When considering refinancing (or getting a home loan for the first time), you might wonder whether you should use your bank or a non-bank broker, like me, for your home loan. They both have advantages, and you should consider both.
When/Why a Non-Bank Broker/Lender is Better-
Most people will think of their bank first when considering a loan. So the advantage of a non-bank lender is that they are willing to compete for your business, which is a good thing. There are other advantages:
• Rate/Fee Advantages: It’s true that roughly the same rates are offered by banks and non-banks, but lenders have a bit more flexibility in reducing rates offered or fees charged. That flexibility comes from several factors, but mainly has to do with the lack of red tape that lenders have to go through to make exceptions. Bank policies are quite rigid, with any changes requiring approval from corporate headquarters, and no guarantee they’ll approve them.
• Motivation/Service Advantages: Most bank loan officers are paid a salary with an insignificant bonus or commission. This means that as long as they fulfill their minimum job requirements, they get paid, and there’s no real upside for going beyond that. That translates into less willingness to proceed when there are obstacles (credit issues, income problems, etc.). It might also mean poorer service, because if the loan doesn’t close, it doesn’t affect the bank loan officer much. Conversely, if a non-bank broker, like me, doesn’t close a loan, I don’t get paid. That drives me to go above and beyond, increases the chance that the loan will be closed, and provides for a better experience for the borrower. It also drives me to be better at my job.
• More Available Products: Banks do a lot of things: they’re depositories, car loan issuers, credit card lenders, etc., and therefore can’t spend all of their time and energy developing their mortgage side. Lenders, on the other hand, only do mortgages, so they focus their time and resources and those products and options. Brokers, especially, can often find an investor that will fund a loan when a bank can’t or won’t do it in-house.
• Borrowers whose credit isn’t as good: Most banks don’t like to deal with non-AAA credit borrowers.
When/Why a Bank is Better than a Broker/Lender-
Besides having your loan in the same place where your checking account is, there are some ways where local banks and credit unions have advantages:
• Home Equity Lines of Credit: Also known as HELOCs, credit unions usually offer better rates and terms for these types of loans than lenders/brokers.
• Really Weird Loans: Local banks and credit unions have their own portfolios (because they are also a depository), which allow them pretty much full discretion on how they want to lend that money. A borrower that has a good, established relationship with a credit union and has a very specific lending need (for instance, can I get a loan against my boat and my cabin at the same time?), would likely have more luck with a credit union.
• Super-Prime borrowers: Borrowers with 800+ credit scores, 25%+ equity in their homes, loads of reported income, and no debt can sometimes get better rates or terms from a local bank. But keep in mind that if a lender or broker wanted to, they could often out-do a bank for these types of loans!
So when you’re considering where to go for your loan, remember the advantages for both banks and non-bank lenders. If a bank is right for you, go for it. But don’t forget that a non-bank broker (like me!) is going to go above and beyond to make sure you close on the best loan you can get.
