What is a Lender?

To define “Lender” is simple:

An individual, private or public group, or financial institution which is capable and willing to advance a sum of money to a qualified borrower for their stated purpose- as in buying a house. The individual, group, or institution advances that sum of money with two expectations.

  1. That the funds will be paid back, either incrementally or in a lump sum, within a specified time frame. With home loans, this is most often achieved with monthly mortgage payments made over a period of 15 or 30 years.
  2. That the principal loan will be paid back with the agreed upon interest.

A Lender, especially mortgage lenders, will take into account several factors when determining the creditworthiness of a potential borrower. Two of the primary factors considered are:

  • The borrowers 3 digit FICO score
  • The contents within the applicants Credit Report

Lenders depend heavily on your FICO score and credit report to determine your credit worthiness. Lenders will use this information to gauge the risk factors associated with lending to you, and that will likely dictate the interest rates they may be willing to offer you.

They can be:

  • Banks
  • Savings and Loans
  • Credit Unions
  • Private Institutions
  • Angel Investors
  • Venture Capitalists

Different Types of Lenders

There are different types of lenders, each serve and act for different purposes.

  • Mortgage Bankers
  • Mortgage Brokers
  • Portfolio Lenders
  • Direct Lenders

Mortgage Bankers are lenders that are large enough to originate loans or pools of loans. Then, they will sell these to Fannie Mae or Freddie Mac. Some Mortgage Bankers will service the loans they originate, but many don’t because they’re simply not set up for the maintenance of a loan.

Mortgage Brokers originate loans with the sole intention of brokering them to wholesale lending institutions.

Portfolio lenders will loan their own money and originate loans for their own portfolios. Because these lenders are originating loans specifically for their portfolios and not for selling or passing along, they typically don’t have to abide by rules set by Fannie Mae or Freddie Mac.

Direct Lenders fund their own loans. These are typically Banks and Savings and Loans.