What are the Different Types of Home Lenders?

While at first look, there may appear to be dozens of different types of home loan lenders, such as credit unions, savings and loans institutions, brokers, bankers, and so forth, the reality is that there are generally two main types of lenders -- direct lenders, such as mortgage bankers, and middlemen, such as brokers.

If you have extremely good credit and lots of money in the bank, you may be able to work directly with a wholesale lender to get amazing rates. Wholesalers and bankers can then sell your mortgage to other institutions, such as Fannie Mae. If you're not at the top of the pecking order, you can still work with what are known as portfolio lenders to get a good deal. If you make good on your loan obligations for a few years, portfolio lenders can then resell your mortgage to institutions like Fannie Mae, although you may have to chip in for slightly higher interest rates.

When you work with a broker, on the other hand, you get all the pros and cons that come with working with an intermediary. Brokers can help homeowners of practically every background and credit history locate viable loans. However, you must pay a commission to the broker for the service. In some cases, even well-heeled, high credit individuals go through brokers to avoid the hassle of having to shop by themselves and piece together financing options.

Wholesale lenders are institutions which provide lower cost options than you can find at retail bank outlets. The catch is that most wholesale lenders will only deal with qualified mortgage brokers.

Credit unions and savings and loan banks offer alternative methods of financing. If you establish stellar credit and develop a relationship with a bank or credit union, you can make it through the scrutiny stage easier.

Finally, some lenders specialize in different types of loans. Some banks may prefer to deal in second mortgage and refinancing options. Others may work nearly exclusively with poor credit individuals. Still others zero in on government loan programs. Regions of the country may also make a difference. Some lenders specialize in California and Western US home loans, while others focus on rural markets in the Midwest, for instance. Know your lender's specialty before you apply, and read the paperwork on your application in detail before you sign on the dotted line.