Ask any loan officer what kind of lender is best, and you’ll likely hear a glowing review of whichever type of institution they currently work for. If you meet them again years later working at a different company, you’ll probably hear a completely different answer. REALTORS® also tend to have shifting opinions, depending on market trends and their own experiences. While some once swore by portfolio lenders, many now recommend mortgage bankers or brokers — though often, their real recommendation is based on a specific loan officer they trust.
This article explores the strengths and weaknesses of various types of lenders, not individuals. However, it’s worth noting that the loan officer you choose may matter even more than the lending institution. A dependable, ethical loan officer acts as your advocate and can make or break your experience. Regardless of where they work, the best ones know how to guide you through challenges, ensure your file is complete, and get your loan closed on time.
That said, here are the general characteristics of the main types of lenders:
Portfolio Lenders
Savings & Loans and some banks are examples of portfolio lenders. They keep loans in-house rather than selling them on the secondary market. This gives them more flexibility in qualifying borrowers and structuring loans.
- Often offer adjustable-rate loans and niche products.
- Typically easier to qualify with, especially if your financial situation is unconventional.
- May emphasize savings history over strict income documentation.
- Generally not as competitive on fixed-rate loans as mortgage bankers or brokers.
- If your loan is declined, you often need to start over elsewhere.
Mortgage Bankers
Mortgage bankers originate and fund loans directly, often using their own capital, and then sell them to investors.
- Recognizable brand names and often tied to first-time buyer programs and government-backed products.
- May have an advantage with VA or FHA approvals, especially for unapproved developments.
- If a loan is declined, they may broker it to another lender, though not always effectively.
- Some operate like well-oiled machines; others may be too large to manage every borrower effectively.
Banks & Savings Institutions
Traditional banks and savings institutions often operate as a hybrid of portfolio lenders and mortgage bankers.
- Their brand recognition offers borrowers peace of mind.
- Otherwise, their strengths and weaknesses usually mirror those of portfolio lenders or mortgage bankers, depending on how they operate.
Mortgage Brokers
Mortgage brokers serve as intermediaries between borrowers and wholesale lenders. Their greatest advantage is flexibility.
- Can shop multiple lenders to find the best rate or fit for your unique situation.
- Understand the nuances of various programs and can identify a lender that suits your specific needs.
- Can repackage and resubmit your loan if it’s declined, saving you time.
- Tend to attract some of the most experienced and skilled loan officers — but can also attract those focused on maximizing commissions.
- Rates can vary depending on the integrity of the broker and how much compensation they build into the loan.
Wholesale Lenders
Wholesale lenders do not deal with borrowers directly — they work through mortgage brokers.
- As a borrower, you cannot access them without a broker.
- They often offer competitive pricing to brokers, but this benefit depends on your broker’s honesty and competence.
When a REALTOR® or Builder Recommends a Lender
If your real estate agent or builder recommends a lender, it’s worth having a conversation with them. Often, these professionals recommend someone they trust to get the deal done. Reliability matters, and trusted lenders tend to prevent delays or surprises. However, be aware of controlled business arrangements (CBAs) — situations where a brokerage or builder owns or profits from referring business to a certain lender.
- These in-house lenders may not offer the lowest rate or best deal.
- However, they may have more pull in expediting issues, especially on new construction loans.
- Builders often push their preferred lender because of the specific knowledge needed to close on a new build smoothly.
Be sure to ask if there's any ownership connection between the real estate company or builder and the lender. That doesn’t mean you shouldn’t use them, but you should compare options and ensure you're not overpaying.
Conclusion
In the end, there’s no universally “best” type of lender. It depends on your specific financial situation, credit profile, the kind of property you’re buying, and how long you intend to stay in the home. The best approach is to shop around, know your rates, and let your loan officer know you’re comparing offers. That way, you increase your chances of finding the right combination of great service and low costs — from a lender and loan officer you trust.
