If you want to buy a home, odds are that you’ll need a mortgage to help you afford it. If this is the case, here’s first question you’ll answer in your mortgage search: “Do I want to use a bank or non-bank lender?”
Many people assume that banks are the way to go. After all, who better to give you a loan than a corporation that holds literally trillions in assets? We’ll explain the flaw in that logic soon. But for now, let’s clear up what “non-bank” means. “Non-banks” might not be a financial juggernaut, but they’re also not your cousin Terry in Atlantic City. Quicken Loans is just one example of a “non-bank” that has plenty of heft in the mortgage world.
Here are four things to consider when debating between bank and non-bank lenders.
Will they even offer me a loan?
The truth is that big banks, for all the services they offer, are trying to get away from the mortgage business. This is a result of the mortgage crisis that occurred a decade ago, which had major implications for the U.S. economy. As a result, the government released intense new regulations for banks (and severe punishments for those who don’t follow them). The biggest banks try to play it safe by avoiding any risky loans that could get them in trouble under the Dodd-Frank rules.
Granted, getting a bank mortgage is still a possibility. But they’ll be less inclined to lend to “risky” applicants.
What do you mean by “risky”?
“Risky” could mean anything that makes you a less-than-ideal borrower. Maybe you’ve got less than perfect credit. Maybe you’ve got a lot of student loan debt. Maybe you’ve got lower income…or maybe you’ve got high income, but you’re self-employed.
None of these things will outright prevent you from getting a bank mortgage, but it could definitely make the process more laborious.
So what can a non-bank lender do to make the process less painful?
A few things! For one, a non-bank lender is a smaller institution than a bank, which means you’ll probably get more personalized service (and more attention in general). There are ways to deal with all of the “risky” qualities listed above, as long as you have someone to point you in the right direction. That’s where the “personal touch” comes in handy.
For example, non-bank mortgage brokers can guide you to many loan types that you may qualify for. Believe it or not, non-banks actually have more mortgage options than the bigger banks, because the “little” guys specialize in mortgage lending. These programs include FHA, VA, USDA, Fannie Mae or Freddie Mac loans.
Fewer clients also means non-banks are more readily available when you need clarification. Granted, some of the biggest non-bank lenders—again, Quicken—will also struggle to match a smaller lender for up-to-the-minute service, because of their size.
So does it take the bank less time to process a Preapproval?
Nope! You might think that a bigger machine would have a more established process, but unfortunately the recent regulations gunk up the gears. All of the requirements built into Dodd-Frank have resulted in a bureaucratic slog, which can result in weeks-long waits. Non-bank lenders can typically process your Preapproval within a few days.
If you’re ready to hit the housing market, a non-bank lender can help you keep that momentum.