Just as the variety of mortgage options has increased overtime, as has the variety of sources for the mortgages. It is no longer just the neighborhood bank who supplies mortgage loans.
Regardless of where you go, there are a few questions that any potential borrower should ask the lender:
Which of the mortgage options offers the lowest interest rate?
Is the interest rate quoted variable (will change) or fixed (will not change)?
If the interest rate is variable, when, and how much will it change? What is the highest it can go?
Would providing additional documentation qualify me for lower interest rates?
A mortgage bank would be the most ‘traditional’ lending source for a new mortgage. In this situation, your local bank would review your documents, and make the decision whether to lend the money. Although in the past this loan would then stay at this local bank, they are now most often sold to the ‘secondary market’ or sold off to larger institutions, which then pool many mortgages together for use in other financial instruments.
A mortgage broker is a person who, in theory, will use their large knowledge of various lenders, to match your circumstances with the best possible option. The mortgage broker will not ultimately hold onto your mortgage, or lend any money, as they act merely as the middleman between you and the ultimate loan originator.
An Internet lender, much as the name implies, is a firm who uses the Internet to reach a large demographic of people not in their confined geographical area. These lenders either loan money directly, or shop around for the best rate, and match you, much like a mortgage broker. Either way, given the lenders are from across the country (or globe) the rates can be more competitive. However, a downside which many bring up is the lack of personal interaction, which, in times of confusion or distress, there is no ‘person’ to go and have a face to face conversation with.
A credit union is a nonprofit financial cooperative, with membership aimed at providing low interest loans to its members. A main difference between a credit union and a traditional bank is that credit unions often hold the mortgages in their own portfolio, as opposed to selling them to the secondary market. For this reason, the credit unions do not need to cater their mortgages or underwriting standards to the larger banks, and can often lend at times other banks cannot. If a traditional bank cannot sell the mortgage to the secondary market, they will often not lend whatsoever, regardless of the quality of the applicant. The credit union, not having to worry about the later sale of their mortgages, can continue to lend, and are not reliant on a larger institution.
Often, the home builders themselves will provide financing to attract home buyers to their product. These builders typically have a mortgage subsidiary whose goal is to provide financing to the buyers of their homes. These mortgages are often attractive to home buyers who cannot attract more ‘traditional’ financing, as the builders are then the deciding factor in the loan.
Sometimes, even borrowers who would qualify for traditional financing will be drawn by a lower rate, or added incentives to secure financing with the home builder. One must be careful however, as these types of real estate loans from home builders have been in the news recently for fraudulent lending practices. As with any lending institution be sure to fully review all the details of the mortgage, or hire a professional to review them for you.