Types of Mortgage Lenders and How to Choose the Right One

You’re ready to buy a home – great! Now you just need to find the best lender to help you with the biggest financial decision of your life. No problem, right? 

OK, don’t worry, there are many of these experts out there. MANY. And they have different names – lenders, mortgage bankers, brokers, or loan officers. (We’ll go with “lender” for this article.) 

Although mortgage lenders must be licensed and follow strict state and federal guidelines, these great people are each a little unique. They can work for big national banks with every product under the sun or local mom-and-pop offices that only focus on Veterans or first-time homebuyers. Ultimately, the right lender for you will offer the best mix of these basic factors:  

• Loan products (Conventional, FHA, etc.) 

• Special programs (Down payment assistance, deals for community heroes like first responders) 

• Rate and annual percentage rate (APR, the actual rate you’ll pay with all fees figured in)  

• Origination fees (The fees all lenders charge for putting together your loan) 

And like Mama told you, “You’d better shop around.” A good rule-of-thumb is to visit three lenders for loan estimates before committing. Although you’ll need your credit pulled, there’s no cost to apply. Not only will this educate you on all your options, but a little competition can help you get the best deal.  

Expert Tip

Try to concentrate your mortgage shopping within a short period of time. Credit bureaus will recognize that you are looking for a mortgage and group those inquiries into one, thus lessening the hit to your credit.

But Wait, There’s More! 

Oh yeah, you’re probably wondering about getting a real estate agent and when. It’s a good idea to find a lender first to get pre-approved with exactly how much you can afford. A pre-approval saves you and the agent time by focusing only on the homes you can afford. Plus, you’ll stand out to the seller because they know your financing is solid. 

Now back to your regularly scheduled lender. With so many mortgage lenders out there, how do you find the right one for you, and with the right products for your unique needs? They generally fall into three types: 

1. Banks and credit unions 

2. Mortgage brokers  

3. Mortgage lenders/mortgage bankers 

Let’s look at the differences. 

Banks and Credit Unions 

Chances are, you probably already have a bank. It could be a… 

• National bank: A for-profit company with big funds and many mortgage products 

• Regional bank: Local branches that know your name and needs, or  

• Credit union: Non-profit with special benefits and rates for members, like educators or military.  

For now, we’ll just call them “banks.” These are a great place to start your homebuying journey because getting your mortgage from the same place you’re already banking is a convenient way to manage all your accounts in one place. 

A big national bank with big funding (although they do answer to shareholders) can create exclusive offers for existing customers. They may also offer unique loan products or incentives and have brick-and-mortar locations, which can be more convenient if you want to meet with humans instead of handling your mortgage shopping online. 

Regional banks and credit unions also have actual branches you can visit with people who know you and can adapt products to your needs, as well as help secure rates and assistance programs for certain local employment, like those aforementioned community heroes (and thank you for your service!). 

Banks and credit unions, however, have a broader focus than just home lending. Their work, accounts, and offers cover mortgages, business loans, savings accounts, investment options, and other programs. You might want to work with a lender who finances only mortgages and therefore knows all the ins and outs. And a mortgage broker can help you find the right one! 

Mortgage Brokers 

It’s tough trying to research rates, loans, and lenders on your own. A mortgage broker works as a liaison between you and multiple institutions to help you find the best deal based on your criteria, like your income and savings. For each mortgage they secure, brokers typically receive a commission of 1-2% of the loan amount – and this is totally normal. 

Expert Tip

Online or in person? If you’re comfortable handling your mortgage from a distance, the big online companies can be a great idea. However, if you prefer working face-to-face or aren’t fully comfortable with technology, an in-person lender is the better choice.

Brokers (all lenders, actually) are required to let you know all fees upfront and can charge only your disclosed fee amounts. After the 2008 mortgage crisis, the Dodd-Frank Act restructured how mortgage brokers are paid and put more laws in place to protect the homebuyer. But their provisions apply to any lender:  

• You cannot be charged hidden fees. 

• Brokers can’t be paid by both you and the lender. 

• Commissions cannot be tied to the interest rate. 

• Lenders can’t steer you to affiliated businesses, like a title company. They can offer suggestions, but you can choose your third-party services (except for the appraisal, which is assigned blindly or by your loan’s government agency, like FHA). 

• Except for typical upfront costs, brokers and lenders are not paid until the loan is closed.  

In the end, it may be worth it to get a mortgage broker to do most of the upfront work for you. However, while a mortgage broker can help you apply for a loan, they have no say in approval and processing. And you might get a better deal by working directly with a mortgage lender. 

Mortgage Lenders 

A mortgage lender (like Atlantic Bay) works only with home loans, 365-24-7. Their loan officers (aka mortgage originators or mortgage bankers) are up-to-date on all the latest state and federal policies and programs and must take yearly courses to maintain their licenses. They typically have local branches where you can handle your mortgage in person, but they also offer streamlined technology to help you with the process; for example, connecting your loan application with tax or employment records to help upload documents, rather than having to hunt them all down yourself. Many loan officers also use texts, video, and chat programs to keep you informed so you can review rates right at your kitchen table and don’t have to take time off from work or family to meet in an office. 

Plus, a lender in your area will understand the markets, neighborhoods, schools, and the local taxes and government. 

Finally, loan officers are not just about getting you the best mortgage now, but helping you build a strong financial future. They’ll help you with free annual reviews to help you reach your goals, contact you with refinancing tips when rates drop, and remind you when you’re in line for savings, such as your private mortgage insurance coming to an end. Loan officers remain invested in you long after the closing table. 

How to Find the Right Lender 

Ask around: Remember Mama? She and your friends are the best resource for finding a great lender. You’ll get an honest report, and the mortgage banker will appreciate the referral and work hard to make sure they’ve earned your business. 

It’s also smart to check online reviews to hear what other buyers are saying. You’ll get a good feel for a lender’s reputation (are most reviews good and consistent?) and customer satisfaction (are they attentive and polite when you call?). You can also review their company websites for information on rates, terms, and fees. 

If you really want the nitty-gritty on a lender, you can visit the Nationwide Multistate Licensing System (NMLS) website, a centralized database of lending professionals. You’ll see all the fully licensed mortgage professionals who have completed mandatory training and passed an FBI background check. In addition to basic contact and licensing information, the NMLS will also show the loan officer's mortgage employment history and any civil or criminal actions taken against them. 

Loan products: You might think a lender’s products would be their most important “quality,” but truth be told, most lenders carry a similar list of offerings across the standard Conventional, FHA, VA, and USDA categories. 

But if you’re looking for a more niche loan - for example, a jumbo loan to purchase a luxury property or a bank statement loan to qualify with self-employment income, that’s when researching and asking lenders questions about their actual products will be important. 

Communication: Finally, even experienced homebuyers can find mortgages confusing. You’ll want a loan officer who communicates clearly and promptly, never leaving you waiting for answers. They should be willing to answer your questions and explain the loan process in a way that you can understand. 

At Atlantic Bay, we want every client to become a friend for life. We hope when you look for the right lender for you, you’ll give us a call!