Are Mortgage Companies Banks?

When taking out your first mortgage, choosing a financial institution that works for you can be difficult. Fortunately, mortgage companies are increasing in popularity because of their speed, reliability, and quality of service provided. However, some people wonder if mortgage companies are banks.

Mortgage companies are not banks. The main difference between mortgage companies and banks is that mortgage companies specialize in home loans while banks offer a wider range of products and services.

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.

Mortgage Companies are financial firms that write out loans to home buyers. When issuing the loan, the company uses its own capital to finance it. Think of mortgage companies as direct lenders.

While mortgage companies can issue loans like banks, a few things make them different. Mortgage companies specialize in offering mortgage products. They don’t provide banking services such as investments, savings, or checking accounts.

In addition, mortgage companies are more likely to provide their products and services, not other companies. Most mortgage companies operate online. While this reduces the amount of face-to-face interaction, it also reduces business costs.

Mortgage companies deal with the initial part of your loan. For instance, they will help you get a loan, but they won’t keep it on their balance sheet. They will sell your loan to a hedge fund, agency, or investment bank.

After closing, the mortgage company might sell the loan to another institution. The loan that you signed with the company will remain legally bound throughout the loan’s terms. The company cannot change the fees, interest rate, or any other aspect of the loan.

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.

Benefits of Using Mortgage Companies

Personalized Assistance

Mortgage companies take a personalized approach when dealing with lenders. They help by finding good loan rates and opportunities for you. This is different from brokers who will offer you multiple products and work for a commission.

Faster Process

Mortgage companies will give out loans to people that a bank institution does not accept. Banks tend to decline more applications than they approve of them. That’s because they view small to medium-sized businesses as high risk.

Since mortgage companies handle the entire loan process, you can receive loan approval faster than through a bank. As a result, you’ll receive access to the funds faster.

This is faster than banking institutions who may take a few weeks or months to process your loan application. Depending on the mortgage company, you’ll receive access to your funds within 48 hours.

Time

Mortgage companies can give you a loan faster than brokers. Digital processes and robotics are used to search for mistakes and make accurate calculations, which results in faster turnaround times.

Flexibility

The lender’s guidelines limit mortgage brokers. They can waive some fees and qualifications through a mortgage company under the right circumstances. Thus, giving you more flexibility in the loan process.

In addition, mortgage brokers have more loan product opportunities than banks. Banks have their loans structured by strict guidelines. If you do not meet those requirements, they can refuse to accept your loan.

Mortgage companies work by selling the services. Since they only work with mortgage loans, they can close faster than traditional banks. This is a great advantage because you can obtain your loan faster.

Disadvantages of Mortgage Companies

Requires Shopping Around

You have to look around with mortgage companies until you find one that works best for your financial situation. To get the most out of a mortgage company, factor the research time into your planning process.

Rate Comparison

Mortgage companies have various loan conditions and interest rates. While this allows you to find the best rates, you’ll have to shop around to find the best one.

Trust

Traditional banking institutions have gained customer trust through years of service. With mortgage companies, they have fewer years of experience in building customer trust. Always give some time to research the company before making an offer.

Conclusion

When getting a loan from a mortgage company, you’ll receive the funds faster than traditional banks. However, it is your responsibility to pay the loan on time.

Conclusively, while mortgage companies aren’t banks, they can still provide an excellent service if you need a loan in a hurry.