you have for a down payment.
  5. Loan Fee you are willing to pay.
  6. Type of property you are looking to buy.

It does not matter what you choose for this criteria if you don’t yet have a good idea of what your credit score or best loan program might be.

IT MATTERS THAT YOU GIVE THE SAME CRITERIA TO ALL LENDERS. (you want to be sure you are comparing apples to apples!)

Click here for a FREE download of the Preliminary Lender Shopping List I created to help you with this exercise.

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