Buying a home is one of the most important moments in any person’s life. Deciding who is helping you finance your purchase is a decision not to be taken lightly. It is a decision that will mark your future in the decades to come.
One of the biggest questions people ask themselves is – should I go through a bank or a mortgage company? This article will tackle this question.
Banks, or federally chartered financial institutions, provide a full range of financial services, from safeguarding deposits to making loans. That means a bank is a single place where you can open a checking account and apply for a mortgage on the same day.
Banks are audited by the Federal Deposit Insurance Company, a federal institution in charge of guaranteeing the safety of all financial products you may want to partake in.
Mortgage brokers, on the other hand, are financial operators that specialize in one task – helping people secure or refinance the mortgages on their homes. Sometimes, they may approve home equity-type loans or lines of credit.
Mortgage companies are regulated on a state level. Using one means that you won’t be able to get all of your financial needs met under a single roof.
Banks offer special perks and bonuses to their customers. They may promote their other services through the mortgage lending process, scoring you a bargain if a mortgage is not your only business with them.
The perks can range from lower interest rates to specialized loan programs tailored to your financial bracket. Banks service their own loans, so you will always be billed from the same location.
Banks have to adhere to strict lending policies, however. If your specific situation does not fit their guidelines, a bank will decline your mortgage application.
If your loan is straightforward, meaning you have a significant down payment, you have a steady income, assets, and an acceptable credit score, going through a bank could be the best choice for you.
Because they don’t have to adhere to strict rules and guidelines, mortgage companies tend to have a larger pool of lending products on offer. You are much more likely to be approved for a loan at a mortgage company.
This also creates a much more streamlined loan closing process, which means that you will have access to your money at a much faster rate when going through a mortgage company. In a competitive real estate market, getting your funds as soon as possible is of paramount importance.
If your FICO score is below 600, mortgage lenders may be your only choice in the matter. Mortgage companies are much less risk-averse than standard banks and have a much greater chance to create a specialized solution just for you.
Now, for the disadvantages of going through a mortgage company.
Unlike a bank, which usually services its own loans, a mortgage company can sell your loan to someone else. Your debt may be packaged with other similar loans and sold in bulk. This is called a Mortgage-Backed Security, or MBS for short.
What does this mean for you, as a debtor? It usually just means that you will pay your installments to a different institution than the one you closed the loan with.
Going with a federally chartered bank means you will stay with the same company for the entire duration of your loan term. Seeing as though a bank offers other kinds of financial services as well, handling all of your money-related affairs under one roof is seen as a benefit by many.
On the other hand, a mortgage company offers a wider range of loans and will get you to your much-needed funds faster. A mortgage company also has the benefit of having an expert loan originator to guide you through the entire process.
Whatever you choose, consult a financial expert beforehand so you know which type of lender fits your specific situation best. Shop around for the best deal you can find.
All financial institutions check your credit score before even considering approving your loan. So, before you apply for a mortgage, you should get a hold of a copy of your credit report.
There are simple ways you can boost your credit score quickly. For example, making sure you are on the electoral roll can instill confidence in lenders and boost your credit score. Next, close off any credit card accounts you are not using. This will help with your credit score as well, which could mean the difference between getting approved or denied for a mortgage.
If you’ve been working for the same company for an extended period of time, chances are you will keep your job and have the funds to repay the monthly installments.
If you’re planning to change jobs, hold off on it until you have secured a mortgage. Don’t apply for a mortgage shortly after changing jobs since that will probably result in less favorable deals.
A highly indebted person applying for another loan is a red flag in the lender’s eyes.
Try to reduce your debt as much as you can before applying for a loan, as this will surely result in higher chances of being approved.
This one’s a no-brainer – the larger your down payment is, the better deal you will get. You will get a wider range of choices when it comes to the amount, the interest rate, and an overall chance of getting approved. Lenders reserve their best offers for those with hefty deposits already in line.
You may want to secure a loan using another person’s deposit. This way, you’ll be piggybacking on their credit history, which may result in a much more favorable loan. This is a big commitment for both parties, however, so don’t just jump head in without communicating all the ins and outs.
Before even applying for a loan, get a P60 form from your employer. This form contains your annual pay and tax deducted. A lender may also require the last three months’ worth of bank statements, so get those in line as well.
If you’re self-employed, make sure you get your hands on an SA302 form relating to the previous three years.
Lenders need to see proof that you will be able to keep up with payments, so don’t even try to apply for a mortgage if you don’t have this information ready.
The world of finance and banking is confusing even to the people that work in the field, let alone a layperson. Investing some money to get sound advice from a financial expert can pay its dividends down the line, as a personal advisor can help you attain a deal as good as it can be.