What Is a Mortgage Lender?

Couple discusses mortgage options with a lender.

Most people looking to buy a home need a loan from a mortgage lender to do so. The lender lets you borrow the money to buy the home, and you repay it over time with interest.

Here’s a closer look at what a lender does.

What Mortgage Lenders Do

A mortgage lender is a financial institution that lends money to people to buy a home with. The lender decides whether a borrower qualifies for a loan, and sets the conditions of the mortgage, including the interest rate and loan term.

Lenders make money by charging interest on their loans. You can think of interest as the cost you pay to borrow the money.

Borrowers repay the loan over time, usually by making a monthly mortgage payment. Home loans typically are amortized and repaid over 15 or 30 years. Each payment repays part of the principal — the amount you borrowed to buy the home — and interest on the loan.

There are different types of mortgage lenders. In some cases, your mortgage lender will be different from your loan servicer, which is the company that manages the loan, collects payments, and tracks your progress in repaying the principal and interest.

Working With a Mortgage Lender

Here are some of the steps you can expect to take when applying for a loan, choosing a mortgage lender, and working with that lender for the duration of your mortgage:

  • Pre-qualification and preapproval. The first step usually is applying for pre-qualification or preapproval. Both indicate how much money the lender expects to offer you with a full loan application, can help you budget for how much house you’re able to afford, and show real estate agents and sellers that you can secure financing.
  • Loan estimate. If a seller accepts your offer, it’s time to apply officially with a lender for a mortgage. The lender will send a loan estimate within three business days. The form describes the key details of the loan that the lender expects to offer to you, including the loan type, interest rate, and repayment term. It also estimates your monthly payment and closing costs.
  • Loan approval. Next, it’s time for the lender to review your finances in what is known as the underwriting process. The lender will review your financial information to verify you can afford the loan, and order a home appraisal to confirm that the loan amount matches the value of the property.
  • Closing disclosure. Your lender will send you a closing disclosure at least three days before your closing date. This five-page form finalizes the details of the loan outlined in the loan estimate, including closing costs and your projected monthly payment. Once you close on the loan, the lender provides the funds to buy the home and the seller transfers ownership to you.
  • Servicing. Your lender or a loan service company will process your monthly payments, manage your escrow account, and keep track of the amount of principal and interest that has been paid.

Mortgage Lender FAQ

Here are answers to some frequently asked questions about mortgage lenders.

Are mortgage lenders all the same?

No. Some lenders are banks or credit unions, while other lenders are independent institutions or brokers. Those lenders have different eligibility requirements for home loans. The interest rate and loan terms also will vary by lender.

What do you write in a home offer letter?

Some homebuyers write a personal letter to the seller alongside their house offer. If you’re facing competition from other buyers, a letter that provides context for why you want the house can help you form a connection with the seller. However, an offer letter isn’t always appropriate — these letters can violate fair housing laws — so consider carefully before sending one.

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