Unless it’s an all-cash deal, most homebuyers use a mortgage to purchase property. There are lots of banking institutions that provide mortgages, including banks and independent organizations. Each has benefits and drawbacks.
What’s the difference between a mortgage company along with a bank?
A bank is a depository institution that typically provides several financial services, such as banking accounts, various loans — including mortgages — investing services, and much more. In comparison, mortgage brokers focus specifically on home loans for purchases and refinances, plus some offer home equity products.
Aside in the differences in product slate, banks often have more overhead to support branch locations (versus a mortgage lender that operates solely online, for example) and sometimes stricter compliance requirements. Substandard their mortgages are more expensive when it comes to interest rate, fees, or both and might take more time to approve.
On the other hand, mortgage lenders only offer mortgage loans — you won’t have the ability to do all of your financial business in one place if you use a lender on the bank.
Getting a home loan with a bank: Pros and cons
- Pro: All-in-one convenience – You can have your money, investments, and mortgage all with exactly the same bank, that make managing your money much easier.
- Pro: Discount potential – Oftentimes, banks offer discounts on loan origination fees or any other costs to existing banking customers or people who open a checking account and also have their mortgage repayments automatically withdrawn.
- Con: Less flexibility for borrowers with unique circumstances – The borrowed funds officer at the bank might possibly not have the specialized knowledge needed for certain mortgage programs, and the bank overall may have stricter underwriting standards which will make it more difficult to qualify if your application isn’t a neat fit.
Getting a home loan with a lender: Pros and cons
- Pro: Experience – Because mortgage brokers focus on only one kind of product, they’re more prone to have experience qualifying all sorts of borrowers in various financial situations. “The use of a specialized lender is a good idea when the homebuyer has atypical loan problems that would make approval for a mortgage loan more challenging,” says David Reischer, a genuine estate attorney located in New York. “For example, you aren't low credit scores or self-employed income would take advantage of the use of a specialized lender.” Bonus: This experience can also mean faster closings.
- Pro: Lower costs – Mortgage brokers might have lower rates and fees than banks, especially if the lender is definitely an internet company with lower operating costs.
- Con: Less human interaction – In case your mortgage is definitely an online-only company, you will possibly not be able to meet with a loan officer in person, and it could be harder to go into touch using the lender if you have questions. This can be a drawback if you’re searching for a more personalized experience.
Is one better than another?
Whether it’s better to work with a bank or mortgage lender depends upon your individual situation, goals, and preferences.
Some borrowers might take advantage of one within the other. For instance, real estate investors often use mortgage brokers for their expediency, specialized loan experience, and willingness to cope with unusual circumstances. Banks often are merely unable or willing to qualify borrowers like these that don’t fit conventional underwriting standards.
On the other hand, a typical buyer who already has accounts with a bank might benefit from getting their mortgage there due to convenience or the potential for relationship discounts (also known as “incentive pricing”).
Regardless which you choose, be sure to compare offers from the combination of at least three banks and mortgage brokers. That’ll help you identify the cheapest price.