Have you ever heard about taking a mortgage loan to buy your dream home? If so, you may have also discovered that it involves a mortgage lender. But, what exactly is their role in the whole home-buying process? How are they different from a broker and a servicer?
A mortgage lender is someone you can borrow money from to buy a house at its total price. An individual, an organization, or a bank may use their funds or have an investor. In short, a lender puts out money to help you pay for a house. A broker and a servicer only provide services to process a mortgage loan.
Let’s say, you want to buy a $200,000 house, but you only have $15,000 worth of funds. A mortgage lender may cover the remaining $185,000 to pay its sale price. There is no need to wait until you’ve saved enough for its full amount upfront!
But, if $15,000 is still a lot of money for you, it is fine. Some programs help you come up with this amount so you can pay for your first share on a mortgage.
It’s common for Americans to dream about buying and owning a home. You get your own space, don’t need to deal with a landlord, and even build wealth through equity. But, you don’t have to wait until you can afford a home’s sale price upfront. A mortgage lender may help fulfill your home-buying dream as soon as possible. Do you want to know how they do it? Read the guide below and learn how a mortgage lender may make you a homeowner in no time.
On to fulfilling more American dreams!
Express Takeaways
- A mortgage lender lends you money to help pay for a house upfront.
- A mortgage lender may collect monthly payments themselves or have a servicer do it.
- Banks, credit unions, and online lenders are standard mortgage lenders.
- A mortgage lender may work with a broker to help you find the best loan option for you.
What Is a Mortgage Lender?
A mortgage lender is an individual or an organization that lends money to people to buy houses and lands. It may source from its funds or use capital from its investors. Almost all types of mortgage lenders have the same loan and payment processes.
How does Borrowing from a Mortgage Lender Work?
Before you start looking at houses, you must apply for pre-approval from one or more lenders. This proves that you qualify for a loan and that a lender is willing to fund it.
Once you have chosen a house to buy, you will write an offer to the seller. If they accept it, both of you will sign a Buying Agreement. You then apply for a mortgage loan from a preferred lender.
A mortgage lender will then provide you with a Loan Estimate. It is a 3-page document that contains all the details about the mortgage loan you are applying for. If you want to proceed with it, you must inform a lender in at least 10 business days.
The buying agreement mentioned earlier places you in 30-day due diligence. It’s when a lender inspects the house, reviews its price, and checks your financial documents. If the loan proceeds, a lender will send a Closing Disclosure. It contains updated calculations of the loan and the total “cash to close”.
On the closing date, you bring the “cash to close”, the down payment and closing costs. The mortgage lender pays the seller the remaining amount for the house. All parties sign the documents. Transferring the home’s ownership from the seller to you takes place.
You will receive your keys to your new home in a few business days after completing all the transactions. You then pay the mortgage lender monthly until you repay the loan. The monthly mortgage payments also include fees for interest and other costs.
The total amount of monthly mortgage payments varies, depending on the loan amount, interest rate, taxes, insurance, and other costs incurred.
What are the Different Types of Mortgage Lenders?
The most common mortgage lenders in the country are:
- Banks – commercial or charted by the local or federal government. These use the deposits of its savers and grow them over time for mortgage loans and other purposes.
- Credit unions – are organizations that return their profits to their members. So, they offer reduced fees and lower interest rates.
- Savings and loan institutions pool savings from many individuals and use the money collected to invest in mortgage loans.
- Online mortgage lenders – are private financial institutions that offer services online. They may set their own interest rates and fees.
Since there are many options for a mortgage lender, it can be challenging to find the right one.
How Can I Find the Best Mortgage Lender?
Even if you can apply for any lender, filter your options to those who meet your needs. For instance, if an online application is the most convenient, you may choose an online lender. If a bank offers an interest rate that is affordable for you, then it can be a good choice.
To compare lenders and find the best offers, visit Homebuyer Wallet. It provides a list of mortgage lenders that offer loans specific to your condition. The list may include your available down payment, loan term, and ideal interest rate.
You may then apply for a mortgage loan among the lenders you are considering to get their loan estimates. This way, you can compare their application fees and origination fees, which may vary. An extra fee may be incurred if you work with a mortgage broker.
What Is a Mortgage Broker?
A mortgage broker works between you, the borrower, and the mortgage lender. This person works with many lenders and finds the best option for you. Mortgage brokers receive 1%-2% of the loan amount. So, to save a few hundred dollars, you should skip working with a broker. Many mortgage lenders do not work with brokers and coordinate with borrowers themselves. However, they contact a mortgage servicer to continue the work after they close a loan.
What Is a Mortgage Servicer?
A mortgage servicer comes into the picture after the loan closes. It is a company that conducts the following:
- Processes your monthly mortgage payments.
- Responds to your inquiries.
- Records how much of the principal and interest you have paid.
- Manages your escrow account.
- Start foreclosing when needed.
A mortgage servicer may be a separate company from the lender who lent you the money.
A mortgage lender is anyone with the funds willing to lend you money. It can be a bank, a credit union, or an online lender that may have different loan options for you. You may work with a lender or hire a broker to find the best one. The chosen lender will then inspect the property and review your finances. This happens until the loan closes and you receive your keys to your new home. You will then start making monthly mortgage payments to the lender or to a servicer they have hired. A mortgage lender may choose not to work with a broker or a servicer. But, their goal remains, to help you pay for a house upfront. So, there is no need to wait until you can afford your dream home. Let a mortgage lender help you fulfill your dream of owning a home!
Article Sources
Homebuyer Waller requires its writers to obtain information from original and reliable sources. Please see our editorial policy to learn more about our standards for producing factual information and content.
- Consumer Financial Protection Bureau, “Definitions., https://www.consumerfinance.gov/rules-policy/regulations/1024/2/”
- Consumer Financial Protection Bureau, “Mortgages, https://www.consumerfinance.gov/consumer-tools/mortgages/”
- Pinkowish, T. (2021). Residential Mortgage Lending: Principles and Practices, 7th Edition (eTextbook). (S. Glassmeyer, Ed.). Mbition Publishing. https://www.theceshop.com/real-estate-books
- Consumer Financial Protection Bureau, “Get a prequalification or preapproval letter, https://www.consumerfinance.gov/owning-a-home/explore/get-prequalification-or-preapproval-letter/”
- Consumer Financial Protection Bureau, “Contract requirements and revocation, https://www.consumerfinance.gov/rules-policy/regulations/1011/4/”
- Consumer Financial Protection Bureau, “Loan Estimate Explainer, https://www.consumerfinance.gov/owning-a-home/loan-estimate/”
- Consumer Financial Protection Bureau, “Closing Disclosure Explainer, https://www.consumerfinance.gov/owning-a-home/closing-disclosure/”
- My Credit Union, “WHAT IS A CREDIT UNION?, https://www.mycreditunion.gov/about-credit-unions/credit-union-different-than-a-bank”
- Realtor, “How Do Mortgage Brokers Get Paid?, https://www.realtor.com/advice/finance/mortgage-brokers-paid/”
- Consumer Financial Protection Bureau, “What’s the difference between a mortgage lender and a servicer?, https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-mortgage-lender-and-a-servicer-en-198/#:~:text=Your%20loan%20servicer%20typically%20processes,initiate%20foreclosure%20under%20certain%20circumstances.”
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