We get this question all the time. As a first time home buyer or home owner that’s been out of the game for a while it’s a great question.
It’s more important to pick the right type of mortgage lender than it is the right person. There are generally 3 Types of mortgage lenders in the market so we will break down what they are and what their pros and cons are.
- Retail Bank
- Correspondent Lender
As you may guess it’s the traditional bank. All banks offer a mortgage product and its not a bad idea to check with a bank you currently do business with.
- Retail banks underwrite their own mortgage products. This benefits you because it simplifies the underwriting process and means less potential for mistakes that hold up your closing. This equates to less stress.
- They sometimes run specials for their own customers that may include covering some closing costs. Be careful here because you want to make sure they don’t pass on that savings into your mortgage rate. It’s a great idea to get a couple of quotes from different sources to compare.
- Retail banks generally only have 1 mortgage product that will fit your circumstance. This means the rate could be higher than the market rate and there is nothing that will change that. You basically get what you get.
A broker is a mortgage lender middleman/middlewoman that shops around your loan to many lenders looking for the best rate for you.
- If your broker is good you will generally get the best rate on the market. They do all of the heavy lifting when it comes to getting the best rate.
- They don’t underwrite your loan. They take your application and pass it on to an underwriter to solidify the loan. This means the broker is going back and forth with an underwriter from a different company to ensure things are getting processed. This can cause headaches during the purchase process and/or cause problems at closing. If you broker is good, its not a problem but if your broker is bad this is a huge problem.
A correspondent lender is a lender that shops around the best rate like a broker but underwrites the entire loan in-house. Once the closing is complete they sell the loan to an investor.
- You get a great rate because the correspondent lender shops around the best rates.
- You have a stress free experience because the correspondent lender underwrites the entire loan in-house. If there is an issue it’s handled quickly and seamlessly.
- Since correspondent lenders are responsible for the entire loan process they have skin in the game. This means the level of service is often higher than a retail bank or broker. Why you might ask? Retail banks have other business lines that they need to operate so it’s not all about your loan. Brokers are not vested in the process because they are not responsible for the underwriting or servicing. Correspondent lenders on the other hand get paid when the entire loan is underwritten and closing is complete so they are fully vested in making things work smoothly.