Shopping for a mortgage for a new home can be a time-consuming and frustrating experience. This is especially true if you do not understand the differences between the mortgage lender and the bank’s role. If you are a first-time home buyer, you need to learn as much as you can about the distinctions between each.
So, let’s get started by discussing the following topics.
Two Types of Mortgage Lenders
There are two types of mortgage companies to make your selection from, direct lenders and brokers. Direct lenders are responsible for funding and originating their own mortgages. Brokers, on the other hand, are responsible for finding the best mortgage for the home buyer. Brokers will also charge a fee to do this work for you. Unlike the direct lender, these fees are not added to the cost of your mortgage.
Bank Mortgage
Bank mortgages are also direct loans, but they come from a bank or another type of financial institution. The eligibility for these loans is a lot harder to qualify for, and not as flexible as the mortgage lender.
Mortgage Lender Pros and Cons
Pros
Mortgage lenders can offer a variety of different mortgage programs and products. This is because these types of loans are a core part of their business activities. Mortgage lenders can also shop around for the lowest interest rates and the best terms for their prospective home buyers. Also, because mortgage companies specialize in this industry, they are usually the experts in finding the best program option for their clients.
The mortgage broker has access to a wide range of financial resources that they can access. This can be very beneficial for borrowers that have a low credit score, particularly since brokers can work with different mortgage companies to find the best terms and interest rates.
Cons
There are some drawbacks to using a mortgage lender that you need to know about. For example, you may not be able to meet with your mortgage lender face to face. Instead, you may be working through a broker to obtain the loan that you need online. Also, if you are working with a mortgage lender, you will have fewer chances to take advantage of perks like bundled accounts.
Banks
Pros
The primary role of the bank is to review the borrower’s history to determine if they are eligible to secure one of their loans. This is mainly because the bank requirements are a lot stricter for the borrower to meet. If you have any negative marks on your credit history, you may have a difficult time qualifying because they are not as flexible. The person that borrows the loan must meet strict guidelines and rules that the bank has previously laid out for all borrowers. In essence, there is little to no wiggle room for a borrower to negotiate the lowering of credit scores.
When you apply for a mortgage with a bank, you may be able to take advantage of bundled account perks. You may also qualify for the lowest interest rates available at that time. Based on your creditworthiness and other eligibility requirements, you may also qualify for a bank’s proprietary loan programs that many borrowers need and prefer.
Cons
Though the bank may be the best option for lower interest rates, there are some disadvantages to borrowing a mortgage from a bank. For instance, it normally takes longer for a bank to approve a home loan. Also, banks usually have fewer loan options for home buyers to make their selections from. The credit requirements for a bank mortgage are stricter than those of a mortgage lender so more people may be turned down.
Looking for a mortgage to buy a new home is a big decision that can be very stressful, so you need to learn as much as you can about the process of securing a mortgage before you go down that road. By doing your research in advance, you can determine which mortgage type is best for your personal situation.
