The Different Types of Mortgage Lenders Explained

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We understand that getting a mortgage can feel overwhelming, with so many options to choose from. Will you go for a bank, a building society, or a specialist lender? And what’s the difference between them anyway? Fear not, because we’re here to break down the jargon and help you navigate the mortgage landscape like a pro.

In this blog post, we’re going to explain each type, so you can make a well-informed decision that aligns with your circumstances and needs. No matter if you’re a first-time buyer or a seasoned property owner looking to remortgage, there’s something here for everyone!

What is a mortgage lender?

What is a Mortgage Lender?

Right, let’s start with the basics. What exactly is a mortgage lender, you might ask? When looking to buy a house, unless you’ve been seriously saving or won the lottery, you probably don’t have the full amount stashed under your mattress. So, you turn to a mortgage lender. These institutions will lend you the money to buy your dream home, expecting you to pay it back over a set period of time, with a bit of interest added on top.

So, when you’re paying your mortgage each month, you’re slowly paying back your lender. This could be a high street bank, a building society, or a variety of other entities, but we’ll delve into the different types later on.

What is a Mortgage Broker?

Now, let’s delve into the concept of a mortgage broker. Imagine you’re trying to find the best restaurant in town. You could do a bit of legwork and try out all the places yourself, or you could ask a local who’s done all that hard work already. That’s essentially what a mortgage broker does.

A mortgage broker scours the lending landscape, compares deals, and helps find a mortgage loan that fits your needs exactly. Rather than you having to knock on every lender’s door, a broker can save you time, energy and sometimes even money by pointing you in the right direction. But remember, while some brokers charge you a fee, others get paid commission by the lenders themselves. It’s always best to ask upfront.

So, what mortgage lenders are there?

So, What Mortgage Lenders Are there?

Now we’ve covered the difference between lenders and brokers, let’s take a closer look at the different types of mortgage lenders out there:

1- Retail Lenders

These are your conventional, high street banks and building societies that deal directly with you, the consumer. Just think about popping down your local branch to talk about your mortgage needs. They offer a range of home loans from their own selection and guide you through the whole process, from application to completion. They are called “retail” lenders because, much like a retail shop, they serve individual customers rather than other businesses. The one thing to note here is that their options are limited to what they themselves offer, so you may not always get the most competitive deal in the wider market.

2- Direct Lenders

Next up, we have direct lenders. Now, this is a broad term that encompasses any lender that directly provides the loan to you without the use of any intermediaries. This could be a bank, a credit union or even an online lender. A perk of dealing with direct lenders is that you’re cutting out the middleman, which can sometimes mean fewer fees and a quicker process. However, just like with retail lenders, the downside is that you’re only able to choose from their specific suite of mortgage products.

3- Portfolio Lenders

Moving on to portfolio lenders. They lend their own money and keep the mortgage in their portfolio, rather than selling it on to other investors. It means they have a bit more flexibility in setting their own lending criteria, which might be great news if you have an unusual financial situation that doesn’t quite fit the conventional mould. The catch? Their rates may not always be as competitive as other lenders.

4- Wholesale Lenders

Wholesale lenders are a bit like the behind-the-scenes heroes of the mortgage world. Instead of dealing directly with you, they work with mortgage brokers or other third parties to fund the loans for fixed rate mortgages. This means that while you might end up with a mortgage from a wholesale lender, you probably wouldn’t interact with them directly.

5- Correspondent Lenders

Whilst the name may sound fancy, these are essentially lenders who originate and fund loans in their own name, then sell them to larger lenders or investors. They might be able to give you a personalised service, but they eventually sell your loan to larger mortgage bankers, who may have different terms for you.

6- Warehouse Lenders

They provide short-term loans to other lenders so they can fund and close your mortgage while they wait to sell it on to secondary market investors. Think of it as a temporary lending hand, allowing your lender to fund your mortgage before it’s packaged and sold to someone else.

7- Hard Money Lenders

Last but not least, we have hard money lenders. These are usually private individuals or companies that offer short-term, high-interest loans. This might sound a bit steep, but they can be a good option if you need a quick turnaround, or if you’re struggling to get a mortgage from more traditional lenders. They lend based on the value of the property, rather than your credit score, so they could be a potential route if you don’t have the best credit history. But beware, the interest rates and fees are often higher, so it’s essential to weigh up the pros and cons.

How do I choose a mortgage lender?

How Do I Choose a Mortgage Lender?

If you’ve looked at the above list and are wondering “But how do I choose?” Don’t worry, we’ve got you covered. Making the right choice comes down to understanding your unique circumstances, needs, and goals. Here are some key factors to consider:

Your Financial Situation

Start by having a good look at your financial situation. Different lenders have varying criteria when it comes to credit scores, income levels, and the size of your deposit. So, know your numbers, and look for lenders who cater to your specific financial profile for home loans.

Interest Rates

Interest rates are a biggie when it comes to mortgages. A small difference in the rate can make a huge difference over the term of your loan. So, don’t shy away from shopping around and comparing rates from different lenders.

Lender Reputation

Check out the lender’s reputation. Are they known for their customer service? Do they have good reviews? Remember, this is likely to be a long-term relationship throughout the mortgage process, so you want to be sure you’re in good hands.

Fees

Don’t be fooled by a low interest rate alone. Be sure to factor in any additional fees, such as application fees, valuation fees or early repayment charges. The goal is to understand the total cost of the loan, not just the headline rate.

Mortgage Type

Finally, think about the type of mortgage you want. Are you looking for a fixed rate where your payments won’t change for a certain period, or would you prefer a variable rate that could go up or down? Different lenders may specialise in different types of mortgages, so this can also guide your decision.

Remember, choosing online mortgage lenders is a big decision, and it’s worth taking the time to do your research. After all, buying a home is one of the biggest investments you’ll make!

Still Not Sure Who to Choose? Contact Jones and Young, Expert Mortgage Brokers

If all these choices seem overwhelming, that’s quite alright, it can be challenging to get your head around the different options. This us here at Jones and Young step in. Our team of experts have been navigating the UK mortgage landscape for years, and we can help find the perfect fit for you. From understanding your individual financial circumstances to sifting through a myriad of mortgage options, we’ll do the heavy lifting for you.

Our goal is to take the stress out of the process, ensuring you secure a mortgage that’s comfortable and suited to your circumstances. So why not chat to us about how we can help? Remember, the right mortgage lender can make all the difference to your homeownership journey!

Contact Us Today!

 

Related: What Do Mortgage Lenders Look For? | Do Mortgage Lenders Do Final Checks Before Completion in the UK?

Mortgage Lender FAQs:

We’ve answered some of the most frequently asked questions about mortgage lenders below:

In the realm of mortgages, you’ve got a wide range of lender types, but the three most common ones are banks, credit unions, and non-banking financial companies. Banks are your big direct lender that offer a wide range of financial products. Credit unions are member-owned organisations that often offer competitive rates to their members. Non-banking financial companies include various other institutions like direct lenders and mortgage brokers.

You’ve got a whole host of options when it comes to mortgage lenders, from your big banks to smaller building societies, and even government-backed lenders. You’ve also got your credit unions, which are member-owned and often offer great deals to their members. Direct lenders cut out the middleman by lending you the money directly. And then, you have entities like the Federal Housing Finance Agency in the United States, which oversees the operations of several government-sponsored mortgage lenders.

Now this is where things get a bit more nuanced. An ‘A’ lender is usually a traditional financial institution like a bank or credit union that caters to borrowers with strong credit histories and stable incomes. ‘B’ lenders, on the other hand, are typically alternative lenders who are willing to take on a bit more risk. This means they’re often more open to lending to those with less-than-perfect credit histories. But remember, with greater risk often comes higher interest rates!

The most common types of mortgages you’ll come across are fixed-rate mortgages, adjustable-rate mortgages, and jumbo loans. A fixed-rate mortgage locks in your interest rate for a certain period, so your monthly payments stay the same. Adjustable-rate mortgages, or ARMs, have interest rates that can change over time. And a jumbo loan? Well, as the name suggests, these are larger-than-average loans for pricier properties, and they’re usually provided by direct lenders or banks. Typically, they exceed the limit set by the Federal Housing Finance Agency, so they’re for those high-end property dreams!


Mark Jones - Specialist Mortgage Lender


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Richard Young - Expert in lifetime mortgage and later life lending options.


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Jones & Young are professional mortgage lenders, delivering industry-leading mortgages to first-time buyers, self-employed and CIS customers for over 10 years.

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