Buyers have so many options for financing a home. The mere thought of shopping for loans and comparing rates can induce analysis paralysis. While we can’t make the decision for you, we can make the process less cumbersome. Two common vendors for home loans are traditional banks and mortgage lenders. Is it better to get a mortgage through a bank or lender? That depends on your unique financing needs. We’ll break down the differences between banks and mortgage lenders so you can decide.
Getting a mortgage through a bank
It’s pretty common to start with a traditional bank (or credit union) for mortgages, especially if you already have an account with one. Buyers may feel more comfortable getting a mortgage through their bank loan officer when they already have a good relationship with the organization. Banks may even offer perks like special rates for existing customers.
While it is certainly convenient to apply for a mortgage through your bank, they may have stricter qualification guidelines in place, as they are subject to federal compliance laws. This could create an issue if potential buyers have low credit scores or scores under 620.
Local banks may have less loan options available to buyers as they don’t have the same access to multiple investors the way mortgage lending companies do.
Getting a mortgage through a mortgage lender
Mortgage lenders, like loanDepot and other direct lenders, have more flexibility to customize loan options that suit their customers’ individual financial situation. Unlike a traditional bank, mortgage lenders primarily focus on mortgages.
Mortgage lenders often have less rigid credit score requirements to qualify for a loan. For example, banks typically want a score of 620 or higher, but a mortgage lender may find a loan program that works for you even if you have a score lower than that.
“Lenders typically have access to many different guidelines,” explains loanDepot Branch Manager Joshua Jones. “So if someone has a difficult situation, there might be more options than a traditional bank. They each have their place in the market and they each do certain loans well. It truly depends on the situation of the borrower.”
Since many mortgage lenders have embraced technology and streamlined their systems, the time it takes to approve and process the loan is also shorter.
“So our whole line of thinking is how to get the mortgage done as quickly as possible, creating a very smooth and technology friendly loan experience,” says Jones.
Direct lenders should not be confused with mortgage brokers. Mortgage brokers act as middlemen between buyers and the entities issuing the loan. Using a broker can quickly get you access to loans from multiple lenders without having to make the calls yourself, making it easy to compare rates and fees. However since brokers do not work for the lender, closing the deal may take longer as they don’t have an in-house underwriter.
Shop around for the best deal
Mortgages are not one-size-fits-all. Consult both your bank and mortgage lenders on which options will give you the best rates. Each organization will have their own terms, so don’t be afraid to compare loan options and negotiate. You can use this handy mortgage worksheet from The Federal Trade Commission to easily track and compare the terms of loans as you go. With a little bit of research and expert advice, you’re sure to find a financing solution for your needs.