Mortgage Lenders and Mortgage Loans: How They Work

Are you thinking about buying a new home? Or, are you perhaps considering the idea of buying a new investment property? If you’re in either position, then that puts you in the market for a mortgage as well.

Sauverledarfour.org aims to help home buyers and property investors become aware about suitable financing solutions to acquire a real estate property.

Our objective is to share some insights on how various mortgage loans work and how they differ from other forms of money lenders.

So if you’re thinking about the possible options that you can consider for your mortgage, we could shed some light on this matter. After all, buying a home is the full embodiment of the American dream.

Owning a home is the ultimate fulfillment of the American dream.

How Mortgage Loan Works

Prior to 1930, only four out of ten American families can afford to own their own home. The reason is because only a few people had enough cash money to buy a house in a single lump sum.

There was no such thing as bank loan that is designed to buy a family house which we all refer to nowadays as home mortgage. In its simplest sense, home mortgage is a form of loan wherein your house serves as the collateral.

For instance, you are considering on buying a nice family home listed at properties miami or in other MLS website. The bank or mortgage lender can loan you a large amount of money which is usually equivalent to 80% of the home price. 

You, as the borrower, should agree to pay back the loaned amount over a pre-determined time frame plus the interest.

And if for whatever reason you fail to pay back the loan in a timely manner, the bank or mortgage lender can take over your home via legal process which is referred to as foreclosure.

Common Types of Mortgage Lenders

Buying a new home can indeed be very exciting. However, trying to figure out the financing aspects can sometimes bring in a lot of uncertainties. To lessen the burden, it’s important to become aware of your options by doing some research.

Once you’ve determined a workable budget, prepared a down payment amount and reviewed your credit, everything becomes more feasible. You can actually start to picture out what type of loan would best work based on your needs and financial situation.

Retail Lenders

Retail lenders provide mortgage loans directly to the borrowers. They don’t provide mortgages to institutions. Falling under the retail lender category are banks, mortgage bankers and credit unions.

On top of mortgage loans, they also extend other products to consumers such as personal loans, auto loans, savings accounts, time deposits and checking accounts. Moreover, retail lenders tend to have very stringent underwriting rules.

Thus, borrowers with bad credit score usually shy away from banks and credit institutions due to higher risks of getting denied on the process.

Direct Lenders draft their own loan terms and agreements. These include some institutions and private lenders.

Direct Lenders

Direct lenders create their own loans and make use of their own funds. Some direct lenders borrow their funds from larger institutions. Thus, mortgage banks and personal lenders can be classified as direct lenders based on certain aspects.

Their main distinction from retail bank lenders is their specialization in home mortgages.

Some homeowners also apply for a loan from direct lenders for their home repair and restoration needs. For instance, a credible restoration company Miami is known for can do the cost estimate to determine the amount needed to cover the expenses for home repair.

The quotation can then be used as a reference document when applying for a loan intended for home repair from a direct lending company.

Direct lenders usually have more flexible guidelines in order to qualify for a loan. They serve as suitable alternatives for borrowers with complicated loan files and loan history.

Just like retail lenders, direct lenders offer their own products along with their own set of qualifying guidelines and terms. If you’re considering this option, it would be best if you check out several direct lenders for comparison.

Most direct lenders operate online or have few office locations which can be a possible drawback for borrowers who prefer personal and live transactions.

Portfolio Lenders

Portfolio lenders fund their borrowers’ loans through their own money. This type of mortgage lender is under no obligation to the demands and other interests of outside investors.

Instead, they set their own guidelines, regulations and terms which may actually sound more appealing to some borrowers. For instance, a person who is buying a huge investment property and needs a large amount of money may prefer the flexible terms of a portfolio lender.

Some homeowners who need fast financing solutions after being denied of their insurance claim apply for loan from portfolio lenders for more flexible terms.

However, it’s usually considered as a last resort with the existence of Public Adjuster Miami residents can usually rely on. Still, portfolio lenders can be considered as an option when all else fail.

The flexible terms of Portfolio lenders is what draw a lot of home buyers to apply loan from them. Interest rates are usually higher but they can assess and re-consider buyers with poor credit history.

Wholesale Lenders

Wholesale lenders are actually banks and other financial groups and institutions that extend loans via a third party agent like mortgage brokers, credit unions and other banks.

They don’t work directly with the borrowers or consumers but rather draft, fund and in some cases, service mortgage loans.

Given this arrangement, it is expected that the wholesale lender’s name is the name that appears on the actual loan contract and documents; and not the mortgage broker’s name).

The reason is because the wholesale lender is still the one that determines the terms and guidelines of the home loan.

Most mortgage banks are operating both in the retail and wholesale markets. However, wholesale lenders sell their mortgage loans (and other loan types) on the secondary market right after closing.

Alternative Mortgage Lenders

For your reference, we will further guide you through alternative mortgage lenders which might be of interest to you. The more information you have on hand, the more options you can likewise consider in terms of home mortgage.

  • Fix and Flip Loans: used by short-term real estate investors to buy and renovate a property before selling it
  • Bridge Loans: a short-term loan that’s usually taken for a period of 2 weeks to 3 years while waiting for an arrangement for larger and long-term financing.
  • 30-Year Fixed Rate Mortgage: enables people to buy a home or refinance their current mortgage with lower and more affordable monthly payments.
  • Hard Money Lenders: private companies that may agree to offer loan to borrowers who don’t qualify for any other types of loans such as those with poor credit scores
It is important to review various mortgage options in order to determine the one that would work best for you based on your needs. Review your financial situation to come up with the best decision.

The Takeaway

Deciding for the most suitable lender and mortgage loan can be quite overwhelming. But with proper research and information, you can start the process with more confidence and certainty.

You might have to undergo the process of pre-approval with several lenders in order to acquire a good comparison in terms of rates and products. Start by organizing your documents and by being vocal about any challenges you might have about your savings, credit and income.

By doing so, lenders can offer you the best match based on your current financial situation.

For solutions queries about alternative mortgage financing, you can reach us at 800-172-7473. Our team would be happy to answer queries through the chatline which are available during business hours.