Shopping for a mortgage can feel overwhelming. It’s intrusive because lenders require every detail of your personal and financial life to do their job. It’s complex because rate quotes and associated fees (also known as points) can be presented many different ways, plus rates change daily based on economic conditions. And it’s confusing because there are different kinds of lenders who all have a pitch as to why their model is the best.
If you know how to choose the right lender, you’ll feel more comfortable providing your profile and more confident when analyzing their rate quotes. Here’s a guide to the three main sources for consumer mortgages. Armed with this knowledge, you’ll know how to navigate the available information, and ask the right questions when you’re mortgage shopping.
Retail banks
These companies range from the biggest name-brand institutions down to smaller local banks and credit unions. They underwrite, approve and close loans for consumers, then either keep the loans on their own balance sheets or sell the loans to investment firms, Fannie Mae or Freddie Mac, who bundle the loans into mortgage bonds, aka mortgage backed securities (MBS).
Retail banks usually retain servicing rights, which means you would get your monthly mortgage statement directly from that bank, and the loan agent that handled your loan would remain your primary point of contact for all future inquires.
Advantages: Retail banks are usually a big brand or well-known local brand. These organizations can often be more flexible on loan approvals because they have the option to keep loans on their books, as opposed to selling the loans, which means more stringent underwriting. They also offer non-mortgage financial services like checking, savings, credit cards and financial planning, and they usually offer lower mortgage rates if you use them for additional services like a checking account.
Mortgage banks
Like retail banks, these companies underwrite, approve and close loans for consumers. They then sell the underlying loans to retail banks, investment firms, Fannie Mae or Freddie Mac, who bundle the loans into MBS.
Larger mortgage banks may keep servicing rights, so you’d get your monthly statement from the mortgage bank and retain your loan agent as primary contact for future inquiries. Smaller mortgage banks sell servicing rights along with the loans, which means you’d be contacting the new bank servicer for future inquiries.
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