Considering the high cost and long-term commitment of a home loan, picking the right bank or a mortgage lender is one of the most important decisions you’ll make in your life. But with so many types of companies and lenders to choose from, it’s understandable if you feel confused or intimidated.

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In this guide, we’ll help you understand the main differences between a bank and a mortgage company. We’ll also help you decide which one is better for you

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Differentiating Banks vs Mortgage Lenders

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Banks

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Banks are federally or state chartered financial institutions. They typically offer several financial products, such as business loans, checking and savings accounts, auto loans, mortgage loans and more. Examples of large banking institutions include JPMorgan Chase and Wells Fargo.

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Banks are regulated and audited by the Federal Deposit Insurance Company (FDIC) and/or the Office of the Comptroller of the Currency (OCC). One advantage of taking out a mortgage from a bank is that they may originate and service loans. This means that after closing, you make payments to the same bank that granted your mortgage.  Banks also sell loans to other institutions after loan closing, meaning you may make payments to another institution after sale/transfer.

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Mortgage Companies

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Mortgage companies are regulated by individual states, based on where they are licensed by the state. Examples of non-bank lenders include Wesley Mortgage, Quicken Loans and Better Mortgage.

These mortgage lenders are often less conservative than banks, so they can be flexible with their qualifications and may offer loans to people with lower credit scores. They may even offer jumbo loans, which are mortgages with larger loan amounts.

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Since mortgage companies only offer real estate secured loans, they usually have streamlined processes. You may be able to close your loan faster if you choose them over banks.

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Still, keep in mind that mortgage companies may sell your loan to a mortgage investor after closing. Mortgage lenders do this to recoup the entirety of the funds that they had lent to you so they have the funds to make more mortgage loans. The largest mortgage investors include Fannie Mae and Freddie Mac.

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If a mortgage lender sells your mortgage, this means that your payments will then be made to another institution after sale/transfer. There’s no need to worry though since the documents you signed with your original lender are still legally binding. This won’t affect the interest rate, terms, or fees of the loan.

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How To Choose A Mortgage Lender

Choosing the right mortgage lender isn’t just about picking the one that offers the lowest interest rate. The financial institution that’s best for you will depend on your unique situation and financial goals.

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Is A Mortgage Lender Right For You?

Mortgage companies can customize loan products depending on your needs and financial situation. If you have a low credit score, you’ll have better luck finding a mortgage lender that’s willing to approve your loan rather than a bank.

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Mortgage lenders may have an office or branch nearby if you prefer a face-to-face meeting or the mortgage lender may offer online applications. 

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Frequently Asked Questions

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Who are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are federally chartered mortgage companies established by the US congress. They buy and guarantee mortgages issued by lenders. Thanks to Fannie Mae and Freddie Mac, banks and mortgage lenders can easily recover the money that they had lent to you.

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What is a home loan servicer?

A mortgage servicer is a company that sends mortgage statements, collects mortgage payments and handles the administrative tasks related to your mortgage loan. Compare this with a direct mortgage lender, which is the institution that loans you the money itself. In some cases, a company is both the direct mortgage lender and the servicer, or the mortgage company that owns your mortgage loan may have a third-party servicer performing those functions.

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Final Thoughts

Both lenders and banks come with their unique set of pros and cons. Pick the financial institution that fits your unique financial needs and situation. Aside from comparing interest rates, make sure to check fees and closing costs as well.

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If you need help looking for a company to finance your mortgage, get in touch with Wesley Mortgage! We have a knowledgeable and friendly team who can review your mortgage loan options with you.