Your dream of buying a house is made possible by getting a mortgage.
A mortgage is a type of loan used specifically to pay for the purchase of a real estate property. Houses in the United States, especially in big cities and towns, are not cheap. A typical home in New York state, for example, goes for about $322,000. In California, the median price for a house is $555,000.
Of course, how much you would need to invest to own a house varies wherever you want to settle down. However, anywhere you go, you would need a lot of money to become a true homeowner.
A mortgage does that for you. If you think you are ready to buy a house, the next task in your to-do list should be to check out what mortgage companies around you offer.
You have the option to take out a loan from massive financial institutions, but you should not overlook small lenders. Here are some ways that your local loan provider remains competitive in the face of big banks.
What Big Banks Do Better
As an adult, you most likely already have a long-term relationship with a bank. Many banks have special offers available exclusively to existing clients.
Some tie other financial products, like a credit card or specific saving accounts, in exchange for mortgage deals that benefit the borrower and maximize the bank’s revenue.
Moreover, with a bank, there is an assurance that you are transacting with a trusted brand and you would not lose your money or everything you own. You would not have to worry about falling victim to predatory lending since you probably already know the banking staff. You will have peace of mind knowing that a large financial institution can weather any crisis.
Cons of Borrowing from a Bank
However, of course, there are downsides to taking out a home loan from a bank. First, you have to adhere to very strict lending standards. They follow federal compliance and reporting laws. Even if you have been with a bank for a while, if your credit history is not flawless and you have a negative financial experience, you may find it more challenging applying for and be approved for a loan.
There is also often a long period of closing time compared to small-time lenders. If you need the money as soon as possible, you are out of luck. You would have to wait for a while before you get the money you borrowed.
What Small Lenders Do Better
This is when small mortgage lenders swoop in. They offer everything that a bank cannot.
Since banks require more from their clients, dedicated mortgage lenders can be lenient. That is because these lenders are less strictly regulated. They can be flexible with the loans they offer to customers.
Customers who would not be approved by a bank, such as those who are self-employed or have a rocky financial past, may receive loans from small mortgage lenders.
Often, lenders are more knowledgeable. Agents in mortgage lending businesses have undergone several related courses, training, and exams. They can make recommendations that are more apt to the borrower’s situation.
Sometimes, small mortgage lenders offer lower interest rates and fees which would mean savings over time and smaller upfront expenses. However, there is no guarantee that small mortgage lenders have overall better terms than big banks. Prospective homeowners who want the lowest mortgage rate possible should shop around.
Moreover, you can expect better customer service than big banks. No more waiting on the phone to talk to an agent for hours. Because these places employ fewer people, you are much closer to the top, meaning your concerns will immediately be addressed without being passed from one department to another.
Small Mortgage Lenders Increase Market Share
Small mortgage lenders may not have millions of dollars in marketing budget, but their flexibility and superior customer service have helped them compete with big banks. For years, small mortgage lenders have increased their market share.
As of 2017, non-bank lenders dominated the home loans market, pushing the biggest banks in the United States to the fringes.
Cons of Small Mortgage Lenders
Of course, going to small mortgage lenders have disadvantages. Some may sell a customer’s loan to another service after closing. This will not affect the terms nor the rates, but the customer would not be transacting with the same business they signed with.
The best way to find the lowest mortgage rates around is by checking out what everyone has to offer. All lenders have advantages and disadvantages. It is up for the consumers to see which one they should go with.