Is It Better to Get a Mortgage From a Bank or a Lender?

When seeking a mortgage, individuals choose between traditional banks and specialized mortgage lenders or brokers. Both offer distinct models and varying experiences. Understanding their differences is essential for an informed decision. This article explores the characteristics of banks, mortgage lenders, and brokers, comparing their offerings to clarify this financial decision.

Understanding Banks as Mortgage Providers

Traditional banks, as depository institutions, offer various financial services beyond mortgages, including checking, savings, and investment products. For mortgages, banks typically use customer deposits to originate loans. This integrated structure allows banks to offer mortgages as part of a broader financial relationship with their customers.

Banks offer common mortgage products like conventional, FHA, VA, and sometimes jumbo loans. Underwriting is centralized, adhering to the bank’s specific internal policies and regulatory requirements. Customer service involves loan officers within a larger branch network, leveraging existing customer relationships.

Understanding Mortgage Lenders and Brokers

Mortgage lenders are non-depository institutions specializing in originating and funding mortgage loans. They access various funding sources, including warehouse lines of credit, and typically service or sell the loans. Their business model focuses entirely on mortgage origination, leading to specialized processes and product offerings.

Mortgage brokers do not lend directly but act as intermediaries between borrowers and multiple wholesale mortgage lenders. Brokers assess a borrower’s financial profile, matching them with lenders whose products and rates fit their needs. Brokers typically earn a commission or fee for facilitating the loan connection. Lenders and brokers offer a wide range of loan products, including conventional, FHA, VA, USDA, and various portfolio or niche programs, often specializing in specific financing types.

Comparing Mortgage Offerings

Interest Rates and Fees

Comparing interest rates and fees is a primary consideration, as they vary significantly based on the provider’s business model and funding sources. Banks may offer slightly higher rates or fewer competitive terms, especially when funding from their own balance sheet and maintaining the loan in their portfolio. Mortgage lenders often offer more competitive rates by leveraging diverse funding channels and specializing in loan origination. Brokers, with access to multiple wholesale lenders, can shop for the most favorable rates and terms, potentially passing those savings to the borrower.

Loan Product Variety

Loan product variety differs among providers. Banks often provide standard conventional, FHA, and VA loans, plus proprietary portfolio products. Mortgage lenders frequently offer a broader spectrum of specialized programs, including options for unique financial situations or non-conforming loans. Mortgage brokers excel in product variety by accessing diverse offerings from numerous wholesale lenders, including niche programs or alternative qualification criteria.

Underwriting Flexibility and Speed

Underwriting flexibility and speed vary among providers. Banks, with larger, structured departments, may have a more standardized and slower underwriting process due to internal policies. Mortgage lenders, focused solely on mortgages, may offer a more streamlined and quicker underwriting process, sometimes completing approvals in days or weeks. Brokers can contribute to speed by matching borrowers with lenders known for quick approvals, though the ultimate speed depends on the chosen lender.

Customer Service and Application Process

Customer service and the application process also differ. A bank might offer the convenience of an in-person application at a local branch, allowing direct interaction with a loan officer and integration with existing banking relationships. Mortgage lenders often provide a technology-driven application process, with online portals and dedicated loan officers. Brokers typically offer personalized service, guiding borrowers through the application process and acting as a single point of contact while navigating multiple lender options.

Selecting Your Mortgage Provider

Choosing the right mortgage provider begins with a thorough assessment of your personal financial situation and lending preferences. Consider the type of loan you need, your credit profile, the urgency of your timeline, and your comfort level with digital versus in-person interactions. Your existing relationship with a financial institution might influence your initial consideration, but it should not be the sole determining factor.

Gathering multiple quotes from both banks and mortgage lenders or through a mortgage broker is a significant step in the decision-making process. This allows for a direct comparison of interest rates, annual percentage rates (APRs), fees, and overall loan terms. Requesting a Loan Estimate form from each prospective provider is important, as this standardized document details the estimated interest rate, monthly payment, and closing costs associated with the loan.

Carefully review the Loan Estimate for key figures such as the origination charges, third-party fees, and any lender credits that might offset closing costs. Beyond the numbers, consider the overall experience during the application process, including the responsiveness of the loan officers and the clarity of communication. A provider who offers clear explanations and prompt assistance can significantly ease the mortgage journey.

Citations:
https://www.forbes.com/advisor/mortgages/mortgage-lender-vs-bank/
https://www.investopedia.com/mortgage-broker-vs-bank-vs-lender-4796937
https://www.nerdwallet.com/article/mortgages/mortgage-broker-vs-bank
https://www.consumerfinance.gov/owning-a-home/loan-estimate/