Home Buying • 3 min read

The Pros and Cons of Different Mortgage Lenders

Fierce & Associates

When people start searching for a loan, they typically think a lot about the different types of loans—but might forget to consider the different types of lenders. There are lots of different options available, each with its own advantages and disadvantages. Finding the right mortgage lender can be the difference between getting a solid loan and getting one that you’ll regret down the line. 

Mortgage Lenders vs. Mortgage Brokers

‘Mortgage lender’ and ‘mortgage broker’ are sometimes used interchangeably by the average layperson, but they aren’t really the same thing. Mortgage lenders are the ones who actually make the loans; mortgage brokers instead work with lenders to help buyers find the right loan. Working with a broker isn’t necessary, but it can be beneficial since they can help you choose the right lender.

What Types of Mortgage Lenders Are There?

There are plenty of different lenders to choose from, and sometimes, finding the right one can be overwhelming. Some lenders have good interest rates but strict qualification requirements; other times, lenders might be very flexible but will need you to pay back the loan quickly. Below, we’ve listed four common types of lenders and some of the advantages and disadvantages of choosing them.

Portfolio Lenders

Borrowers who are looking for a little more flexibility in their loans may want to consider going with a portfolio lender! These lenders finance loans with their own money, which means that they don’t have to answer to anyone else. Because of this, they can be a lot more flexible in their terms for a loan. They tend to be pretty careful about who they lend to and may have higher rates than other lenders, but they’re a great option for borrowers who want a little extra freedom. 

Mortgage Bankers

Mortgage bankers are probably the most common type of mortgage lender you’ll find in the United States. These lenders borrow from warehouse lenders (essentially, lenders that provide funds to other lenders) in order to have the funds for your mortgage. After the loan closes, they’ll usually sell the mortgage to investors to return the money that they borrowed. Generally speaking, these lenders are the most obviously recognizable, so you can do research on their credibility a little easier. Plus, they can often help you find loans with lower interest rates or take advantage of first-time buyer programs.

Wholesale Lenders

Wholesale lenders, unlike some others, don’t deal directly with the people they’ll be lending to; while they handle the actual creation and funding of the loan, they only provide these loans through a third party, such as a bank. Because you won’t be in contact with the actual lender, some people may be less inclined to go this route; however, they can still offer solid loans, and so it may be beneficial to ask a mortgage broker about them.

Hard Money Lenders

Sometimes, you might be struggling to get a loan—in which case, going with a hard money lender might be your last resort. Like portfolio lenders, hard money lenders really only answer to themselves; they have their own money to lend out and usually have large cash savings to fund their loans with. They offer a lot of flexibility with their loans, which can be beneficial for many people. Unfortunately, however, there are some drawbacks. For starters, they usually have incredibly high-interest rates and will require higher down payments.

In addition, these loans typically have to be repaid a few years after they’re given out. As such, they’re best for people who know they can get the money quickly—for example, investors who plan on flipping homes.

Make Sure You’re Choosing the Right Type of Lender

Finding the right lender is important. If you’re still feeling overwhelmed, then consider getting in contact with us. We’d be happy to discuss mortgage lenders with you and provide you with advice.