What is a lender in real estate? How it works and types

What You'll Learn

• What is a lender in real estate and how they fit into the home buying process
• The various types of mortgage lenders available - from banks to online companies
• How to choose the lender that's right for you and your situation

What is a lender in real estate? And why does it matter? Well, quite a bit, actually. The lender you choose can make a big difference in the interest rate you pay, how much your monthly payments are, and just how smooth the home buying process will be.

A lender in real estate is a bank, financial institution, or even an individual that lends money for property purchases. They're the ones who make it possible for people to buy a home without having to pay cash upfront. Whether you're looking to buy your first home or expand your investment portfolio, lenders are the ones who provide the cash that helps turn your homeownership dreams into a reality.

To determine how much they'll lend you and what interest rate you'll pay, lenders take a close look at your financial situation - including your credit score, income, debts, and assets. They then structure a loan where your new home serves as collateral - meaning if you're unable to make payments as agreed, they can end up taking possession of the property.

While banks used to be the only game in town for a long time, these days you've got all sorts of other options too - including credit unions, online mortgage companies like Better, and specialized lenders. Each one has its own strengths and weaknesses, from super-competitive rates to personalized service or unique loan programs.

This guide breaks down the different types of mortgage lenders, explains how they work and shows you what actually happens during the lending process. We'll also give you tips on how to choose the right lender for your specific needs, helping you make one of the biggest financial decisions of your life with confidence.

What is a lender in real estate?

A lender in real estate is a financial institution or individual that provides money to people so they can buy property, refinance, or construct a new project. They basically fill the gap when buyers don't have the cash to pay for a property upfront - making homeownership a possibility for millions of Americans.

Real estate lending works on a mortgage setup where the property acts as collateral. That means if you stop making your loan payments, the lender can step in and take possession of the property to recoup their cash. This gives lenders some security, so they can offer better interest rates than non-collateral loans, like credit cards or personal loans.

Lenders make money through several different revenue streams:

• Interest payments on the loan over its term (typically 15-30 years)

• Origination fees for processing your loan application

• Underwriting fees for assessing the risk you pose

• Closing costs for finalizing the loan

For example, a $400,000 loan at 7% interest over 30 years could see you paying a total of $558,000, $158,000 of which is in interest.

Before giving you a loan, lenders do an underwriting assessment to make sure you're a good bet. This involves checking your credit score, income stability, employment history, existing debts and the value of the property through an appraisal. They want to make sure the property will be worth enough to serve as collateral in case you default on the loan.

Lenders are the driving force behind most real estate transactions in America. If you didn't have a lender to work with, buying your first home or investing in real estate would require a massive amount of cash that most people just don't have. Your choice of lender has a direct impact on your monthly payments, the overall cost of borrowing and just how smooth the home buying process will be.

...in as little as 3 minutes – no credit impact

What's the difference between a mortgage broker and a lender?

The main difference between a mortgage broker and a lender is that mortgage brokers connect buyers with multiple lenders, while mortgage lenders are the ones who actually fund the loan.

Mortgage brokers act as middlemen who help gather your financial documents and shop them around to different lenders. They don't make lending decisions, nor do they provide loan funds themselves. What they do is present you with a selection of options from different lenders - a choice of rates and terms. However, brokers often work closely with just a handful of preferred lenders, rather than scouring every available option.

Mortgage lenders, on the other hand, are the ones who issue home loans directly to buyers. 

Working with a broker can give you access to lots of different lenders through one contact point. Going directly to a lender can make the whole process feel more straightforward, with clearer communication and more transparent fees.

The way they get paid is also different - brokers earn a commission from the lender who ends up closing the loan, while lenders make their money through interest and fees you pay over the loan term. 

Better gives you the best of both worlds as a direct lender with no unnecessary fees and competitive rates, while also shopping across 45+ investors and 21,600 loan scenarios to find you your best rate¹.

Curious about how interest works on a mortgage? These distinctions can help you choose the right approach for your home buying journey. Your choice here affects more than just your interest rate; it impacts the whole mortgage experience from application to closing.

...in as little as 3 minutes – no credit impact

How do mortgage lenders work?

Mortgage lenders look at your financial situation to determine loan eligibility, the amount they'll lend you, and the interest rate you'll pay. The process starts with your application, moves through underwriting where they assess your risk as a borrower, and ends with approval and funding. 

At Better, you can see what you’re pre-approved for in as little as 3 minutes, with no impact to your credit score.

There are different lender types operating through different business models, each one affecting how you experience the mortgage process.

Types of mortgage lenders in real estate

Retail banks

Retail banks are what most people think of first when they hear “mortgage lender.” These include large national banks and regional banks that offer mortgages alongside checking accounts, savings accounts, and credit cards. They work directly with borrowers and typically fund loans using their own capital.

Because mortgages are just one part of a much larger business, banks often have more rigid underwriting guidelines and less flexibility when it comes to unique borrower situations. The upside is familiarity and brand recognition. The downside is that rates and fees aren’t always the most competitive, and the process can move more slowly due to layered approvals and legacy systems.

Non-bank lenders (direct lenders)

Non-bank lenders specialize almost exclusively in mortgage lending. Unlike traditional banks, they don’t take deposits or offer everyday banking products. Instead, they focus entirely on originating, processing, and funding home loans.

This specialization often translates into faster turn times, more streamlined digital experiences, and competitive pricing. Because mortgages are their core business, non-bank lenders tend to invest heavily in technology, automation, and borrower experience. That focus can make the process simpler and more transparent, especially for buyers who want clarity around rates, fees, and timelines.

Better Mortgage is a prime example of how this model can work in a borrower’s favor. As a direct, non-bank lender, Better removes many of the layers and markups that exist in traditional lending, helping customers see real rates upfront without unnecessary fees or opaque pricing. By combining advanced technology with salaried loan experts, Better is able to move faster, reduce costs, and give homebuyers a clearer, more predictable mortgage experience from application through closing.

...in as little as 3 minutes – no credit impact

Credit unions

Credit unions run on the principle of being a financial cooperative that's owned by the members, which in many cases is people tied by their employer, military service, or location within specific neighborhoods. Unlike banks that operate solely for profit, these institutions actually return the profits to its members in the form of better interest rates and lower fees.

Credit union membership can be a bit confusing, as some credit unions are only open to specific companies or industries, while others are welcoming to people from certain regions. But, once you qualify for membership, you've got access to a whole new world of personalized service and loan programs that tailor to your specific needs.

Mortgage brokers

Wholesale lenders

Wholesale lenders make the mortgage but they don't deal directly with the borrower. They create a product and then wholesale it on to mortgage brokers, banks, and other retail lenders who handle all the heavy lifting with the customer.

Those who do this behind the scenes, wholesale lending, lets them focus on competitive pricing and developing new loan products without having to worry about dealing with customers on a daily basis. You'll still deal with the retail lender or mortgage broker, but the loan was actually funded by the wholesale source. Your application process stays the same. The only difference is you now won't be dealing with the person who's actually funding your loan.

Warehouse lenders

Warehouse lenders are kind of like a big inventory system for mortgage loans. They provide short-term capital to mortgage originators. Think of it like how a warehouse keeps inventory on the shelves: it's there until it sells to someone else.

While you, the borrower, won't notice a difference, the warehouse lender is operating behind the scenes. They're providing funds to mortgage originators who don't have the capital on hand to close out the loan. It's a system that ensures mortgage funds are always available on the housing market, even when originators don't have the cash.

Hard money lenders

Hard money lenders are asset-based lenders that focus less on a borrower’s credit profile and more on the value of the property itself. These loans are typically used by real estate investors, house flippers, or buyers who need fast financing for short-term projects.

Because hard money lenders take on more risk, their loans usually come with higher interest rates, shorter repayment terms, and larger down payment requirements than traditional mortgages. Approval timelines can be much faster, sometimes happening in days rather than weeks, which makes them attractive for competitive or time-sensitive deals.

That speed comes with tradeoffs. Hard money loans are rarely intended for long-term homeownership and are not designed for typical primary residence buyers. Instead, they’re often used as a temporary financing solution until the property is renovated, sold, or refinanced into a traditional mortgage. For most homebuyers, especially those planning to live in the home, a conventional lender offers a more affordable and sustainable path.

Still weighing your options? Try calculating your potential mortgage payments and see what you can afford.

Pros and cons of bank mortgage lenders

Banks are still a pretty popular choice for a lot of people, but it's always a good idea to weigh out the pros and cons before making a decision.

Pros of bank mortgage lenders

• Convenience - having all your banking and home loan needs handled in one place is a plus.

• In-person service - sometimes you just want to sit down with a person and talk about your loan options. Banks can make that happen.

• Loyalty perks - if you're already a customer of the bank, they may have some special loan programs available that can save you some cash.

• Established reputation - banks are safe, and people know what to expect.

Cons of bank mortgage lenders

• Tougher to qualify - banks can be pretty picky when it comes to who they lend to. You'll need a good credit score, a good income, and not too many debts.

• Limited options - banks don't always have a wide range of loan products available. If you're a non-traditional borrower - self-employed, or something of the sort - they might not have anything that works for you.

• Higher costs - banks can sometimes have higher interest rates or fees than some of the other options out there.

• Slower processing - traditional bank processes can take a while, which is a problem when you need to close out a loan quickly in a competitive market.

Try getting pre-approved in minutes with no credit impact, and see what you qualify for.

...in as little as 3 minutes – no credit impact

How to choose the right mortgage lender for you

Choosing the right lender is a big decision so you want to pick the one that's going to be best for you. Picking the right mortgage lender has more far-reaching consequences than just your interest rate. It determines your monthly payments, the experience you have throughout the loan process, and your relationship with the lender for years to come. Here’s a good way to choose a lender:

1. Research your mortgage options

First off, make sense of the variety of lender types and what they've got to offer. Banks make things easy if you want all your accounts in one place. Credit unions often knock it out of the park for members with lower rates. Non-bank lenders might have more flexible qualification standards or some pretty cool specialized programs.

Match up lender strengths with your particular situation. First-time buyers benefit from lenders that offer a helping hand through the process, while those buying investment properties need lenders that can move fast and have experience with rental property financing. Check out how to buy your first home with Better Mortgage for some valuable guidance.

2. Take a close look at rates & terms

The Consumer Financial Protection Bureau suggests getting quotes from at least three different lenders. Interest rates get a lot of attention, but you should look at the whole picture: origination fees, closing costs, discount points, and loan terms.

Pay attention to how responsive lenders are to your questions and concerns during this phase. If they get back to you right away and do a great job of explaining things, it's a good sign that they'll take good care of you throughout your loan. 

See today’s rates.

3. Submit a loan application

Once you have a few promising lenders in your sights, get your financial documents in order and submit your applications. This is where you'll see how efficiently each lender handles paperwork and keeps you in the loop.

Keep an eye out for how transparent lenders are during the underwriting process. Lenders who are clear and realistic about what they need from you and  when they'll be done, tend to have a much smoother closing experience. 

With Better, you can get pre-approved in as little as 3 minutes with no credit impact. If things look great, you can move forward with our fully online application so you can buy a home from your couch.

The lender you choose has a big influence on one of your biggest financial commitments - so take the time to figure out how mortgage interest works, so you can make informed decisions & find a lender that's right for your homeownership goals.

Finding the right mortgage lender

The right lender is like a partner to you through one of the biggest financial decisions you'll ever make. Compare at least three lenders, looking at rates and terms, but also at the quality of their customer service, fees, and loan terms that really fit with your situation.

First-time buyers will find it a big help to work with lenders that have programs in place for folks just getting started. 

A good lender doesn't just give you the money - they help you find a home that fits with your future plans. Whether you go with a traditional bank for all your accounts in one place, or a specialized lender for a better rate, doing your homework will pay off big time throughout your entire homeownership journey.

With Better, you get all the benefits of a credit union, like lower rates and faster closing times, but still enjoy the convenience of an award-winning experience all online. 

...in as little as 3 minutes – no credit impact

¹ Disclaimer: Betsy evaluates loan scenarios using currently available data across participating investors, product types, loan terms, and rate assumptions. The stated number of scenarios reflects a mathematical combination of these inputs (including multiple investors, product categories, loan terms, and rate variations) and does not represent a guarantee that all scenarios are available to every borrower or that any specific rate or loan will be offered. Actual loan options, rates, and terms depend on individual borrower qualifications, credit profile, property characteristics, loan amount, market conditions, and lender requirements at the time of application.