English
Arabic
French
Spanish
Portuguese
Deutsch
Turkish
Dutch
Italiano
Russian
Romaian
Portuguese (Brazil)
Greek
There’s a lot to consider when seeking a mortgage, and right up there — along with the APRs and the discount points — is the sort of lender to go with. They fall into two basic categories: a retail bank and a mortgage lender (which can be a generic term, but we’re using here to mean a specialist in loans). Both types can be national, local or, increasingly, online.
Picking the right lender for your home loan can make a big difference when it comes to everything from your interest rate to the level of customer service. Let’s explore the merits of mortgage lenders vs banks.
Mortgage lender vs bank: What’s the difference?
Although there is overlap — many banks are mortgage lenders, carrying on a robust purchase and refinance business — these two lenders are not exactly the same.
Mortgage lenders
A mortgage lender or mortgage company is a firm that provides financing for real estate purchases. Some lenders also offer auto loans, personal loans or student loans, while others focus exclusively on property financing, and still others hone in on residential-related loans — mortgages, refis, home equity loans or HELOCs.
Most mortgage lenders are independent, non-bank firms: they can be local/regional, national or, increasingly, entirely online (think Rocket Mortgage or Better Mortgage). Some mortgage companies are affiliated with a bank but go by another name. PrimeLending, for example, is a mortgage lender subsidiary of PlainsCapital Bank.
Mortgage lenders specialize in home loans, which can be good and bad. On the one hand, if it’s your first mortgage you are unlikely to have a current relationship with the institution and can’t take advantage of loyalty benefits. On the other hand, they may have more loan options available.
Pros
- A wider variety of loan options
- More lenient credit limits, less-stringent standards
- Streamlined service: move more quickly on applications
Cons
- Don’t offer other financial services
- May only have a phone number/online presence: no physical office or human contact
- Less strictly regulated than banks
Banks
Retail banks, of course, are multi-varied financial institutions: They offer several services besides home financing. Their mortgage division may be within the parent organization, or it may be a wholly owned subsidiary.
Many banks are direct lenders, meaning they originate and underwrite their mortgages in-house. Some, called portfolio lenders, maintain ownership of their mortgages; but most banks eventually sell their loans on the secondary mortgage market (they keep servicing them, though, so the borrower never knows the difference).
Banks are appealing because of their name recognition, especially national ones —think Chase or Capital One — and just plain old familiarity. If you already have a long-standing checking account or savings account with a particular bank, why not patronize them for a mortgage too? You may be able to easily transfer monthly payments or get special rates or discounts.
However, they may also have more fees (or bigger fees) attached to their loans; large banks shoulder higher costs associated with meeting federal compliance regulations and maintaining their physical offices, and may pass these on to you.
Pros
- Often have the most competitive interest rates
- Are likely to have more customer service options, including in-person help
- Possible deals for existing customers
Cons
- Are likely to have strict credit requirements, more rigid qualifications
- May have longer underwriting times
Local lenders: Pros and cons
A local mortgage lender can lend a more personalized approach, as most loan officers at local lenders live in the community where they work.
Your loan officer might have fewer clients to keep up with, too. If you have a more complicated loan, this can play in your favor, as you’ll have easier access when questions pop up.
A potential downside of working with a local lender, however, is that you might have to spend some time sorting through and vetting your options compared to simply going with your existing bank. And they may not offer as many options or discounts as national or online lenders.
What about credit unions?
Credit unions are another option when taking out a mortgage. A credit union is a nonprofit financial institution controlled by its members, and typically offers lower mortgage rates.
However, at a credit union, you might only have access to a limited line of loan products, meaning you might not find exactly what you’re looking for. Plus, you’ll need to qualify for membership. That member-focused experience, though, could lead to more case-by-case flexibility that can help you with your mortgage needs.
Are online lenders better?
An online mortgage lender allows you to move through the loan application process an entirely (or almost entirely) digital experience. They often are quite nimble, processing applications in days and offering preapprovals within hours. They’re also worth considering if you want to take advantage of lower rates or fewer fees— their lack of overhead means lower costs, savings which they pass on to you.
Convenience, cost and speed matter, but you might also need human interaction at some point in the process. With no branch locations, this can be difficult to come by with an online lender. You may or may not have an individual loan officer assigned to you and, since they could be anywhere in the country, they may be hard to reach at times. In short, they’re not ideal if you crave a face-to-face, personal touch.
Next steps on finding the best mortgage lender
When searching for the best lender — either a national or local lender, a bank or a mortgage company — cost is important, but so are your needs and preferences. Here are some ways to narrow down your options:
- Consider your credit. If your credit score could use improving, look into lenders who have options for low-credit score borrowers or those who don’t fit the standard financial profile.
- Compare quotes from multiple lenders. Studies show that shopping around for a mortgage could save you thousands.
- Pay attention to how lenders communicate with you. The right lender shouldn’t be difficult to work with. The best lenders are able to answer your questions promptly, be easy to reach and keep you updated throughout the process. The right lender won’t hit you with a hard pitch, either.
- Weigh the lender fees. Many lenders charge an origination fee and an application fee, to name just a few. Or they bump these charges up, to compensate for “discounts” elsewhere. Take this into account when shopping around and comparing offers.
