There are two misconceptions regarding local banks versus mortgage banks. First, people think mortgage banks have lower rates than local banks. Second, they assume local banks provide better service than mortgage companies. While in many cases these may be true, you may find the opposite as well.
I often field calls from people asking me to quote an interest rate. The problem is the rate varies depending on many features (i.e., loan to value (ltv), credit score, lock period, etc.) More importantly, banks often offer special promotions, depending on the transaction and the relationship. At my bank, we offer promotions for banking relationships that can lower the base rate by as much as 3/8 percent. Any purchase transaction is eligible for a reduced rate. Higher credit scores and lower ltv’s are also eligible for reduced rates. Mention you saw the special promotion at citi.com and you are eligible for a reduced rate.
These many promotions help make the bank very competitive, oftentimes beating the aggressive pricing of the competition. In addition, there is also the opportunity to ask the loan officer to request a concession to make the rate even more competitive. Banks are hungry for purchase business today and may be aggressive in pricing in order to accommodate an existing banking relationship or establishing a new one.
Studies show that most people who have a strong relationship with their local bank prefer to get their mortgage through the branch. However, mortgage banks offer certain benefits you may not see at your local bank. Mortgage banks do have access to more lenders, and if your local bank does not offer a certain product, a mortgage banker may be able to provide it through one of its lenders. For example, larger banks may not offer renovation loans or no income loans which may be offered by a mortgage banker. Because mortgage companies are looking at pricing from many bankers, at times they have the lowest rate, though in many cases, as described above, the local bank can compete.
What’s most important to consider is that mortgages are no longer commodities. In the past, approval was so assured one could simply find the lowest rate and move on to other decisions. In the current landscape, however, where so many loans fail at the last minute because the borrower is not qualified and the lender didn’t prepare them for this reality, recent regulations have imposed many new requirements that have forced underwriters to require a stricter interpretation of who can be approved for a loan. It’s important to know that your lender, whether banker or mortgage company, will be your advocate to fight for you when underwriters are inclined to decline the loan. Your loan officer needs experience to know how best to position your application. He/she must let you know as early as possible if there will be a problem with the loan and how best to resolve it. It is important to know your loan officer will continue working on your loan, even if it becomes difficult and a drain on his/her energies.
Competition is a good thing. It forces everyone to up their game and better serve at a fairer price. Consider your options. Do some shopping. But make sure you are satisfied with the professional providing the service. When you hire an attorney or a doctor, you likely do not settle on the cheapest cost provider. You get what you pay for, and if you are purely shopping rate be prepared for the service that rate alone will provide.
By David Siegel
