How To Understand Types Of Lenders

By Cory Shuett, 23 Jan 21:08

Types of Lenders
Lending companies can come in many shapes and sizes. The "Bank of Mom and Dad" was most likely the first lender any of us used. No matter what we needed, the parental vault was opened to help us. The rates were great, and we could borrow money with no interest.

For some, a mortgage loan from family members possible option. For others, you should keep on reading.

You could need to purchase a home, refinance an existing mortgage, or open a home equity line of credit (HELOC).

For any of these choices, there are companies willing to help you find a loan: banks, mortgage brokers and e-lenders. It's not because they think you'll be happy. It's because they make money lending you money through interest. That's why it's in your best interest to get the lowest rate possible, and the best terms, which are not always the same thing.

Know Your Lenders
Before you get the low-down on amortization schedules or learn about newfangled 50-year notes, it helps to understand your choices when it comes to types of lenders. Most are Internet lending resources, mortgage brokers, mortgage bankers or banks and savings and loans.


Internet Lending Resources
Internet lending resources are abundant on the Web. Not all lend money, although it might appear that way. They consist of direct lenders, lending marketplaces and content sites.

1. Direct Lenders. Direct lenders lend their own money and consist of both traditional and online lenders. Many traditional banks give you useful information online, including rates, calculators and educational content. Online lenders, on the other hand, offer loans directly through the Web. They can offer competitive rates and give you help via phone, e-mail, and even online chat. You probably won't meet anyone face-to-face. Keep in mind that some mortgage bankers offer loans both online and in local offices.

2. Lending Brokers. Lending brokers let you fill in one form and then quickly compare quotes from several banks. These services make money by charging the banks for the chance to contend for your business. Because banks know you are comparing them side-to-side with others, they offer great rates. Once you have filled out the form, they will contact you to begin the process of finding a loan that fits your needs.

3. Person-to-Person Lending Marketplaces. Lending marketplaces let you ask for money directly from other individuals and smooth the progress of your loan for a small fee. Available loan amounts are still fairly low, but rates can be lower than other sources of unsecured debt, like a credit card.

4. Content Sites. Content sites offer educational information, content, calculators and tools. These sites make money from advertising and partnerships with direct lenders and lending marketplaces.

5. Directory Sites. Your online search can cut down by using a directory like Lowest Mortgage Rate For U. Many lending sources are easy to find.


Mortgage Brokers
Mortgage brokers match you, the borrower, with a lender. They review your personal financial information and look over an array of lenders to try to fit you with one who will give you the best rate and terms. Mortgage brokers usually make their money from the lender since they are bringing them a client, but you may also be charged fees as well. The advantage is having options, since the broker will have suitors to match you with. The disadvantage is that once the match is made, they're out of the picture and you move on with the lender you were coupled with.

Mortgage Bankers
Mortgage bankers, also known as mortgage companies, may be affiliated with a bank. Their area of expertise is in providing mortgages. They create mortgage loans, which means they prepare loan documents, do credit checks, inspect and appraise the property. Once they issue you a loan, it is usually sold to a secondary lender, such as Fannie Mae and Freddie Mac. A secondary lender is in the business of buying existing mortgages from the primary lender to keep mortgage money funds moving. This creates fierce competition on the primary level, which keeps rates down for you.
Visit www.fanniemae.com and www.freddiemac.com for free content and tools about lending and homeownership.

Banks and Savings & Loans
Banks and savings & loans are usually in the local area and profit from the money produced from customers who have checking and savings accounts. They issue mortgage loans and usually keep control of the loan, but sometimes sell it off to secondary lenders.

Finance companies and credit unions are some more types of lenders. Whichever lender you use, the bottom line is to do your homework and don't be afraid to ask questions.

Both the Federal Housing Administration and the Veterans Administration have several loan programs designed to encourage homeownership.

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