So you’ve finally decided to take the plunge and buy your first home. You know you need a mortgage, but everyone you talk to seems to have a different opinion about who to contact for that. It’s nearly as overwhelming as the selection of homes you have to choose from. How do you know where to start?
Here at Homestead Financial Mortgage, we like to help educate our customers on the home-buying process. That means making sure they know what their options are and are comfortable with the process. Here’s a short primer on the differences between a bank and a mortgage lender.
Let’s Start with the Basics
Mortgage lenders come in all shapes and sizes. Your local bank is a mortgage lender. So is the credit union down the street. And the mortgage company on the other side of town can provide you with a mortgage, too. Let’s start by defining the term mortgage lender.
The term “mortgage lender” is actually a category that encompasses several different financial entities. A mortgage lender is an institution that loans you money to buy a house. Of course, you’re expected to pay the loan back with interest. That’s a given. But the basic idea is that a mortgage lender makes it financially possible for you to buy a new home. Simple enough, right?
Your Bank is a Mortgage Lender
Your local bank is a mortgage lender. If you meet the debt to income requirements and fit within their lending guidelines, your bank will make you a loan so you can buy your first house. But that’s not the only thing a bank does. Banks also provide other financial services to both consumers and businesses. Checking and savings accounts, automated teller services, and online bill payment services are good examples. In other words, mortgages are not your bank’s first or only priority. And while you may be able to get a good deal on the interest rate or length of term on a mortgage if you have a long-standing relationship with your local bank, processing your mortgage will take a backseat to other financial services. That’s just the way banks work.
While your bank may make the loan to you, it may not keep the loan on its books. Many banks do service their own loans, but others sell their mortgages to third-party loan servicers. When this happens, it doesn’t change the terms of the loan, but you will be making payments to someone else – someone you probably have never heard of. So much for that long-term relationship.
The Local Credit Union is Also a Mortgage Lender
The credit union down the street may also be willing to give you a mortgage, but you have to become a member of the credit union first. Credit unions are not-for-profit organizations, and you have to be invited to join, kind of like a country club. Credit unions are affiliated with a designated sub-segment of the population, i.e., teachers or employees of a specific company. Every credit union has its own set of “owners.” This makes it more challenging to get started, but if you can get in, the credit union may be able to offer you decent terms on a mortgage.
The Mortgage Company Across Town Might Be Your Best Bet
Mortgage companies are direct lenders, meaning they originate the loan, fund it themselves, and then carry the loan on their books, servicing it over the entire life of the loan. Mortgage companies specialize in loaning money to people so they can buy a new home; that’s all they do. So when you work with a mortgage company, you’re likely to have access to more options and different types of loans than if you went through a bank or credit union. Mortgage companies handle the entire transaction from pre-approval to the underwriting process and beyond. You’ll even make your payments to the mortgage company. It’s a one-stop shop for mortgage loans. And that makes it easy for potential home buyers, especially if this is your first time through the process.
Working with a mortgage company rather than a bank or credit union can be a significant advantage for home buyers. With a mortgage company, you know you’re working with experienced professionals; mortgage loans are all they do. This means they can work more quickly and get your mortgage processed faster. In today’s fast-paced real estate market, that’s a huge bonus. Many houses that are listed are here and gone before first-time buyers can get themselves organized and pre-approved through a bank. Mortgage companies streamline the process, giving buyers a better shot at getting the home they have their heart set on.
So Which Is Better for You?
You’ll have to decide for yourself which type of mortgage lender is right for you. Banks, credit unions, and direct mortgage lenders can all get the job done. The question is whether they’ll get it done fast enough for you to get the house you’ve picked out. Mortgage companies have a distinct advantage in this category because mortgages are all they do. They also have an edge when it comes to unique situations like rental properties or multi-family units. Mortgage companies have access to many mortgage products and can satisfy the needs of most mortgage hunters. They’ve seen it all…and they know how to structure a deal to fund it.
A mortgage needs a personal touch without hurting efficiency. The mortgage banker, due to its primary focus being on mortgage is uniquely positioned to provide that service at the same price as a bank. If you want to learn more or reach out to us, please feel free to do so here.
Homestead Financial Mortgage Wants to Be Your Mortgage Company
At Homestead Financial Mortgage, our goal is to help you get into the home of your dreams, whether you’re a first-time home buyer, you’re expanding and upgrading to a larger home, or you’re downgrading now that the kids are in college. We’ll help you find the best interest rate and terms. Stop in and see us today to get started. You’ll find our branches in St. Louis, MO; Overland Park, KS; Glen Carbon, IL; and Godfrey, IL. We’re always happy to answer your questions and help you get pre-approved for a mortgage without hassle. You’ll be moving into your new home in no time!