Buying a home is exciting. Applying for a mortgage is not. Most people know a lot about the home purchase process, but few no much about mortgage lenders.
First and foremost, the companies lending money for home purchases vary widely. Most people, myself included, lump them together as “lenders” because it is easier than trying to explain the differences between the unique types of lenders. Still, you should have a grasp of the different class of lenders out there.
A mortgage banker is a company that you is usually large and writes a lot of loans. They create pools of loans and then sell them off to secondary markets. They tend to be in the origination game, not the service game. If you have ever received notice on a mortgage telling you to make payments to a new entity, you originally did business with a mortgage banker. Wells Fargo is probably the biggest mortgage banker out there.
A portfolio lender is similar to a mortgage banker. The portfolio lender originates loans. The primary difference is the portfolio lender tends to service the loans as well instead of selling them off on the secondary market. Portfolio lenders can be large institutions or relatively small banks lending in local areas.
Wholesale lenders work much the same way as wholesalers in most business areas. They do not deal directly with the public. Instead, they work solely with mortgage brokers or retail lending operations. The advantage of this approach is the wholesale lender does not have to market its programs to the public, a costly task. Wholesale lenders make up a large section of the lending industry.
A mortgage broker typically does not lend you money for a home purchase. Instead, the broker is usually an independent professional that stays updated on what the companies above are offering in the way of financing. The broker then shops your borrowing requirements across the various programs and identifies the best solution for your particular situation. In many ways, the mortgage broker serves the same purpose with mortgages as your real estate agent does with finding a home.
At the end of the day, most people really don’t care what type of lender is issuing them money. The point is to get the financing! Still, now you have a better idea of whom you are dealing with when applying for a mortgage.
Sergio Haros is with Great Western Mortgage - San Diego mortgage brokers providing San Diego home loans.