🏦 Institutional Level

There are different types of mortgage lenders. Understanding the types of institutions and their incentive structures can give you a leg up in securing the best terms.

Types of Mortgage Lender

• Mortgage Brokers: Act as intermediaries between you and multiple lenders to find you a loan. They don't lend money directly.
• Mortgage Lenders: Direct lenders that provide the funds for your mortgage.
• Banks: Traditional financial institutions that offer a wide range of financial services, including mortgages.
• Credit Unions: Member-owned financial cooperatives that often offer competitive mortgage rates and personalized service.
• Online Lenders: Operate entirely online and often promise quicker approval times and a streamlined application process.

The activities of any entity that deals with mortgages are federally regulated. All lenders must be licensed.

How lenders handle the loans they originate varies depending on the institution type and loan type.

The cost of borrowing (rate offered to you) will vary from one lender to the next and depend on macro factors, market fluctuations, the respective institution’s business model, loan type, the lender’s risk appetite, and where the lender is in their business cycle. Remember, seemingly minor differences in the rate you pay add up to meaningful differences.

🧑🏽‍💼Personnel

In most cases, you’ll deal with a Mortgage Loan Officer, a.k.a. Loan Officer, as your primary contact at any lender you work with. Different institutions use different terms. Going forward, we’ll refer to these folks as LOs.

It’s helpful to understand a few things about LOs since you’ll likely deal with them:

• There’s a broad spectrum of talent and experience.
• LOs are originators (salespeople) paid a commission when a transaction closes.
• The barriers to entry as an LO are low.
• LOs do not necessarily have a fiduciary responsibility.
  

💡Fast Fact

A Loan Officer in the US does not have a fiduciary responsibility to homebuyers taking out a loan.

A fiduciary duty would require the LO to act in the best interests of the borrower. Still, the LO’s primary responsibility is to the lender or the lending institution they work for.

Their role is to facilitate the loan process, which includes evaluating creditworthiness, providing loan options, and guiding borrowers through the application process.

When we started CoBuy, we interviewed over 120 Loan Officers across the US to learn, get the lay of the land, and determine what characteristics co-buyers should look for in an LO. Most of the work we’ve done since then has been with about 20 LOs at 12 different lenders. What we’ve found is that the majority of LOs are either generally unskilled, unresponsive, not consistent, or inexperienced in co-buying scenarios. A small handful have performed.

Out of 220+ LOs we’ve dealt with at CoBuy, many do not understand:

• Eligibility and treatment of multiple borrowers
• How many unrelated co-borrowers they’re able to process
• Difference between a co-signer and a co-borrower
• Salability of mortgages with co-borrowers to the GSEs

These are the basics, so this is concerning. Many of these LOs also give incorrect advice when they don’t understand what’s happening.

We’ve also engaged senior executives at four of the top 10 national lenders (by production volume). These folks are out of touch, unaware that co-buying is non-standard, and oblivious that their LOs don’t understand the basics.

This is the lay of the land. If you’re co-borrowing hundreds of thousands of dollars, it’s imperative to deal with competent counterparties. The salespeople you work with focus on closing your transaction. That’s when your risk begins.

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👉 CoBuy-certified™ Lenders

Looking for a top-notch, vetted mortgage lender who has experience working with co-buyers? Check out CoBuy-certified™ Pros.