When you’re in the market for a home, you’re probably going to get to know a mortgage lender, and they’re going to get to know your finances inside and out. What is a mortgage lender and what role do they have in the homebuying process? Here’s what you need to know.

What is a mortgage lender?

A mortgage lender is a bank or company that provides home loans to borrowers. Some lenders also offer auto loans, personal loans or student loans. Some offer mortgages and other home-related loans. Sometimes, one lender can offer many different types of loans.

A mortgage lender provides you with the funds to buy your home. Every month you make payments that go towards paying off your loan balance.

You can shop for different mortgage lenders to compare loan terms and identify which ones offer the best rates, fees and repayment terms for your situation. Try getting preapproved or prequalified from a few different lenders to see what offers fit best for you.

How mortgage lenders work

When you need a mortgage, a mortgage lender will have you complete an application so it can assess your ability to afford a home loan. Based on the information you provide, the lender will decide whether you’re qualified and, if so, set the maximum loan amount and interest rate.

Later in the homebuying process, mortgage lenders also arrange an appraisal to determine the value of the home and coordinate the closing of the transaction. After closing, the lender either manages the repayment process (including helping you navigate relief options, if it comes to that) or outsources this work to a servicer.

Types of mortgage lenders

There are various types of mortgage lenders, from local and regional lenders to big brand-name financial institutions. Lenders can be banks, credit unions or online only. The best lenders offer different incentives, such as lower APRs or zero fees. This means you might have a different set of criteria at one lender compared with others when shopping around for the right match.

  • Banks – Banks often provide mortgage lending services in addition to banking and investment products. This includes big banks like Bank of America, Chase and Wells Fargo. If you apply with your bank, you might be eligible for perks and discounts that aren’t available from other lenders. That said, borrowing from a bank can have downsides, including the potential for higher interest rates and longer closing times as a result of higher application volume.
  • Credit unions – Credit unions tend to offer some of the lowest interest rates on the market. Many borrowers don’t meet the exacting requirements for credit union membership, however, and credit unions sometimes limit the number of loans available.
  • Non-bank lenders – Any mortgage lender other than a bank or credit union is considered a non-bank lender. This includes online lenders like com and Rocket Mortgage.
  • Mortgage brokers – Mortgage brokers are not lenders; they are independent, licensed professionals that connect lenders and borrowers. They typically charge about 1 percent to 2 percent of the loan amount for their services, a fee that the lender pays and then passes on to the borrower as part of the cost of the mortgage.

Biggest mortgage lenders

The biggest mortgage lenders according to 2020 Home Mortgage Disclosure Act data are:

  • Rocket Mortgage
  • United Wholesale Mortgage
  • Freedom Mortgage
  • Wells Fargo
  • LoanDepot
  • Chase Home Lending
  • Caliber Home Loans
  • Fairway Independent Mortgage Corporation
  • Bank of America
  • U.S. Bank

Is it better to get a mortgage from a bank, mortgage company or an online lender?

There’s no right answer to this since every lender offers different features and terms. Compare at least three lenders based on:

  • Interest rates – The lower the interest rate, the less you have to pay on your principal, or original loan amount. While your rate is largely based on your credit score, credit history and debt-to-income ratio (DTI), the rate you are offered will vary based on the lender you choose.
  • Ease of communication – Can you make payments online, over the phone, through an app or another way? Does your potential lender contact you through emails or text? The more your lender opens up the communication channel, the easier it’ll be for you to stay on top of mortgage payments. Missing a mortgage payment not only causes your credit score to drop, but also could lead to default and foreclosure on your home.
  • Fees – Sometimes lenders will roll fees into the home loan rather than have the borrower pay them upfront through closing costs. Some fees can be negotiated, but many can’t.
  • Down payment requirements – Your down payment amount might be based on a factors, like your creditworthiness and DTI. Compare lenders to see which ones have affordable and flexible down payment requirements.

Not all banks, credit unions and online lenders have the same requirements or the same terms. Make sure to review multiple lenders before you choose one.

How to find the best mortgage lenders

There are plenty of mortgage lenders to choose from. Compare banks, credit unions and online lenders to see which ones offer the lowest interest rate, fewest fees and most friendly down payment requirements.

When choosing a lender, you should also consider factors unrelated to finances. For instance, do you want to be able to visit your lender to talk about your loan in-person? If so, a local bank or credit union might be better for you. If you prefer to use an online lender for easy application and approval, you might not need to look at traditional banks and credit unions.

Since there are so many different options for mortgage lenders, you’ll want to tailor your search to your specific needs. Remember, not all lenders offer the same loan types, so factor that into your criteria as well. Finding the right mortgage lender is about finding the financial institution that best meets your needs.

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