Summary: This article explains the different places where you can get a mortgage loan. It covers small banks, major lenders, credit unions, and the pros and cons of working with a mortgage broker.
A recent report suggests that smaller lenders are taking market share from the ‘big dogs.’ According to Inside Mortgage Finance, an industry newsletter, the combined market share of the five biggest U.S. lenders has fallen from nearly 66% in 2010 to 53.2% currently.
What’s driving the trend? For one thing, smaller lenders are often more competitive with their rates and fees, and more flexible with their approval criteria.
According to Brian Hale, CEO of Stearns Lending Inc:
“When the big guys get backed up, they have a tendency to raise their price, to slow down volume. And that gives other lenders an opportunity, because the consumer thinks, ‘Why would I pay an extra $100 a month?’”
Financing Options: Where to Get a Mortgage Loan
When shopping for a home loan, it’s important that you explore all of your options. This will greatly improve your chances for getting approved. It will also help you find the best mortgage rate possible, given your qualifications as a borrower. Here are some of the places where you can get a mortgage.
Big Banks Versus Small Banks
When I mention the word “bank,” you probably think of the big-name lenders you see all over town. This would include Bank of America, Wells Fargo, Citi, Chase, etc. You can certainly apply for a mortgage loan through one of these Fortune-500 lenders. But you should also expand your search beyond the big guys.
Brian Hale, CEO of Stearns Lending, said his company’s rapid growth is partly due to their ability to be more aggressive and competitive than the bigger banks.
So, for best results, you should broaden your search to include smaller banks as well. This includes local, state and regional banks, as well as the lesser-known national mortgage lenders. In many cases, smaller banks are more flexible with their lending practices. They often qualify borrowers the bigger banks turn away. You may also find you can get a better interest rate from a smaller bank than a big one.
Let me give you an example from my own experience:
A few years back, I applied for a mortgage loan through Bank of America. My wife and I both had excellent credit scores, steady employment, and sufficient funds to cover the down payment and closing costs. But Bank of America wanted us to have additional “cash reserves.” Specifically, they wanted us to have six months worth of mortgage payments in the bank. This ended up being a deal-breaker, and the loan eventually fell through.
Our real estate agent recommended a bank we had never heard of before, a company called PrimeLending. We called them the next day and spoke to a loan officer to explain our situation. He took a look at our credentials and could not imagine why Bank of America would turn us away. He explained that his company did not have cash-reserve requirements for VA borrowers (we were using the VA loan program at the time).
Long story short, we were approved by the smaller lender two weeks later. We also ended up paying less money in closing costs than if we had gone with Bank of America.
This illustrates the key point of this lesson. There are many places where you can get a mortgage loan. You shouldn’t be married to just one source. Explore your options to see what’s out there. It takes time, but it almost always works out to your advantage in the end.
Talk to Your Current Bank or Credit Union
Do you currently have a relationship with a bank, perhaps for a checking or savings account? What about your car loan? Which bank did you use for that? Are you a member of a credit union? This is another place where you might be able to get a mortgage loan. Contact your bank to see if they offer home financing.
Working with your existing bank can have several benefits. They may offer you a better rate than other lenders, since you are an existing customer. The application process might be more streamlined and efficient. And what’s not to like about speaking to a loan officer face to face? It’s better than dealing with someone by phone, fax and e-mail.
Consider Joining a Credit Union
Not all credit unions offer mortgage loans. But many of them do. More importantly, credit unions are often easier to deal with than the major commercial banks.
“The credit unions have emerged as fairly aggressive,” said Guy Cecala, publisher of Inside Mortgage Finance. “Mostly that’s because they’ve decided it’s a good use of their assets.”
Most credit unions serve members who fall into a certain group or category. For instance, there are credit unions for people who work for certain corporations, or in certain industries. Local or community credit unions (and there are hundreds of these across the country) cater to people who live in a certain county, city or town.
You may be eligible to join one without even realizing it. So do some research. Visit MyCreditUnion.gov for starters.
Consider Using a Mortgage Broker
A mortgage broker is like a middleman between the borrower and the lender. Brokers typically work with several different lenders, which can be an advantage for you as a borrower. This may give you access to a broader range of lenders and loan programs, thereby improving your chances of approval. So this is another place where you could find a mortgage loan.
According to the Wall Street Journal, “a broker may be able to access loans from out-of-state or specialty lenders that, even if they include additional closing costs will still beat a bank’s offer.”
When dealing with the broker, find out who pays his or her fees. In some cases, the lender will pay the broker’s fees out of their own pocket. Other times, they pass the cost along to the borrower in the form of closing costs.
You also need to make sure the broker is not steering you into a loan program that benefits him but not you. This was a big problem during the housing boom. But new federal laws are clamping down on it somewhat. Just ask plenty of questions and be your own advocate during this process.
Tapping Your Social Network
Do you have a family member, friend, or coworker who bought a home recently? If so, you should ask where they got their mortgage and what the experience was like. This could open your eyes to a lending option you wouldn’t have considered otherwise.
Remember the story I shared earlier, about being turned down by one bank and approved by another? This is a prime example of why you should ask around. After we went through the mortgage process, we had some friends who were in a similar situation. We gave them the name of the loan officer who helped us, and he was also able to help them get a loan. Are you on Facebook? If so, tell everyone in your network that you’re currently shopping for a mortgage. Ask for their suggestions.
As you can see, there are many places where you can get a mortgage loan. The purpose of this article is simply to open your eyes to the many possibilities. Don’t limit yourself to the ‘big five’ lenders. Give them a try if you like, but don’t stop there. See what kind of a deal you can get from a smaller bank or credit union, as well.
Explore your options. If you are a well-qualified borrower with good credit, manageable debt, and steady income, you should be able to find a willing lender.