Mortgage Lender vs. Bank (2024) (2024)

The difference between mortgage lenders and banks

Mortgage lenders and banks both provide financing for the purchase of your next home, but they differ in their primary focus and the products and services they offer.

Banks focus on the big financial picture, offering products such as checking and savings accounts, credit cards and various other loan products. Mortgage lenders, on the other hand, focus specifically on providing mortgage loans only. They don’t offer the same breadth of financial products and services as banks.

Mortgage lenders and banks differ in numerous other ways, as well:

• Different rates: Banks tend to offer more competitive interest rates and fees but may charge more fees since they have higher overhead costs.
• Flexibility: Banks cater to a much larger audience, while mortgage lenders often provide more personalized and specialized services, especially for borrowers with unique financial situations. They might be more willing to work with borrowers who don't meet the stringent requirements of traditional banks.
• Customer service: Mortgage lenders often prioritize personalized customer service. Banks, on the other hand, have a more generalized approach due to their broader range of financial services.
• Loan processing time: Mortgage lenders can, in certain circ*mstances, expedite the loan processing timeline, often offering quicker approval and funding compared to traditional banks.

Bank mortgage pros and cons

A bank mortgage is a home loan you borrow directly from a bank or financial institution. Often, banks have just a few home loan options with specific eligibility requirements for each type.

If you choose to procure your home loan through a bank, you could qualify for leverage or perks for bundling services like checking or savings accounts. This could mean access to low or no account fees or low-interest credit cards as well as more favorable mortgage terms.

Bank loans, however, often have strict standards for lending. So, if your credit isn’t great (if you’ve suffered a bankruptcy or foreclosure, for example), you might not be eligible for a bank loan. Plus, because loans usually aren’t a bank’s primary focus, it can also take longer to process a bank loan than one from a mortgage company.

» COMPARE: Best banks

Mortgage lender pros and cons

Direct mortgage lending companies offer several home loan programs for a variety of borrowers. Their credit requirements are often more lenient because they're focused on working with a wide variety of borrowers. Mortgage companies are also more specialized in their services than banking institutions, which means they typically process loans faster.

There’s also now an abundance of mortgage lenders available exclusively online. This is a bonus for those who want to take care of business from the comfort of their own home, but many people still want to sign with a pen and paper and shake hands in real life when making these big decisions. Fortunately, there are plenty of options available.

» COMPARE: Best mortgage lenders

Types of mortgage lenders

Although mortgage lender is an umbrella term, underneath that umbrella is a wide variety of lender types, each designed to serve different types of borrowers.

When searching for mortgage lenders, you’ll run into the following options.

How to choose a mortgage lender

No matter which type of lender you choose, you need to make sure you feel good about its offerings and features. Make sure to do your research, read all the reviews you can and talk to real people you know who can share their experiences.

In addition, think through the following features.

• Interest rates and fees: Compare the interest rates and fees offered by different lenders. Look for competitive rates and consider the overall cost of the loan, including origination fees, points and closing costs. Each lender has a different approach, so it pays to look around.
• Customer service: Evaluate the quality of customer service provided by the lender. You want a lender that offers clear communication, is responsive to inquiries and provides personalized assistance throughout the (long) mortgage process.
• Product offered: Consider the range of mortgage products available from the lender. Do they offer both fixed-rate and adjustable-rate mortgages? What about government-backed loans? A financial institution with many options helps you more easily find a product that best suits your financial situation and goals.
• Closing costs: Understand the various closing fees associated with the mortgage, including agent costs, appraisal fees and any other charges. Compare these costs among different lenders to ensure you choose one with reasonable fees.
• Reputation: Research the lender's reputation and read customer reviews to gauge the experiences of past borrowers.
• Loan turnaround time: Assess the lender's average loan processing and approval time. Many lenders these days can provide a reasonable and efficient turnaround time.
• Qualifications for the loan: Understand the lender's qualification criteria and requirements. Compare these requirements with your financial situation so you know if you can get approved for the right mortgage.

» MORE: How to apply for a mortgage

Bottom line

There’s no one-size-fits-all option when choosing between a bank and a mortgage company — each has its own benefits and drawbacks. If you already have accounts with a reputable bank that offers borrower perks, you probably can find a better deal there than with another lender. If you want a company that specializes in home loans and can process mortgages quickly, a mortgage company might be the choice for you.

No matter which type you choose, your home loan lender should make you feel comfortable, respected and confident.