What Are the Different Kinds of Mortgage Lenders?

Getting a mortgage is a big deal—we’re talking about borrowing hundreds of thousands of dollars. And with so many kinds of lenders to choose from, how do you pick one that won’t screw you over? We’ll help you unpack the different kinds of mortgage lenders so you can get a loan that makes homeownership a blessing instead of a burden.

Mortgage Lender vs. Mortgage Broker: What’s the Difference?

The main difference is that a mortgage lender provides the money directly, while a mortgage broker shops around to find a lender for you in exchange for a fee. A broker might help if you want someone else to compare multiple lenders for you, whereas going straight to a lender means one less middleman.

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Let’s take a closer look at each type.

What Are Mortgage Lenders?

Mortgage lenders loan you money to buy a house, and they set up your repayment plan, plus interest. There are retail mortgage lenders like banks, credit unions and nonbank mortgage lenders that work with borrowers directly and handle the entire loan process in-house, from application to funding. There are also wholesale mortgage lenders who skip the customer-facing side and work with borrowers indirectly through brokers.

Remember, debt is dumb and the borrower is slave to the lender—but borrowing money for a house is the only debt we won’t yell at you about because houses go up in value over time. Just be smart about the lender you choose. Avoid any lender who pushes you to borrow more than you can realistically pay back or would charge you an above-market interest rate.

When do you need a mortgage lender?

You need a mortgage lender before you go house hunting so you can get preapproved (not just prequalified) and be ready to throw down an offer as soon as you find the right home. Before you work with a mortgage lender, make sure you’re debt-free (Baby Step 2), have a fully funded emergency fund of 3–6 months of expenses (Baby Step 3), and have a 20% down payment saved to avoid paying PMI. If you’re a first-time home buyer, a smaller down payment of at least 5% is fine—just be ready to pay PMI. To tackle any of those steps faster, start budgeting for free with our EveryDollar app.

Also, set your own home-buying budget first. Otherwise, you’ll risk being at the mercy of lenders who care more about the interest they’ll make off your repayment plan than they do about you having any room left in your budget for anything else.

Stick to a 15-year fixed-rate conventional loan with payments that are no more than 25% of your monthly household take-home pay. To see what that looks like for you, try our Mortgage Calculator.

What’s the benefit of getting a mortgage through a bank?

If you have a good, long-standing relationship with your bank, they may lower your closing costs and interest rate. But they might not offer as many options when it comes to loan products. And be careful with some of the big banks. Though they offer a wide variety of financial services—not just mortgages—they may not give you the best customer service.

What’s the benefit of getting a mortgage through a credit union?

Going through a credit union could give you a good chance of being offered lower closing costs and a better interest rate—if you’re a member. Credit unions are not-for-profit organizations. They’re sort of like the country club of the mortgage world: Members own the credit union, and to become a member, you need some kind of invitation, like from your company or church. They’re the closest thing to the old-fashioned, small bank.

What’s the benefit of getting a mortgage through a nonbank mortgage lender?

Nonbank mortgage lenders focus only on home loans, so they tend to move faster and know the loan process inside and out. Also called independent mortgage bankers (IMBs), they’re direct lenders that do mortgages and nothing else—no checking accounts, no credit cards, no auto loans, just home loans. Our friends at Churchill Mortgage are one example.

What Is a Mortgage Broker?

Mortgage brokers are third parties who connect home buyers with multiple wholesale lenders to find a loan, but they don’t fund the loan themselves. A mortgage broker reviews your loan application, figures out roughly how much house you can afford, and then shops that application to a pool of wholesale lenders to find one willing to fund the loan. Once a lender agrees to the terms (the lender approves, not the broker), the broker walks the paperwork through underwriting and closing on your behalf. After closing, the broker’s job is done and your repayment plan continues with the wholesale lender.

Is a mortgage broker expensive?

Mortgage brokers usually get paid a small percentage of your total mortgage. They might charge you directly or charge the wholesale lender, who would then bake it into your interest rate.

Comparing Mortgage Options

How Do You Choose the Right Mortgage Lender?

To choose the right mortgage lender, compare interest rates and lender fee estimates from at least three sources. Prioritize lenders that don’t push you beyond our 25% take-home pay guideline and are able to offer you a 15-year fixed-rate conventional loan without hidden fees.

If you’ve been living a debt-free lifestyle and don’t have a credit score, you’ll want to find a lender who does manual underwriting to get a no-score loan. Keep in mind, a bad or low credit score isn’t the same as no credit score. If you have a low score, now isn’t the time to buy a house. First, focus on paying off your debt and stop borrowing money so you can get in good financial shape.

Which Mortgage Lender Does Ramsey Recommend?

We recommend Churchill Mortgage. Churchill has earned the right to be called RamseyTrusted^® because they actually care about your journey toward financial peace. As a direct lender, they’ll walk with you through every step of the mortgage process and answer all your mortgage questions. If you’ve been living debt-free and don’t have a credit score, the loan officers at Churchill are experts at handling manual underwriting, so you’ll lose no time in getting a no-score loan.

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