It's about more than just taking out a loan to buy a house. When you're prepared to finance your new home, there are many options for getting a mortgage loan. Dedicated non-bank mortgage lenders like Quicken Loans and SoFi and large banking institutions like JPMorgan Chase and Wells Fargo are both the most common alternatives. Each has something the others don't, so your decision may come down to personal preference.
What Makes a Mortgage Lender Different From a Bank?
Mortgage Lenders
Banks
mortgage lenders offer a wide range of loan options.
Have a limited number of loan options.
Credit requirements should be more lenient.
Credit requirements tend to be stringent.
After closing, you might be able to sell your mortgage loan to another lender.
Throughout the life of your loan, you'll pay and deal with the same bank.
Which Is the Best Option for You?
If you already have a bank relationship, it may be easier to contact a local banker for help with the home loan process. However, dedicated mortgage lenders are capturing an increasing share of the home loan market because of their flexibility and speed in closing loans.The Advantages and Disadvantages of Banking
Existing banking customers frequently receive special benefits or discounts. They may even have in-house loan options tailored to specific buyer segments, such as self-employed or investor buyers. In order to maximize revenue, banks may try to sell other financial products to borrowers during the loan process. For example, you could offer specific savings or checking accounts, credit cards, or other products in exchange for better mortgage terms. Because they are subject to federal compliance and reporting laws, bank loans often have stricter lending standards. If you have poor credit or a significant financial event on your record (such as a foreclosure or bankruptcy), it may be harder to qualify. A bank loan also takes longer to close.Pros
- Interest rates could be lower.
- Existing bank customers may be eligible for special rates or benefits.
- The bank will almost certainly continue to service your loan after closing.
- May provide proprietary and niche-specific loan programs.
Cons
- Stricter lending standards.
- There is a narrower range of loan products available.
- Mortgage lending expertise is lacking.
- Fee increases due to increased compliance requirements.
- Cross-selling of additional banking products
- Extended closing times.
The Advantages and Disadvantages of Using a Mortgage Lender
Because these lenders are less regulated than banks, they can tailor loan recommendations to a buyer's specific financial needs and home-buying objectives. Mortgage loan originators must pass several mortgage-related courses and exams to gain a thorough understanding of the industry. Because many of these mortgage lenders are only interested in accessible through the internet, you may not receive the same level of customer service. Following a loan closing, mortgage lenders frequently sell the servicing rights to the servicing company. This means you won't be able to choose who pays or works with you in the end, even if your mortgage rates and terms remain unchanged after the sale.Pros
- More training and expertise in lending
- Additional loan options
- Better loan advice and guidance
- More willing to make concessions on terms
- Loans are closed more quickly.
Cons
- It's possible that it won't have a physical location.
- The loan may be sold by the lender to another servicer after the loan is closed.
A Combination of the Best of Both Worlds
Although designated mortgage lenders and banks sell the majority of mortgages, other options are sometimes hybrids of the two. A financial technology company, a credit union, a savings and loan association, or a smaller financial institution are viable options. Mortgage loans can come from a variety of places. Banks and mortgage lenders aren't the only ones who use them. Home loans can also be obtained from stock brokerages and private individuals. You might also consider seller-financing, in which the home's seller agrees to let you pay for the property in monthly installments over time. However, because of the greater risk, they pose to the seller, these loans usually come with higher interest rates.The Final Word
Lenders, banks, and other financial institutions all have their own set of advantages and disadvantages. Make sure to shop around to find the best loan for your needs. Compare rates, fees, and closing costs from several lenders, banks, and organizations.Questions and Answers (FAQs)
Is it true that mortgage lenders have lower rates than banks?
No perfect answer is there when it comes to determining whether a mortgage lender or a bank will offer a better rate. Your mortgage rate will be determined primarily by your credit score, the amount of debt you already have, the location of your property, your down payment, and the size of the loan you are applying for.What credit score is needed to get a good mortgage interest rate?
If you have a credit score of 700 or higher, you are more likely to qualify for the best mortgage interest rate. Having an 800 credit score or higher will get you a great interest rate.