Four Different Types of Mortgage Companies and which one will offer you the Best Deal
Failing to Shop Lenders Is Expensive
According to the Consumer Financial Protection Bureau (CFPB), 77% of homeowners apply to only use one mortgage company, and nearly half of them do no comparison shopping at all. That can be expensive. CFPB’s research says that shopping can lower the consumer’s mortgage rate by about 0.50%. That is $1,250 per year on a $250,000 mortgage.
Since your home is typically the largest investment you will ever have, it’s wise to shop and compare. But there is more to finding a great mortgage company than finding the best deal. Each type of mortgage company offers distinct advantages that may align with your needs. Knowing what to watch for in a mortgage company can get you the best value and a good experience, too. Among the four different types of mortgage companies, NSH Mortgage is able to provide you with a home loan that best fits your needs.
Before You Shop for The Best Deal
The first step to securing a great mortgage is finding the right mortgage company. Most consumers involved in a real estate related transaction should seek for a lender’s assistance. These consumers include:
- First-time home buyers
- Investors looking to take on additional properties
- Homeowners that are looking to refinance
- Move-up buyers selling one of their properties and buying another
Often, homeowners jump right into the mortgage process and simply look for the best deal. It is important to understand that depending on your situation, the type of lending institution can be as important as finding the right company. As such, it can also be more advantageous to fully understand the different types of lending institutions.
Each Type of Mortgage Companies Offer Its Own Advantages
Mortgage companies are financial institutions that help families to secure home loans against residential properties. Regardless of the type of financial institution, there will always be a mortgage loan originator (aka a loan officer) involved in the mortgage process. The loan originator is involved in your loan application, they pull your credit, and they gather the necessary documentation for your mortgage. There are generally four different types of mortgage companies from which homeowners can decide which one best suits their financial plan.
Banks and mortgage bankers
Perhaps the most common of all financial institutions are banks. Banks get their profits from their investors and its own customers. Besides offering checking and savings and investment options, banks will often offer different types of mortgage loans for qualified borrowers. For most people, their local bank is the initial choice and possibly only financial institution they will ever do business with.
Credit unions are closely similar to banks, except that they belong to their respective account holders, also known as members. These institutions usually require membership and get their funds from their members. Similar to their bank counterparts, credit unions present a range of available services to their members such as depository accounts for checking, savings, and retirement. As with banks, credit union members will often use their institution as an one stop shop, obtaining their mortgage loans, as well as all their other banking needs at the exact same place.
A mortgage lender is a financial institution, that is similar to a bank, they originate and fund loans in their own name. Unlike banks and credit unions, some mortgage lenders only exist for the sole purpose of making loans against real estate. Many mortgage lenders do not service, or keep, their loans. But Instead, lenders sell their loans to banks or servicing companies.
These servicers then take on the job of acquiring payments on a monthly schedule. Mortgage lenders receive their money from banks, also known as investors. Unlike most banks and credit unions, some lenders do all of their own loan processing, underwriting, and closing functions in-house. They can take care of the entire procedure with internal staff. In-house operations shorten the duration involved with obtaining a mortgage loan.
A mortgage broker is a middleman between the homeowner and the bank. Mortgage brokers do not lend money directly. Brokers also have access to lenders, and to many different loan programs available. Sometimes, especially when your credit is not perfect, a mortgage broker can shop around to find a home loan that is not offered by a bank, credit union, or even a lender. If your home bank or credit union cannot approve you, your next step is to talk to mortgage companies and brokers.
Let’s Discuss How to Compare Types of Mortgage Companies
Which financial institution is the best choice for getting your mortgage loan? As is often the answer, it depends. The best place to obtain mortgage financing will differ from one homeowner to the next, according to their specific wants and needs at that time. For example, if getting your home loan finished up swiftly is imperative, it’s important to know just how long it will take to process your loan application.
In this scenario, a mortgage broker or lender may be a better option as they can typically close loans faster than banks or credit unions. If time is not an important factor, and you prefer to have all your financial accounts in one place, your local bank or credit union could be the superior choice. Credit unions may also have smaller costs and interest rates that they can offer to their members.
However, though some banks and credit unions can present smaller closing costs and interest rates, but they might not issue government-backed loans such as FHA mortgages or a VA loan. USDA home loan lenders may be even harder to find. If your situation calls for a government-backed loan, it’s important to understand that whether your bank or credit union can offer you with any types of government loans. If not, a broker or lender may be the better option for you.
Match Up Your Credit With The Right Type Of Mortgage Companies
Another important consideration comes into play if your credit is less than perfect, or if your DTI ratios are high. Banks and credit unions tend to have more conservative underwriting guidelines. As such, these institutions may not be able to approve your loan application. Lenders and brokers, however, tend to be more flexible in this area. Regardless of what company you choose for your mortgage financing, it’s vital that homeowners compare the best options regarding rates and fees. If your primary objective is simply to get the lowest closing costs and lowest rate, compare rates and closing costs on the same day. Interest rates and fees change daily.