Mortgage Advisor: Should You Get Your Mortgage Through These Untraditional Companies?
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Sarah Li Cain
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Rebekah Evans
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About 7.79% of all U.S. mortgages now originated through fintech platforms, according to a study published in the Journal of Monetary Economics. Instead of a traditional bank or credit union, companies like Better.com are helping homeowners finance their homes. This doesn’t include nonbank direct lenders like Rocket Mortgage, which make up around 38%.
Just because people are using these nonbank lenders, doesn’t mean it’s the right move for you. Sure, applying with one of these companies online may offer convenience and a faster application process. But are these lenders all that different from banks?
What Are Fintech Lenders?
At its core, these lenders are companies that use technology like a website or an app to help homebuyers apply for and manage their loans online. They market themselves as more convenient than traditional banks. Behind the scenes though, they’re basically doing the same work.
“From an operational point of view, there is really no difference between fintech and brick and mortar lenders,” said Casey Fleming, advisor at Silicon Valley Mortgage and author of “The Loan Guide.” “All of them need to process, underwrite, fund and sell the mortgages they originate.”
Once these direct lenders fund the loan, they typically sell them on the secondary market to agencies like Fannie Mae or Freddie Mac or investors.
What’s the Difference Between Fintech Lenders and Banks?
The truth is that there isn’t much difference between the two when it comes to the lending process. Traditional banks and fintech companies also pull funding from the same sources.
The difference lies more in how you interact with these companies. “They are only different from each other in terms of how consumers perceive them,” Fleming explained.
Essentially, you can complete all tasks from the preapproval process to signing closing documents online. With traditional banks and credit unions, you may have other ways you need to communicate with the lender, like in person or phone. Fleming added that it may also be about how people feel about the experience they have with their lender.
“Homebuyers usually don’t want to talk to a salesperson,” he explained. “The online shopping experience allows them to shop with many lenders without being pressured, spend as much time as they want doing so and makes them feel as though they have found the best deal.”
Is There a Catch?
Sure, it sounds like fintech or online nonbank companies have more advantages over banks, but that’s not always the case.
For one, they may not always have the best rates, even if it’s more convenient to compare lenders and apply for a loan. Plus, some may not have the best customer service or personalized assistance understanding your loan options.
Traditional banks may still have an edge. Some may offer perks if you have a longstanding relationship with them, like waiving certain fees. Or if you prefer to speak to someone in person to walk you through the process, you may be better off heading to your local branch.
The ultimate goal is to understand your priorities and do your research to find the best rates and terms, not necessarily the best loan platform.
“Different programs were designed for different circumstances, goals and concerns,” Fleming said. “The happiest homeowners are the ones who make a well-informed decision and choose the option that best suits their family’s needs.”
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