If you ask a loan officer, “What kind of lender is best?” the answer will be whoever he works for, unless his firm doesn’t provide the loan you require. If you meet the same loan officer years later, and he works for a different kind of lender, he will give you a list of reasons why that type of lender is better.
I, personally, like to direct you to a specific loan officer who has demonstrated a track record of service and reliability. It is often more important to choose the correct loan officer, not the institution. The loan officer has many responsibilities, one of which is to act as your representative and advocate to the lender he works for or the institutions he brokers loans to. You want someone who has proven dependable and ethical in the past.
Regarding the institutions, each type of lender has strengths and weaknesses. Quality can vary, depending on the loan officer, the support staff, which branch or office you are obtaining your loan from, and a variety of other factors.
Savings & Loans are quite often portfolio lenders, as are some banks. Portfolio lenders generally promote their own portfolio loans, which are usually adjustable rate loans. They will often pay more compensation to their loan officers for originating a portfolio product than for originating a fixed rate loan. You may also find that they are not as competitive as mortgage bankers and brokers in the fixed rate loan market.
However, it is often easier to qualify for a portfolio loan, so borrowers who may not qualify for a fixed rate loan may be able to obtain a loan from a portfolio lender. A borrower may be able to qualify for a larger loan from a portfolio lender than he could obtain from a fixed rate lender.
Portfolio lenders also can serve as niche lenders because certain things are more important to them than meeting the more standardized underwriting guidelines of a mortgage banker. An example would be a savings & loan, which is more concerned with an individual’s savings history than being able to fully document income and other things.
Check out this link for a better understanding of Portfolio Loans: https://www.investopedia.com/terms/p/portfolio-lender.asp#:~:text=A%20portfolio%20lender%20is%20a,lender%20who%20services%20the%20loan.
If we are talking about the larger mortgage bankers, you can count on them having several strengths. For the biggest ones, you will recognize the brand name.
Mortgage Bankers are much better at promoting special first time buyer programs offered by states and local governments, that have lower interest rates and costs than the current market rate. These programs are often available to buyers who have not owned a home in the last three years and fall within certain income guidelines.
Mortgage bankers could incur problems because they are just too big to manage, or they may operate like well-oiled machines, that’s why looking to the track record matters.
If you are buying a home and you need a VA or FHA loan and the development you are buying in has not yet been approved, they will be better at getting it approved than other lenders.
If your home loan is declined for some reason, many mortgage bankers allow their loan officers to broker the loan to another institution. However, because your loan officer is so used to promoting the company’s product, he may not be familiar with which institution may be the best one to submit your loan to. Another reason is because wholesale lenders do not expect to get many loans from direct mortgage bankers, so they do not expend much marketing effort on them.
Chris Planto, Mortgage Loan Guru, is the best source for answers and help that I can give you. He never disappoints. Rate.com/ChrisPlanto
BANKS and SAVINGS & LOANS
Their major strength is that you will recognize their name. In addition, they will usually be operating as a mortgage banker, a portfolio lender, or both, and have the same weaknesses and strengths.
The major strength of mortgage brokers is that they can shop the wholesale lenders for the best rate much easier than a borrower can. They also learn the “hot points” of certain wholesale lenders and can handpick the lender for a borrower that may be unique in some way. He will be able to advise you whether your loan should be submitted to a portfolio lender or a mortgage banker. Another advantage is that, if a loan gets declined for some reason, they can simply repackage the loan and submit it to another wholesale lender.
One additional advantage is that mortgage brokers tend to attract a high number of the most qualified loan officers. This is not universal because mortgage brokers also serve as the training ground for those just entering the business. If you have a new loan officer and there is something unique about you or the property you are buying, there could be a problem on the horizon that an experienced loan officer would have anticipated.
A disadvantage is that mortgage brokers sometimes attract the greediest loan officers, too. They may charge you more on your loan, which would then nullify the ability of the mortgage broker being able to shop for the lowest rate.
Borrowers cannot get access to the wholesale divisions of mortgage bankers and portfolio lenders without going through a broker.
If your agent or builder makes a suggestion for a lender, be sure to talk to that lender. One reason agents and builders make suggestions is the fact that they have regular dealings with this lender and have come to expect a certain amount of reliability. Reliability is extremely important to all parties involved in a real estate transaction.
On the other hand, a recent trend in mortgage lending has been for real estate companies and builders to own their own mortgage companies or create “controlled business arrangements” (CBA’s) in order to increase their profitability. These mortgage brokers sometimes become used to having what is essentially a captured market and may not necessarily offer you the lowest rates or costs.
Some real estate companies also offer different types of incentives to their realtors in exchange for recommending their company-owned mortgage and escrow companies or lenders with whom they have CBA’s. Dealing with one of these lenders is not necessarily a bad thing, though. The builder or real estate company often feels they have more ability to expedite matters when they own the company or have a controlled business relationship. They cannot usually influence the underwriting decision, but they can sometimes cut through red tape to handle problems or speed up the process. Builders are especially forceful on having you use their lender. One reason is that there are certain intricacies in dealing with new homes. If you use a loan officer who usually deals with refinances or resale home loans, he may not even be aware of how different it is to close a mortgage on a new home and this can lead to problems or delays, which in turn costs the Buyer more money in late fees & penalties.
It is in your interest to know if there is any kind of ownership relationship or controlled business arrangement between the real estate or builder and the lender, so be sure to ask. Do not automatically disqualify such a lender, but be sure to be more vigilant on getting the best interest rate and the lowest costs.
Commercial Construction Lender
Borrowers can use a commercial construction lender for various project types, including but not limited to: franchised territory expansion, brand conversions, property expansion/renovation, adaptive reuse and repositioning and ground-up construction
A construction lender (also known as a “self-build loan”) will offer a short-term loan used to finance the building of a home or another real estate project. The builder or home buyer takes out a construction loan to cover the costs of the project before obtaining long-term funding. Because they are considered relatively risky, construction lenders usually have higher interest rates than traditional mortgage lenders.
Do a little shopping, get a few tried references. By knowing the interest rates in your market and making sure your loan officer knows you are looking at rates from other institutions, you can use that as leverage to make sure you are obtaining the best combination of service and the lowest rates.