Traditional Banks or Credit Unions
For most borrowers, a bank or credit union is going to be the best choice for traditional loans. It’s a good idea to shop around for a mortgage, go to two or three different banks to what types of loans are available and who is offer the best interest rates. In some cases, your personal bank may be the best option for a loan, they want to keep you as a long term customer and they know the current market conditions where you live.
Pros
With a large brand bank, you get the peace of mind of dealing with a known entity. Of course, in today’s markets this is looking a lot less as a positive. But, in most cases dealing with a major lender versus an online lender does give a bit of security.
Some major lenders can also originate mortgage loans at no expense because they know they can make money in other ways such as with banking accounts or credit card services. If they can grab your mortgage loan business, they feel that you’ll make them money some other way down the road.
Cons
At traditional banks, you need to be wary of inexperienced loan officers who can foul up the loan process, ask for someone with more experience if you have any concerns about the quality of help you are receiving. Also be aware that loan officers are paid in a variety of ways to process loans, some are paid commission and some are paid salary plus a bonus for each loan they originate. It’s best to be aware of how the process works so that you can avoid the traps.
Most major lenders have also begun to tighten their lending standards so that if you need a “jumbo” loan, you may need to pursue other mortgage loan options. A jumbo loan is a loan that is generally higher than the national average; currently anything over $417,000 is considered a jumbo loan except in Alaska, Hawaii, Guam, and the U.S. Virgin Islands where anything over $625,000 is considered “jumbo”.
Another downside to traditional lenders is that they don’t have a lot of leeway in loan financing terms, the fees and interest rates are fairly set.
Online Mortgage Shopping
This is a relatively fast and easy way to shop around for a mortgage. The online sites usually work as a referral service so eventually you will end up working with an additional bank or mortgage broker.
Pros
Since it’s all online, you can get obtain a bunch of rates fairly quickly and conveniently. It’s also a good way to see what kind of mortgage you would currently qualify for so that you have a starting point for your shopping around.
Cons
Be careful of giving your social security number out to too many of these services as they may actually be pulling up your credit report. This isn’t necessarily a bad thing, but you need to be aware that having your credit report pulled too many times can negatively impact your credit, it makes it seem like you’re trying to over extend yourself financially. So, when you shop for a mortgage, you should do it in a compressed time frame like over two months so that it is obvious you are shopping around for only one loan and then your credit won’t be dinged.
Use a Mortgage Broker
For people that need “jumbo” loans, their options are much more limited, so a mortgage broker may be a necessity.
Pros
Because you’re dealing with an individual or a smaller firm, you get more personalized attention. The more unconventional your loan needs, the less likely it is that a main stream lending institution will be able to get you financing and it is for exactly these circumstances that a mortgage broker is needed.
Cons
You need to be aware of any fees that a mortgage broker charges. In some cases, they work on a straight fee basis and this is usually a buyers best bet. Originating and processing mortgage loans involves a lot of fees and an unwitting buyer could end up not getting the best deal possible because not all mortgage broker fees are easily understood by the buying public.
