Working with a bank isn’t the only way to get a home loan. A nonbank lender can be an excellent alternative to a full-service bank.
Getting a Mortgage Through a Bank
A full-service bank is a federally chartered financial institution regulated by the Federal Deposit Insurance Company, or FDIC. Banks offer a variety of financial products, including mortgages, checking and savings accounts, personal loans, credit cards and retirement accounts.
Banks issue home loans through Freddie Mac, Fannie Mae, the Federal Housing Administration and other federal agencies. Since they must meet federal guidelines, banks typically have strict requirements for approval.
Large banks generally service their own mortgages. If you take out a loan through a bank, you’ll most likely send your payments to that company.
Getting a Mortgage Through a Nonbank Lender
A nonbank lender is a company that specializes in providing home loans. Mortgage companies are regulated by individual states. They have access to a wide range of loan products offered by numerous companies, including large banks.
Loan originators who work with mortgage companies must receive extensive training and pass exams. Those requirements don’t apply to loan originators who work for banks. Since they’re less strictly regulated than banks, mortgage companies have more flexibility. They can approve borrowers with lower credit scores or a history of foreclosure or bankruptcy.
Nonbank lenders typically sell their mortgages to other companies that service the loans. Changing a loan servicer doesn’t change the terms of a mortgage. It just means that the borrower sends payments to a different company and contacts that company to ask questions or resolve problems.
How to Find the Right Lender for You
Taking out a mortgage through a bank where you already have one or more accounts can make it easy to manage your finances, but you might not get the best terms available. Both banks and nonbank lenders will consider your income, debt, credit scores and other individual factors. You won’t necessarily get a lower interest rate from one type of institution versus another.
Banks sometimes offer mortgages with favorable terms to customers who already have accounts with them, but banks tend to charge higher fees than nonbank lenders. If you work with a mortgage company, you’ll have more options than you would find with a full-service bank. That can be particularly advantageous if your financial circumstances are less than perfect.
Companies that only offer mortgages can typically process applications and close loans faster than full-service banks can. If you need to meet a tight deadline, you might be better off with a nonbank lender. Many mortgage companies are online-only institutions. If you want to go to a physical location and meet with a representative in person, a bank will be a better choice.
Your unique circumstances will determine what options are available to you and what terms you’ll be eligible for. Shop around and request quotes from several companies, including both banks and nonbank lenders.
