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Are Mortgage Companies Banks?
A mortgage is likely the largest loan you’ll ever take out in your lifetime. With so much at stake, it’s important to understand the key differences between mortgage companies and banks when choosing where to get your home loan. While both offer mortgage products, there are distinct contrasts in services, interest rates, approvals, customer service, and regulations.
The main difference between mortgage companies and banks lies in their services and focus. Mortgage companies specialize solely in originating, underwriting, and funding residential and commercial mortgage loans, often providing faster service, competitive rates, and more flexible programs. Banks offer a broader range of financial services including mortgages but also checking accounts, credit cards, personal loans, and investment products.
Remember, just because you’re getting a loan from a mortgage company doesn’t mean it’s without risks. We’ll explain some of the caveats so you can get a better glimpse of how they work.
What Is a Mortgage Company?
A mortgage company is a non-bank financial institution that specializes in originating, underwriting, and funding residential and commercial mortgage loans.
What Are the Different Types of Mortgage Companies?
There are multiple types of mortgage companies. Each of them has a unique trait to aid you in the lending process:
Mortgage Brokers
Mortgage Brokers act as a liaison between the borrower and the bank. However, they don’t directly lend money. They are a good choice if you have little or bad credit because they will look for loans not offered by banks.
If you’re a homeowner with limited credit or a special income type, then seek out the assistance of a mortgage broker. They have access to multiple loan programs and lenders, so you’ll be able to sign a mortgage.
Mortgage Lenders
Mortgage Lenders are financial institutions that take out the loan in their name. Unlike banks, their sole purpose is to make loans regarding real estate.
They don’t keep the loans, but they do sell them to third parties. That way, the third party collects the loan payments each month. Investors and banks give the mortgage lenders money to run their services.
Mortgage lenders do most of the loan process in-house. With their staffing team, mortgage lenders are able to complete the loan process on their own. Since the lenders have in-house operations, it speeds up the loan process.
Banks
Banks are the most common financial institution. They provide checking/savings accounts and offer mortgage loans for qualified borrowers.
Credit Unions
Credit unions are different from banks because members own the accounts. They require a membership to use them and receive funding from the members.
If this is your first time taking out a mortgage loan, check to see which institution works best for you. If you have bad credit, a mortgage company is a good option. Banks will allow you to sign loans with a reduced interest rate for those with good credit.
What Is a Bank?
A bank is a financial institution that accepts deposits, offers checking and savings account services, and makes various loans like mortgages and credit cards. Banks are regulated by state and federal agencies.
How Do Mortgage Companies and Banks Differ?
While both banks and mortgage companies offer home loans, there are some notable differences between the two:
1. Services Offered
Mortgage companies focus almost exclusively on mortgage lending services. They have a wider range of loan programs and specialized expertise.
Banks offer a full suite of financial services like checking accounts, credit cards, personal loans, and investment products. Mortgage lending is just one part of their business.
2. Interest Rates
Mortgage companies can sometimes offer lower interest rates than banks because they have access to wholesale pricing not available to banks.
Banks fund loans with higher cost deposits, so their rates are often slightly higher. But they may offer discounts if you use their other services.
3. Loan Approval Process
The mortgage approval process with companies can be faster because they focus solely on mortgages. This allows them to offer specialized services.
Banks have more complex approval workflows across all their products. Mortgage approvals may take longer as a result.
4. Customer Service
Mortgage companies provide dedicated mortgage professionals who can provide specialized guidance and expertise.
Banks have broader customer service teams that handle inquiries across all products. You may deal with different representatives when applying for a mortgage.
5. Regulation
Mortgage companies are licensed by state regulators but not overseen by federal agencies.
Banks are highly regulated by several federal agencies like the FDIC and CFPB that enforce strict standards.
Pros and Cons of Getting a Mortgage From a Bank
| Pros | Cons |
|---|---|
| Established reputation and financial strength | Mortgages are small part of their overall business |
| One-stop shopping for all finances | Slower approvals and less flexibility |
| Highly regulated for safety and soundness | Customer service reps have less mortgage expertise |
Pros and Cons of Getting a Mortgage From a Mortgage Company
| Pros | Cons |
|---|---|
| Specialized mortgage focus and expertise | Less financial stability in some cases |
| Faster approvals and more flexible guidelines | Less stringently regulated |
| Competitive rates and wide variety of loan programs | Need to shop separately for other financial services |
Which Is Better for You: A Bank or a Mortgage Company?
Choosing between a bank and a mortgage company for a home loan depends on individual needs. If you prioritize specialized service, faster approvals, and competitive rates, a mortgage company is better. However, if you prefer comprehensive financial services under one roof and value stringent regulation for safety, then opting for a bank would be more beneficial.
Key factors to consider when deciding between a bank and mortgage company include:
- Your desired loan type and program
- How quickly you need to close
- Interest rates offered
- Overall costs like fees and points
- Convenience of having all finances under one roof
Here is a table showing the key factors to consider when deciding between a bank and a mortgage company:
| Bank | Mortgage Company |
|---|---|
| May be better if you want one-stop shopping for all finances | May be better if you need a specialized loan program |
| May be better if you prioritize established reputation | May be better if you want the fastest approval |
| May be better if highly regulated environment is important | May be better if you want the lowest rates and costs |
| May be better if convenience is a priority | May be better if mortgage expertise is most important |
How Do I Choose the Right Mortgage Company for Me?
When selecting a mortgage company, look for an established company with a strong reputation. Compare interest rates, fees, and closing costs. Ask about their range of loan programs. Evaluate customer service by reading reviews and speaking to representatives. Make sure they have expertise in home loans and understand your specific needs and financial situation.
Conclusion
While banks and mortgage companies both offer home loans, mortgage companies specialize solely in mortgages and provide faster service, competitive rates, and more flexible programs. Banks provide a wider array of financial services but have less mortgage expertise. Evaluate your individual needs and financing goals to determine if a bank or mortgage company is the better choice to help you achieve your dream of homeownership.
Frequently Asked Questions(FAQ)
What type of company is a mortgage company?
A mortgage company is a financial institution that specializes in offering various types of mortgage loans. These companies provide loans to individuals and businesses to purchase or refinance real estate. Mortgage companies typically also offer other services such as loan origination, underwriting, and servicing of the loan.
What is the difference between a bank and a loan company?
A bank is a financial institution that provides a range of services, such as accepting deposits, providing loans, and offering investment products. A loan company is a business that specializes in providing loans to consumers and businesses. The main difference between a bank and a loan company is that a bank offers a variety of services while a loan company specializes in providing loans.
Is mortgage lender better than bank?
Mortgage lenders and banks both offer home loan services, but there are a few key differences between the two. Mortgage lenders are typically more specialized in the home loan process, offering a range of products and services tailored to the individual borrower. Banks, on the other hand, offer a wider range of services, and may offer more competitive rates and terms. Ultimately, the best option for each borrower depends on their individual needs and preferences.
Is a mortgage company the same as a lender?
A mortgage company is a type of lender that specializes in providing mortgages to borrowers. A lender is any entity that provides money to an individual or business for a specified period of time. While mortgage companies are lenders, not all lenders are mortgage companies, as lenders may provide other types of loans such as auto loans or personal loans.
