For most buyers, the first step in purchasing a home is to secure financing. With so many choices of lenders available it can sometimes be a bit daunting to know quite where to start. To help you decide which lender might be right for you, we’ve outlined the three main types together with their respective strengths and weaknesses:
1. Retail Banks, Savings & Loans, and Credit Unions
Banks with retail offices are direct lenders; that is, bank employees review your application and make the decision to lend you money. They gather the funds from their customers through checking and savings accounts and use them to make loans. When these institutions make a mortgage loan, they may decide to hold it in portfolio or sell it to secondary market investors.
Benefits:
• Reliability: You probably know and trust your local bank. It is regulated by state and federal agencies.
• One-stop shopping: You deal directly with the source of your loan.
• Regular customers of the bank, especially those with several accounts and a longer history, might receive special consideration in terms of the rate or other financial aspects.
Risks:
• Direct lenders are captive to selling their own products so they are more limited in what options they can offer and their advice is more biased.
• Banks do not require their mortgage specialists to be licensed.
• If your loan is declined for whatever reason, you will need to begin the whole process over again with another source and your property purchase might be jeopardized.
• Usually bank employees are only available during regular business hours.
2. Mortgage Broker
Mortgage brokers do not lend. They are independent contractors who offer the loan products of multiple lenders, called wholesalers. The broker’s goal is to match you with the loan product that best meets your needs at the best price.
Benefits:
• A broker saves you time by shopping across a range of different programs and lenders.
• You may get a more favorable loan.
• A mortgage broker can best steer you to the lenders that are most likely to accept your application based on your financial and personal information.
• If your loan is declined, the mortgage broker can immediately reapply with another source.
Risks:
• Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan or obtaining the mortgage from the financial institutions that pay the highest commissions.
• Mortgage brokers are middlemen so have very little control over the approval process so there is little recourse when issues arise.
3. Mortgage Bankers
Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, a mortgage banker might retain the mortgage in portfolio, or they might sell the mortgage to an investor.
Benefits:
• Mortgage bankers can sell a variety of products, from multiple sources and can be more objective in their recommendations.
• More favorable loan rates and programs
• Mortgage Bankers take the loan from start to finish. Underwriting is done in-house so there is greater problem solving capability if problems arise and the loan approval process is more streamlined.
• If one lender doesn’t approve your loan, you can quickly reapply with another.
Risks:
• May not be as competitive in interest rate as some large national banks.
We are happy to make referrals to several reputable lenders that we work with on a regular basis however we always encourage our clients to do a little shopping around. Often choosing the correct loan professional can be more important than the institution or even the rate. Low rates don’t mean anything if the loan doesn’t close. In today’s complex, competitive and fast-paced real estate environment, where pre-approvals need to be generated at a moment’s notice, buyers are competing against all-cash offers and most transactions require out-of-the-box problem solving, having a responsive and experienced loan professional on your side is key to a successful purchase.
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