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Four Types of Mortgage Lenders

Common types of lenders and how to choose

Mortgage lenders play a crucial role in the homebuying process. Very few of us can buy a house outright with cash. By allowing you to pay for your home over an extended period, lenders make it possible to live in a house right away while working toward owning it in full.

That said, each type of mortgage lender is different. It’s good to consider more than one type of lender so you can learn how each may help address your unique home-financing needs.

Here, learn about the four most common types of mortgage lenders — and what to do if you’re still feeling uncertain about which to choose.

1: National banks

Banks are the most common type of mortgage lender. National banks are likely to offer a complete suite of financial products, including several types of home loans that meet a variety of borrowing and investment needs.

It’s also common for national banks to have a broad network of ATMs and physical branches, in addition to offering you access to your accounts online and over the phone, not to mention the ability to apply for and manage your application process using a host of digital tools.

If you already have a checking or savings account through a national bank, getting your mortgage from the same bank may be convenient, because you’ll have just one place to go to manage your accounts (whether online or in person).

All lenders have different lending criteria, and sometimes national banks may have different requirements when compared to other national banks and types of lenders, so it’s important to talk with your lender.

Regional and Community Banks

The key differences between regional and community banks are the geographical service area, number of branches, products offered, and total assets. Asset levels for regional banks are $1 billion versus $500 million for community banks.

In some cases, a regional bank provides services across multiple states, whereas community banks typically limit their service to a single rural area, city, or metropolitan area.

The number of physical locations is another key difference; regional banks tend to have more branch locations. The number and types of products offered may vary.

2: Credit unions

Credit unions offer many of the same services as banks do. But unlike banks, they’re owned by members, are not run for profit, and are exempt from federal taxes. You must be a member of a credit union to access their products and services.

Depending on the type of mortgage you need, the credit union may need to partner with a bank or another lender type in order to help you buy a home.

Some credit unions are large, with many locations and convenient technology for customers. Some are small, with only a few locations and limited technology.

As with other types of lenders, no two credit unions have the same interest rate offerings, fee structures, or products, so it’s important for you to research and compare.

3: Independent mortgage brokers

Mortgage brokers are not lenders. Instead, they’re middlemen who can seek out the loans and terms that best fit your needs.

Independent mortgage brokers can save you time during your search for a mortgage lender and help meet your specific needs, such as a low down payment.

However, because they are middlemen, they typically work on commission for their services. With other types of lenders, whether or not the lender remains your customer service contact after you originate your mortgage and begin making payments will vary. However, with independent mortgage brokers, they will never be your customer service contact after they help you secure a loan.

4: Online-only mortgage lenders

Online-only mortgage lenders are financial companies with only one type of product. That makes them different from banks and credit unions.

Online-only mortgage lenders may offer low interest rates, low credit score requirements, and high numbers of loan options. On the other hand, online lenders don’t always offer personal service, which can be an important priority for first-time homebuyers.

Technology and digital tools are the status quo

Remember, other lenders may also have great technology, even if they also offer the option to meet with them in person. Many banks and credit unions offer applications and online tools that allow you to keep tabs on the progress of your loan application from any device.

These tools often provide action items for every step of the process and allow you to review disclosures and sign and submit important documents

Still not sure which lender type to choose?

If you’re still feeling uncertain, consider reaching out for some expert advice. Several nonprofit and government organizations, such as the federally operated Consumer Financial Protection Bureau or a U.S. Department of Housing and Urban Development–approved counseling agency, offer free information, free or low-cost advice, and free or low-cost counseling for every step of the homebuying and mortgage process.

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