So, you’ve saved up enough money for a down payment. Now you are shopping for a mortgage to finance your home loan. There is an overwhelming number of lenders to choose from – dedicated mortgage lenders, traditional banks, mortgage brokers, credit unions, and more. Going with the right lender will not only save you some time and money, but also help you avoid frustration in the long run. The two most popular lenders are traditional banking institutions and dedicated mortgage lenders. In this mortgage lender vs bank comparison, let’s check out the pros and cons of each.
Both mortgage companies and banks can help finance your home purchase. When they lend you money, they expect you to repay the principal with interest. But they have different decision-making and loan processes. They may also have different ways for dealing with unexpected issues you might encounter in the future.
Dedicated mortgage lenders such as Quicken Loans handle the whole mortgage process ‘in house.’ They review your application, approve the loan, and underwrite your mortgage. Mortgage companies offer a large variety of loan options. Unlike traditional banks, mortgage lenders could be more lenient towards borrower with lower credit.
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Mortgage lenders have a faster and more efficient process, which could be an advantage if you are trying to close on a house quickly. Sometimes they also make exceptions for people with income or credit issues.
Dedicated mortgage lenders are not as strictly regulated as banks. It allows them to offer personalized loan recommendations based on your financial situation.
However, once your deal closes, the mortgage lender could sell your loan to a mortgage servicing company. If it does, you’ll be paying and dealing with the servicing company in the future. But don’t worry. The terms of the deal, including the rates, will remain the same through the life of the loan. The mortgage servicer cannot change the fees or interest rates.
Mortgage loans are just one of the many financial products a bank offers. Banks offer checking and saving accounts, insurance products, investment, corporate banking, business loans, and more. They review and approve your loan application, and give you the money directly. Most banks service their loans in-house. The loan documents are issued in the bank’s name.
Typically, banks have fewer loan options that mortgage lenders. That’s because they have to follow a bunch of guidelines from the FHA, VA, Fannie Mae, and Freddie Mac. They are also less open to negotiations, and they usually take longer than mortgage lenders to approve loans. Banks could decline your loan if your credit or income situation doesn’t fit their criteria.
Banks sometimes offer loan options designed for specific buyer segments such as self-employed professionals. They also have special rates and discounts for their existing banking customers. If you have a long-standing relationship with a bank and you want to keep all your financial products under one roof, you can choose to go with a bank instead of a mortgage lender.
Since banks offer a wide range of financial services, they could pitch their other products during the loan review process to boost their revenue. Though some banks do offer great customer service, most struggle to give their customers the best service due to the huge variety of their products and services.
Mortgage lender vs bank: The bottom line
As a borrower, you want to get the best rates and terms for your unique scenario, credit score, and income. You should shop around and compare the bank vs mortgage lender offers. You can also seek offers from credit unions and mortgage brokers for comparison.
When shopping around, contact at least four mortgage sources. Compare their fees, interest rates, terms, closing costs, prepayment penalties, and other details for the kind of loan you want.
A full-fledged bank allows you to keep all your financial products under one roof, making life a bit easier for you, especially if you have been a long-time customer of the bank. How much money you have in your bank account with them could also impact the terms and rates. Most banks also service their own loans instead of selling your loan to mortgage servicers.
On the other hand, the dedicated mortgage companies offer more options to fit your needs and faster closings. If you have a special credit or income situation, mortgage lenders could offer a customized loan recommendation. But they often sell their loans to mortgage servicing companies.