No matter if you’re a first-time homeowner or an existing homeowner, finding the ideal mortgage lender is key to having a stress-free purchase experience. Local lenders offer better rates and terms than big box national brands can provide.
Mortgage lenders determine the terms, interest rate and repayment schedule of a loan based on your creditworthiness. However, if your situation is unique – such as being newly self-employed or purchasing a condo in an upscale building – mortgage brokers may be your best bet.
Banks
Banks are essential to the economy, enabling individuals, businesses and governments to carry out a vast array of transactions. From personal checks to electronic payments, banks help coordinate money movement around the world by processing funds and transferring them between accounts. They play an essential role in keeping our financial systems running smoothly.
Banks act as money-related institutions, accepting deposits, making loans, and recycling excess cash within the financial system. Their income comes from both costs associated with attracting and servicing deposits (including interest payments) plus income generated from charging borrowers for loans it makes or selling securities on its books. As such, banks earn profits through any difference between what they charge borrowers for these services or by selling securities they hold on their books.
Commercial banks are stock corporations whose primary goal is to generate profits for their shareholders. The extent of a bank’s operations depends on its corporate charter and the powers granted under state and federal law.
Commercial banks typically focus on short-term business credit, though they can also make consumer loans and mortgages. Community development banks (CD banks), however, tend to be smaller than commercial banks and created to serve customers and partners within local communities.
Mortgage lenders are banks that specialize in issuing mortgages to clients seeking to purchase real estate properties. The loans they issue are secured by the equity of the property and backed by their own capital, enabling them to resell them on the secondary market to investors such as large institutions and corporations.
Mortgage banks primarily rely on loan origination fees and servicing fees for revenue. These charges, which are based on a percentage of the loan value, must be paid by borrowers after their mortgage has been issued and payments collected.
Mortgage lenders come in four main varieties: national banks, savings and loan associations, community development banks and credit unions. Each has its own advantages and drawbacks so it is essential to be informed before applying for a home loan.
National banks are the most likely option for homeowners looking to obtain a mortgage, as they offer an extensive selection of products and renowned for their superior service. However, be aware that national banks may have stricter lending criteria than other mortgage lenders. You may need to provide more information and documentation than usual in order to be approved, such as proof of income and employment status.
Credit unions
Credit unions, unlike banks, are non-profit institutions that exist to serve their members. They offer a range of services like loans and savings accounts as well as financial education and outreach programs for people to help manage their money better.
Mortgage financing through non-profit institutions can be an attractive option since they typically feature lower closing costs, better interest rates than bank loans, and more personalized customer service. Since these lenders are non-profit, there’s no need to worry about making a profit or paying federal taxes, making them more flexible when it comes to loan terms.
Credit unions are often more willing to assist first-time homebuyers break into the housing market, offering various loan programs with as little as 10% down payment requirements for your new residence. Furthermore, some have programs specifically tailored for people with less-than-perfect credit histories which can help you find the best mortgage rate and terms that suit your needs.
Some credit unions provide in-house mortgage lenders, meaning you’ll work with the same person throughout the duration of your loan. This makes tracking progress and making adjustments to payments easier if needed.
Credit unions, being non-profit, can pass along their success to members through lower fees and higher interest rates on deposits and savings products. These advantages make it possible for you to save more for a down payment or monthly mortgage payments.
Another advantage of credit unions is their proximity to communities. This can mean fewer physical branches, but also lower out-of-network ATM fees.
Furthermore, credit unions often provide superior customer service compared to big banks because they’re run as non-profit institutions with staff who understand their members’ needs.
Though mortgage lenders offer their advantages, it’s essential to do your research and find the best one for your individual situation. If you aren’t a member yet, banks may be better options as they typically provide more convenient services like online banking and branches that are accessible from home.
Non-bank lenders
Non-bank lenders are an important source of consumer credit in the United States. These establishments often operate without full banking licenses and offer low down payments, fewer financial requirements and faster loan approvals.
Non-bank lenders provide mortgage financing as well as the option to refinance existing loans and consolidate debt. This helps you get a better rate on your monthly mortgage payment, which could lower the interest rate over time.
These lenders can be an ideal solution for consumers with difficulty accessing traditional banks or needing a more streamlined mortgage experience. Typically, they provide various loan options like fixed rate mortgages, Federal Housing Administration loans, United States Department of Agriculture loans and jumbo loans that cater specifically to individuals.
Furthermore, online lenders typically provide more lenient terms and credit criteria than traditional banks do, which can be especially advantageous to consumers with less-than-perfect credit histories or who require loans with shorter payback periods.
Since the global financial crisis (GFC), non-bank lenders have seen remarkable growth. Today, they account for 14% of all syndicated loan volume in America due to competitive rates, changes in where Americans live and work, as well as low mortgage rates that spurred demand for home loans and increased gain-on-sale margins.
Despite its growing importance, non-bank lending faces several obstacles to development. These include increased competition from banks and other providers, as well as insufficient regulatory backing.
Non-bank lenders require support in order to continue providing the high level of service and credit their customers require. Therefore, the European Commission and Member States should explore ways of supporting this essential sector.
It is especially pertinent during this period of economic instability, when banks are tightening their lending policies and customers are struggling to meet their mortgage payments. Non-bank lenders have responded by providing mortgage payment deferrals, maintaining equity under loan facilities and sourcing additional funding from wholesale banks or capital markets when possible. They have also worked closely with their funders in order to minimize any impact from any liquidity issues on their businesses models.
Mortgage brokers
Mortgage brokers are licensed professionals that act as intermediaries between borrowers and lenders, researching loan options, pulling buyer credit reports, verifying income and expenses, and handling all paperwork needed to close a home mortgage deal.
They collaborate with clients to determine the appropriate loan amount and type, then submit a financing application to a lender for approval. Furthermore, they provide insight into how credit score, debt-to-income ratio and other financial details might influence whether they qualify for a mortgage.
Brokers collaborate with a range of lenders, both banks and non-banks. Some brokers even have access to government-backed loan programs like FHA, VA or USDA.
Mortgage brokers have the expertise and network to match borrowers with the ideal lender. Furthermore, they possess the power to shop around your loan for competitive terms from various lenders and lending institutions.
Some brokers specialize in certain loan types, such as those for first-time homebuyers or those with poor credit. Others have access to lenders offering non-qualified mortgage (non-QM) products.
If you’re having difficulty getting a mortgage approved from your local bank, a mortgage broker may be able to find you an option with quick approval and minimal delay. They could even expedite the process if the bank or mortgage company denied you.
Mortgage brokers are only compensated if the loan closes, so they have an incentive to find you the most suitable loan option that meets your needs and desires. This could lead to a faster closing process and lower interest rate than what your bank might offer you.
Mortgage brokers usually have access to a comprehensive loan-pricing system that prices home mortgages from multiple lenders simultaneously, saving time and money in the process. These systems can be especially helpful for homebuyers who require fast approval in a competitive housing market.
When selecting a mortgage broker, it is essential to check their reviews and learn how long they have been in business. Furthermore, inquire about their fee structure and customer service experience.
