When it comes time to buy a home you probably know how important it is to work with the right buyer’s agent. Equally as important, is choosing the right bank or lender to work with you on securing your home loan. A question that often arises is… should I get my mortgage though a mortgage lender or a bank.
Working with the wrong bank or lender at the very least will create more stress than necessary and worse case scenario your mortgage is denied.
You will have three options when it comes time to find a “lender” for your home mortgage. I use the term lender loosely because many of the terms are used interchangeable. When it comes time to get a mortgage your choices will be a bank, a mortgage lender or a mortgage broker. Lets take a look at what option might be best for you…. a bank, a mortgage lender or a mortgage broker.
Home Buyer’s Choosing The Wrong Lender
I am highlighting the difference a lender or bank can make. In the past year I have had two buyers contact me to buy. They wanted to use their own banks to finance. I sent them off to get a mortgage pre-approval letter from their banks before we started. They both were told they couldn’t get a home mortgage and not bother filling out an application for various reasons.
After talking to my buyers and drawing on my previous loan officer experience, I felt both buyers could be financed. I immediately sent them to my go to loan officer, John Marroni of NewFed Mortgage. Yes a shameless plug for John, but he always delivers!
John easily and quickly was able to finance both buyers and we moved on to buy them a home, when their bank told them to not even try.
Next was a purchaser on my listing. A large national bank was doing the financing. Two weeks before closing ,the loan was denied, due to a small gap in contract employment. The buyer of course was distraught as well as my seller. John immediately picked up the ball and we closed 30 days later.
Working with the right lender can mean the difference between buying a home or being denied a home mortgage. First thought for many home buyers is go to the bank where I have my bank accounts. But should you finance your home through your bank or a mortgage lender?
Using A Bank For A Mortgage
A bank is chartered or licensed to receive and safeguard deposits. As well as holding deposits a bank will offer other financial services such as home loans.
Typically, a bank is in the business of lending their own money. This is how they provide a return on depositors monies.
A banks loan officers are typically salaried employees and they receive a steady flow of business thru the advertising a bank does. The loans are typically underwritten offsite, usually in another state.
A bank will generally have a limited number of loan programs available to its borrowers.
Pros Of Using A Bank To Finance A Mortgage
- Established relationship if you are using your bank.
- Sometimes can offer a better rate, especially if they are trying to fill out a portfolio.
- Easier to link accounts for automatic payments.
- Local point of contact.
Cons Of Using A Bank
- Limited loan programs
A bank is certainly a good place to start if you have a very vanilla loan. What is a vanilla loan? Good credit score, 20% to put down and good debt to income ratio.
Using A Mortgage Lender For A Mortgage
A lender is typically licensed to provide home loans. There only business is providing home mortgages.
A mortgage lender will typically underwrite to a banks particular guidelines in house. They will fund your mortgage with their own money, in their name, but there will already be a bank in place to purchase the loan. A mortgage lender will have a variety of lenders and loan programs to suit almost any situation.
Mortgage lenders will also have closing departments in house, allowing them to react quickly to loans that need to close.
Another difference is most loan officers for a mortgage lender are self employed, 1099 employees and work on commission. On the whole they are responsible for securing their own business. A mortgage office of a lender has a vested interest in closing on your loan.
Often a loan officer will be able to meet you at your home or work after normal business hours, giving more flexibility to the borrower.
Pros Of Using A Mortgage Lender For A Mortgage
- Many loan programs to suit individual needs
- In house underwriting flexibility
- Could save you money by having more loan programs available
- More flexibility in meeting
Cons Of Using A Mortgage Broker
- May have higher closing cost as they may charge an origination fee
- No local point of contact for servicing the loan
Flexibility is the reason to use a mortgage lender. If you are a low money down client, have a less than desirable credit score or have some unusual set of circumstances, a mortgage lender is the way to go.
Using A Mortgage Broker For A Mortgage
Mortgage brokers were very common in the early 2000’s. During the subsequent housing crash, most mortgage brokers disappeared. I have noticed a few popping up again over the past year or so. A mortgage broker will function much like a mortgage lender.
The difference is mortgage brokers and are strictly a middleman. They do not underwrite in house and do not close with their funds. They lose a little bit of control over the underwriting and closing process.
In general, I would suggest going to a mortgage lender rather than a mortgage broker just for those reasons.
Online vs Local Lender
Regardless of whether you use a bank or a mortgage lender to finance your next mortgage use a lender that you can meet with in person. Of course its very tempting to do it all online.
At the end of the day, the teaser rates that many online national lenders advertise are just that. They are rates that are offered to only very few and not the rate you will probably be given. The national mortgage companies run on huge advertising budgets they work with many thousands of people knowing many will not close but a certain percentage will. You are just a number to them.
It is hard to sit across from your local loan officer, look him in the eye and not have him be accountable to you. Plus they rely on your referrals and the local community for continued business. If they consistently fail at what they do they won’t stay in business. The national lenders, are used to having a high rate of failure in approving their loans it is part of their business model.
Large national lenders rely on advertising and huge numbers of borrowers calling. A local lender is more of a relationship based experience. Don’t get baited by the online teaser rates.
Who Will Close The Mortgage
Finding the right lender to work with, whether in is a mortgage lender or a bank should not start about inquiries about interest rate. Let me tell you right now, no lender can quote you an interest rate without having a full application from you. If they do quote you a rate it is the best rate they can offer today if the the sun and stars are aligned properly. It will be a teaser rate only.
Having your mortgage denied can not only cost you time, it could cause you to lose your deposit money if you are not careful.
Buyers being denied a mortgage is the number one reason why real estate transactions fail. It is important to work with the lender that can get the job done.
As you can see above it is about finding the lender that can close the loan. Start by asking your real estate agent for a lender referral after discussing your circumstances. An experienced agent will have insight into different lenders and what they may be able to provide you.
Canvas your friends and family for referrals as well. If they have had a good experience with a lender chances are you will too.
Should I Get My Mortgage Through A Mortgage Lender or a Bank?
Now we finally get the answer to should I get my mortgage through a mortgage lender or bank?
For low money down borrowers, a borrower with credit issues, or borrowers with unusual circumstances, I would say using a local mortgage lender is your best bet. They provide numerous programs that can accommodate many different situations that borrowers come to us with.
If you are a borrower with some pretty vanilla circumstances, start with your local bank. Overall the rates will be competitive and the process can be quite easy as well as having a local point of contact for servicing the loan.
Irregardless of whether you use a lender, a bank or a broker, use someone local it will make for a much smoother purchase. And, don’t get caught up on interest rate. Find the lender or bank who can close your loan. A great interest rate doesn’t do a thing for you if you can;t get your mortgage approved.
Other Mortgage Resources:
- Ellen Pitts- How Do Mortgage Rates Influence A Purchase
- Michelle Gibson- Don’t Make These Mortgage Mistakes
- Bill Gassett- Mortgage Tips For First Time Home Buyers
- Luke Skar- Getting A Mortgage From Start to Finish
- Kyle Hiscock- VA Loans, The Pro’s and the Con’s
Should I Get My Mortgage Through A Mortgage Lender or a Bank? was provided by Kevin Vitali of EXIT Group One Real Estate. Kevin Vitali is a Tewksbury MA REALTOR® that services northern Middlesex county as well as Essex county in Massachusetts. Are you thinking of listing your Tewksbury MA home or a home in the surrounding communities call Kevin at 978-360-0422
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