Non-banks are issuing more home loans than ever. Here’s why.
When it comes to financing a home, buyers are faced with endless possibilities. Not only do they have to compare and contrast home loans and decide between an ARM or fixed-rate mortgage, but simply deciding on a mortgage professional is also a significant hurdle. Should they work with their local bank, a nearby credit union, or the mortgage loan originator their coworker recommended? The sheer number of possibilities can easily contribute to debilitating decision fatigue.
Luckily, data surrounding recent buyers and their choices can help guide the decision-making process. Research shows that more and more buyers are opting to work with mortgage brokers. As it turns out, they may be onto something.
What is a mortgage broker?
In short, a mortgage broker is a go-between who facilitates the mortgage acquisition process (Investopedia, 2020). Unlike a bank or credit union, they do not use their own funds to originate the loan. Instead, they work to connect potential borrowers with the right lender for their unique situation. The mortgage broker may also assist with loan paperwork, the pre-qualification process, and communication between the buyer and lender.
In turn, mortgage brokers are paid via commission. This payment, known as an origination fee, is generally a percentage of the loan amount. The origination fee is often included in the total loan and typically falls between 1 and 3%.
Benefits of using a mortgage broker
So, why might one choose to work with a mortgage broker? For one thing, mortgage brokers have far more flexibility. Because they don’t finance the loans themselves, brokers can offer an array of options from many different institutions. Banks and credit unions, on the other hand, can only offer their own products. This means that a mortgage broker could potentially connect you with a more favorable loan for your particular situation.
They may also have increased access. Many brokers have well-developed relationships with local real estate agents and hard-to-access lenders. They often have years of experience in fitting the right home loan to each unique buyer and can provide a foot in the door at many different institutions.
In short, brokers act as a guide through the ever-complex mortgage process. They can help you weigh your options, determine the right fit, and secure the home loan of your dreams.
The growing popularity of mortgage brokers and non-bank lenders
If you’re sold on working with a mortgage broker, you’re not alone. In 2019, independent mortgage brokers already accounted for more than 16% market share (HousingWire, 2019). Amid the COVID-19 pandemic, the percentage of mortgage loans made by non-bank lenders exploded. In 2020, non-bank lenders issued more than 68% of mortgages, their highest market share on record. In the same vein, seven of the ten largest mortgage lenders in the country are now nonbanks.
Between rapidly rising prices, limited supply, and historically-low interest rates, many buyers need options. Mortgage brokers understand that home loans are rarely one-size-fits-all. Between potentially saving buyers’ time, energy, and money, it’s no wonder these professionals are in high demand.
The bottom line
Choosing a home loan is serious business. In theory, your mortgage will span the next 15-30 years of your life. An experienced mortgage broker may be able to help ensure that you end up with the right one, all while saving you time and money.