When you are considering purchasing, the lender is one of the first decisions you’ll make. This decision can affect your interest rate, your payment options and even the escrow process. There are 3 types of lenders – direct lenders, banks and mortgage brokers. (See table below for pros and cons)
Direct lenders (aka mortgage bankers) loan their own money. They are by far the most flexible to approve you for a loan and typically the loan rep will have a close relationship to the underwriter*. Companies include Movement Mortgage, New America Funding and Caliber Home Loans. The UPSIDE in a competitive market (like LA’s) is that they can close the loan quickly, do 10% down with no PMI**, provide more options for hard to finance borrowers BUT tend to have higher interest rates (1/8 – ¼%).
Conventional banks are deposit institutions, meaning they take deposits in the form of checking and savings accounts, and include Chase, Bank of America and Citibank. These companies are the most familiar and have the best interest rates. Some of my clients prefer to work with these institutions as they are known entities and also because they have long term relationships with the banks and their employees. Some conventional banks are not well suited for a few reasons including ability of the loan rep to work with the underwriter which helps in the approval process, slow loan approval, and strict lending criteria. However, if you are not in a competitive bidding process, these lenders work well.
Finally Mortgage brokers have a set number of loan programs that they can lend on however if you don’t fit any of the parameters, you can’t get a loan. Mortgage brokers have the same problems that the banks do in regards to closing in a timely fashion and ability of the loan rep to affect the loan approval.
*The underwriter basically makes sure you can repay the loan and that your application meets all the lending requirements
** PMI is private mortgage insurance. If you bring in less than 20% down payment, you will need to pay this insurance
Crissi Avila will teach you how to buy smart. We’ll look at location, development, and turnover so you can spot opportunities long before most even start considering them.