8 Different Types of Mortgage Lenders

Loan officer discusses mortgage types with couple.

If you need a loan to buy a home, then it’s time to start looking at mortgage lenders. The sheer number of choices out there may make choosing a mortgage lender seem overwhelming — especially if you’re unsure about how types of lenders are different from each other.

Don’t panic — read on for a look at eight different types of mortgage lenders.

1. Mortgage Bankers

A mortgage banker is a financial institution or individual that originates and funds home loans. Examples of mortgage bankers include well-known traditional lenders such as Chase and Bank of America, and online lenders such as Rocket Mortgage.

In the United States, most mortgage lenders are mortgage bankers. One advantage of mortgage bankers is that borrowers work with the same institution — one they may already have been doing business with for years — from application through closing.

2. Credit Unions

Credit unions are not-for-profit organizations usually owned by their members. As a result, they often can offer borrowers a lower interest rate or require less of a down payment. Because credit unions tend to be smaller, more local institutions, they may offer better customer service.

Just keep in mind you’ll need to meet the membership requirements to join a credit union.

3. Retail Lenders

Retail lenders issue loans directly to individual homebuyers. This category overlaps with others, and can include banks, credit unions, and other mortgage bankers. Retail lenders also may offer other products and services, such as consumer loans, auto loans, and credit cards.

4. Direct Lenders

Direct lenders work directly with the borrower without a mortgage broker or any other intermediary. By working directly with a lender, the borrower may be able save money on fees. A direct lender can be any bank, credit union, or mortgage banker that originates, processes, and funds mortgages on its own.

5. Online Lenders

As the name implies, online lenders allow you to apply for and be approved for a mortgage over the internet. Because online lenders often use an automated digital process and have no in-person branches or offices, they may offer lower interest rates that can help borrowers save money. The online application experience also can be more convenient and easier to navigate for digitally savvy homebuyers.

6. Portfolio Lenders

Portfolio lenders hold on to the loans they make instead of selling them on the secondary market. As a result, their loans don’t have to conform to federal requirements, and they can be more flexible in approving loans and setting their terms.

Portfolio lenders can be helpful for first-time homebuyers whose credit may not be good enough to qualify for a conventional mortgage, as well as for borrowers who need a jumbo loan that exceeds federal limits. Because portfolio loans pose a higher risk to the lender, they often come with higher interest rates and higher closing costs.

7. Correspondent Lenders

Correspondent lenders originate, underwrite, and fund loans on their own, and then sell those loans to a larger mortgage lender that acts as the servicer. The loan servicer will process your monthly payments and keep track of how much principal and interest you’ve paid. From there, the loan servicer may then sell your loan on the secondary market to Fannie Mae or Freddie Mac.

8. Hard Money Lenders     

Hard money loans are typically offered by privately funded individuals or companies and need to be repaid within a shorter period time. They also usually come with higher interest rates, require a larger down payment, and have higher closing costs.

When hard money lenders evaluate your eligibility, they are more focused on the value of the property and less focused on your credit history. Hard money lenders can be a good option if you’re looking to buy an investment property and can’t get a portfolio loan.

FAQ: Types of Mortgage Lenders

Here are answers to some frequently asked questions about mortgage lender types.

What’s the difference between an online lender and a bank?

The term “online lender” is typically used to describe an entity that is not a bank and cannot accept customer deposits. As a result, online lenders are subject to less government regulation than a bank, and typically specialize in mortgage loans and refinancing.
Online lenders offer a streamlined process that can be more convenient, and have lower overhead costs that could translate into a lower interest rate for your loan. Traditional banks, on the other hand, offer a broader range of services and more personalized customer service.

What does a mortgage broker do?

Mortgage brokers are licensed professionals who serve as an intermediary between borrowers and lenders. Mortgage brokers can help you gather your necessary documents and shop around on your behalf for the best loan options out there.

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