When it’s time to get a mortgage, there are any number of places you can shop: Credit unions, online lenders and big banks are all options.
In this article, we’ll take a look at why big banks are probably the worst choice out there when you’re looking for a mortgage. We’ll also suggest some alternatives that might make more sense for your wallet.
Big Banks Are Far From the Best Place to Get a Mortgage
Money expert Clark Howard has long had a bias against big banks for a variety of reasons: high fees, poor customer service and puny interest rates on your savings, among others.
But there’s a special place of dislike in his heart for big banks when it comes to mortgages.
“Banks are so unbelievably inefficient as operations. So the mortgage market is being taken over by non-banks like Quicken Loans and others,” Clark says. “Non-banks run so much more efficiently than banks that they can make a nice profit charging less on a mortgage than a lumbering, giant bureaucratic bank.”
Non-Bank Alternatives to Big Bank Mortgages: Table of Contents
- Credit Unions
- Online Lenders
- Mortgage Brokers
- Mortgage Bankers
- How Much Can You Save by Shopping Around?
Years ago, credit unions weren’t the best place to look for a mortgage. But that was then and this is now. Today, credit unions are a great source for mortgages, especially if you’re looking for something more creative.
Credit unions make sense particularly for shorter-term loan or mortgage refinances like seven years, 10 years and 15 years. Many have low or no closing costs in return for bumping up the interest rate just a bit.
“When it comes to mortgages, the difference between a credit union and a bank is the credit union wants you to get out of debt, while the bank wants you to stay in debt,” Clark says. “So credit unions do more creative products with the whole design being to get you debt free instead of paying the bank forever and ever.”
Online lenders simplify the process of shopping for a mortgage by letting you securely and easily share your financial info to get a quote. Some may offer you the opportunity to lock in your interest rate for up to three months.
You can get a quote today for a mortgage with any of these providers:
A mortgage broker is a salesperson who shops your mortgage application to multiple lenders. Many lenders don’t have salespeople on staff, so mortgage brokers act as a bridge between borrowers and banks. But there are things to consider before using a mortgage broker.
The pros of using a mortgage broker include the fact that they can shop unusual loan situations to lenders. For example, a self-employed person going for a mortgage who has a different level of income each year.
“Behind the scenes, a mortgage broker tells lenders, ‘Look, I know this client doesn’t fit your typical customer profile, but here’s why I think they’re right for your portfolio…’ Clark says. “They basically pitch your loan to different people and market you as a borrower.”
The cons of using a mortgage broker are that they may make promises they can’t keep, since they’re not the lender. Those promises could be about the interest rate or they could be about the funding for the loan itself. Because they don’t actually have the money, they can’t guarantee you’ll be successfully underwritten for a mortgage.
But here’s the nice thing: A mortgage broker doesn’t make money if your loan doesn’t go through. So your interests and their interests are aligned.
How can you find a mortgage broker? Most first-time homebuyers get a referral from their real estate agent, or maybe they have a friend who’s gone through the home buying or refinancing process already and they ask them who they used.
The terms “mortgage broker” and “mortgage banker” were once used interchangeably, but there’s an important difference between the two you need to know about.
A mortgage banker, unlike a broker, actually makes loans because they have access to funds. A mortgage broker, as explained earlier, does not.
So a mortgage broker will shop your loan application far and wide, but they can’t underwrite you themselves. A mortgage banker won’t shop your application at all because they exclusively want to — and can — underwrite that loan for you. Each has its own merits and Clark suggests you look at both when you’re shopping for a mortgage.
How Much Can You Save by Shopping Around?
Even a difference of less than a full point in your mortgage interest rate from one quote to another can make a big impact on your finances in the long run.
On a $250,000 mortgage, shopping around can really save you big bucks. New numbers from Freddie Mac show that the savings can be in the thousands over the life of the loan!
The numbers you see below were crunched using data from mortgages taken out between 1995 and 2017.
|Number of quotes||10% Percentile Savings||90% Percentile Savings||Average Savings|
You can save thousands of dollars on a mortgage with just one simple tip: Shop around for a mortgage quote!
Too many people stop at one lender when they’re getting quotes for a mortgage. That’s a bad idea.
Shopping around and getting multiple quotes is an easy way to save big bucks over the lifetime of a loan.