When shopping for a mortgage, you’re mostly looking for the best interest rates and terms you can find, while the type of lender doesn’t usually weigh into the equation. Mortgage banks, mortgage brokers, and your local bank can all offer mortgages — but why do you need to know the difference?
That answer lies in the different processes each type of lender uses, beginning the minute you hit the submit button on that online application. Mortgage brokers, mortgage banks and institutional banks all operate very differently, and knowing those differences could help you avoid spending time and emotional energy on a lender that does not fit your needs.
Understanding different types of mortgage lenders
Mortgage lenders all have access to money that you can use to buy or refinance your home. How they get the money and what happens next are all very different. Here is a brief overview of how each type of lender works.
Mortgage Banks
A mortgage bank has direct access to the money you need for your mortgage loan, either in the company’s own bank account or from its investors. A mortgage banker can approve your loan application and provide the money to you directly. Very often you will end up making your payments to the mortgage bank after your loan closes, though sometimes the servicing rights to your mortgage are sold to a different investor.
All aspects of the loan approval are handled “in house.” Documents can often be uploaded to one central processing site; the mortgage processors and underwriters work directly for the mortgage bank and the closing and funding of the loan are all handled internally.
Mortgage Brokers
A mortgage broker has indirect access to the money for your mortgage loan based on approved relationships it has with several different lenders. A mortgage broker cannot actually fund your loan, but he or she can help get your loan paperwork to a mortgage bank that can. The only paperwork that is in the broker’s name will be the initial application, and you generally do not find out what mortgage bank you will be receiving money from until you get your initial loan disclosures.
Processing may still be done by an employee of the mortgage broker, but the rest of the process — from underwriting to closing and funding — will be done by the mortgage bank. In some cases, there may be a separate company that prepares disclosures or closing documents.
Institutional Lender
An institutional lender is better known as a good old-fashioned brick and mortar bank or credit union. While you may think of your local bank as the place you cash your paycheck, most of the major national banks offer mortgages at their branches.
The money for the mortgage is literally in the bank, and the bank can fund the loan from its mortgage banking department. The bank approves your loan and provides the money to you directly. The bank can also offer other products, like checking and savings accounts or home equity loans, at the same time within the same branch.
Loan disclosures, processing, underwriting, closing documents are prepared under the umbrella of the bank, and loan documents will be issued in the bank’s name. Most institutional banks will service their own loans and can make special approval decisions in rare cases. Underwriters working for the banks have decision-making authority for all programs offered.
Mid America Mortgage
Mid America Mortgage is a combination of all three. If you are looking at a FHA, VA or USDA loan we are a mortgage broker as we have partnered with a large institution to get the best rate possible for those loans. If you are looking to build your dream house, then we are an institutional lender as we fund those loans while in the construction process. If you want a conventional loan then we would be a mortgage bank as we fund the loan in our name, process and close your mortgage loan. Whatever mortgage product you are interested in please give Mid America Mortgage a call today to discuss the best product for your needs.
