What makes a company an institutional lender?

If you are researching a mortgage company you will likely have come across the term institutional lender. If you don't know what this means it is important that you learn as you need to understand what they are and how they operate. Whether you choose to go with an institutional lender or not will have a huge impact on the terms of the mortgage that you get.

A company is an institutional lender if its loans are regulated. This usually applies to companies that lend out other people's money. For example when you put money into the bank they will turn around and loan that money out to somebody else, this makes your bank an institutional lender. There are plenty of other examples like insurance companies and certain investment funds. These lenders have to follow strict rules when it comes to lending money; most of these rules involve who they can offer a loan to.

If you need to take out a mortgage you will likely be dealing with an institutional lender. If you are going through your bank this will almost certainly be the case. It is also usually the case with the big online lenders like AmeriSave Mortgage. It is usually only the smaller lenders that do not qualify as institutional lenders and they tend to specialize in offering loans to the people who the institutional lenders won't deal with. They can do this because they are lending out their own money so they are not nearly as tightly regulated.

In order to get a loan from an institutional lender there are certain criteria that has to be met. In most cases this will require that you have reasonably good credit although this is not actually required by the regulations. What is required is that you have an income that is sufficient for the amount that you are trying to borrow. The lenders will not normally allow you to take out a mortgage that has monthly payments that exceed a certain percentage of your monthly income; this is required by the regulators. You are also going to be required to have a minimum down payment if you are dealing with an institutional lender. If you visit the AmeriSave website you can see exactly what the requirements are.

A private lender is the other option that you have when it comes to getting a mortgage and most people only consider them as a last option. This is not necessarily the best approach however, there are certainly some increased risks to dealing with a private lender but if you meet the requirements for an institutional lender you can often get a better deal through a private lender. If you can't qualify for a mortgage from a bank your only option will be a private lender, just be prepared to pay a very high interest rate.