If you’re ready to secure a loan for your next home, you’ll need to decide whether to go with a mortgage lending company or a bank. Both mortgage companies and traditional banks can help you fund your home purchase. However, mortgage companies, also generically referred to as mortgage lenders, typically offer more options, and banks tend to have stricter borrowing requirements. Read on to see which might be right for you.
Types of mortgage lenders
There are two types of mortgage companies: brokers and direct lenders. Mortgage brokers are essentially liaisons who work with potential homebuyers to find the best lender for their particular situation.
If you’re an atypical borrower (e.g., you’re self-employed or have unstable credit), on a tight schedule or budget or have lots of questions regarding the mortgage process, a broker might be right for you. Brokers often charge hefty brokerage fees, though, and they may push you toward specific lenders they have deals with.
Direct lenders, on the other hand, directly fund and originate mortgages. Direct lenders usually offer several types of home loan programs with specific requirements you must meet to qualify. Banks are direct mortgage lenders.
How a bank mortgage works
A bank mortgage is a home loan you borrow directly from a bank or financial institution. Often, banks have just a few home loan options with specific eligibility requirements for each type. A bank may have more strict credit requirements and less flexibility when working with borrowers in atypical situations than a lender that only offers mortgages.
Bank mortgage pros and cons
If you choose to procure your home loan through a bank, you could qualify for leverage or perks for bundling services like checking or savings accounts. This could mean access to low or no account fees or low-interest credit cards as well as more favorable mortgage terms.
Bank loans, however, often have strict standards for lending. So, if your credit isn’t great (if you’ve suffered a bankruptcy or foreclosure, for example), you might not be eligible for a bank loan.
Because loans usually aren’t a bank’s primary focus, it can also take longer to process a bank loan than one from a mortgage company.
- Account perks are common
- May have lower interest rates
- May offer proprietary loan programs
- Fewer loan options
- Strict credit requirements
- Can take longer to process
Mortgage lender pros and cons
Direct mortgage lending mortgage companies offer several home loan programs for a variety of borrowers. Their credit requirements are often more lenient because they're focused on working with a wide variety of borrowers. Mortgage companies are also more specialized in their services than banking institutions, which means they typically process loans faster.
In today’s growing tech economy, there’s now an abundance of lenders available exclusively online. This is a bonus for those who want to take care of business from the comfort of their own home, but many people still want to sign with a pen and paper and shake hands in real life when making these big decisions. Fortunately, there are plenty of both options available.
- Variety of programs to fit many needs
- Lenient credit requirements
- May not have an in-person location
- May have high interest rates or closing costs
- Fewer opportunities for bundled account perks
Bank mortgage vs. mortgage lender rates
When you’re comparing your lending options, make sure to do your research and get a few quotes.
Your rates might be better if you can go with a bank you already have accounts with.
Remember that if you choose to go with a broker instead of a direct lender, the broker will take a commission, which could be significant. The broker’s fee is a portion of the loan, so the higher your mortgage, the higher your fee. The upside to choosing a broker is that they often make it easier to get multiple offers and shop around for lower rates.
If you work with a bank or another direct lender, there’s no need to pay a broker. Your rates also might be better if you go with a bank you already have accounts with. The downside is that it’s harder to comparison shop when dealing with direct lenders individually.
Mortgage points are also important to consider. These are fees you pay a lender for a lower interest rate. This is often referred to as “buying down your rate.” In general, each mortgage point costs 1% of the original mortgage amount. So, if your home loan is for $500,000 and you’re offered a 3% interest rate, you could get it down to 2% by paying an extra $5,000 upfront. This can save you a great deal of money in the long run.
Current conventional national mortgage and refinance rates
Rates are effective 01/23/2022 and are subject to change without notice. APR shown is provided by a partner of ConsumerAffairs.
The APR shown of 3.888% is available for a 30-year fixed rate loan in the amount of $200,000 for consumers with loan-to-value of at least 80%.
The APR shown of 3.490% is available for a 20-year fixed rate loan in the amount of $200,000 for consumers with loan-to-value of at least 80%.
The APR shown of 3.280% is available for a 30-year VA fixed rate loan in the amount of $200,000 for consumers with loan-to-value of at least 80%.
The APR shown of 2.778% is available for a 10-year fixed rate loan in the amount of $200,000 for consumers with loan-to-value of at least 80%.
Find a Mortgage Lender partner match near you
Shop Our Lenders - Rates as low as 2.3%Help me Decide
How to choose a mortgage lender
No matter which type of lender you choose, make sure you feel good about offering the institution your business. If a company has good reviews, a solid track record and high ratings, it’s more likely you'll have a good experience with it. Make sure to do your research, read all the reviews you can and talk to real people you know who can share their experiences.
Ultimately, you want a lender that’s transparent, offers reasonable rates and doesn’t have a history of poor service or reviews.
You’re signed up
We’ll start sending you the news you need delivered straight to you. We value your privacy. Unsubscribe easily.