Local Lenders vs. Big Banks vs. Online Lenders

What’s Best For Your Buyers?

When it comes to choosing a mortgage lender, modern buyers have more choices than ever. If you’re wondering which option to recommend to prospective clients, consider the following advantages and disadvantages associated with today’s available options.

Online Lenders

Pros

• Unlike brick-and-mortar institutions, online mortgage lenders usually operate without a ton of overhead. In turn, they can sometimes pass the savings onto customers by offering lower fees or interest rates.
• Application and processing times are much faster. In most cases, you can simply upload all relevant documentation to the lender’s website.
• While conventional USDA, VA and FHA loans have minimum credit score guidelines, an online lender may be more willing to grant a loan even if your credit is less than perfect.

Cons

• With a local bank or broker, you’ll probably have a much easier time getting help during business hours. With an online lender, it can be harder to get someone on the phone when you need attention.
• Since your quoted rates aren’t necessarily guaranteed, you might learn that your mortgage will be costlier than expected while already deep in the home buying process.
• You may end up paying extremely high interest rates if your credit isn’t up to par.

Local Lenders

Pros

• Local banks and credit unions offer greater responsiveness to their customers.
• Local lenders tend to be more flexible in their loan guidelines.
• Small lenders often focus on niches the big banks tend to pass over.
• Local banks are more familiar with local market conditions and will factor this information into your loan approval.

Cons

• Some small lenders may have cut back on their offerings, as they grapple with the challenges of new regulations
• Community banks may offer fewer financial products that could limit your selection.
• Some local banks have razor-thin profit margins that might make them wary of high risk loans.

Big banks

Pros

• Because they have entire compliance departments to help deal with new regulations, big banks may be more willing to back certain loans.
• Many big banks offer the full spectrum of loan products, which could give you a better option for your unique needs.
• Large banks aren’t likely to saddle you with so-called junk fees that could come from an online lender.

Cons

• Because they must efficiently process numerous loan applications, large banking institutions use rigid guidelines to help identify qualified borrowers with minimal fuss.
• Big banks may not fund the same specialized loans that could interest local or online lenders.
• You won’t get the same sort of personalized service you would at a local bank, and processing will take much longer compared to an online lender.

Which Should You Recommend?

When it comes to deciding on a mortgage lender, it all depends on what your clients value. If they want a deep menu of financial services, a big bank is their best bet. If, on the other hand, they prefer personalized attention and less stringent loan guidelines, local institutions make a lot of sense. If they value fast loan processing or have questionable credit, you might consider recommending an online lending operation.