The Mortgage Battle: Is a Local Bank or Online Lender Better for You?
Banking has changed a lot over the past century. In the early 1900s, building and loan associations and mutual savings banks were common in towns across America. These places were all about relationships. Customers were friends and neighbors, and they rarely considered getting a loan or mortgage anywhere else.
By the late 20th century, national lenders began to change the way people borrowed money. In the early 2000s, the internet age brought a new contender in the mortgage industry: online mortgage lenders. These mostly non-bank institutions offer home loans and service mortgages, but don’t offer the full range of financial services available at traditional banks, such as checking and savings accounts, personal loans, or credit cards.
Borrowers began applying for and receiving home loans from their couches instead of sitting at a bank desk. After the 2009 financial crisis, when banks became more cautious about lending, nonbanks began to gain market share in the mortgage market due to less stringent regulation.
The pandemic provided another boost to online lenders, as in-person meetings came to a halt and many processes moved virtually. According to Home Mortgage Disclosure Act (HMDA) data, nonbank mortgage lenders grew their market share from 59% in 2019 to 68% in 2020.
But traditional banks didn’t stay behind for long. Thanks to enhanced digital capabilities, including online applications and pre-approval processes, banks have been able to reclaim lost ground. However, with mortgage rates remaining higher than pre-pandemic levels, homebuyers continue to look for different ways to save money.
Today, homebuyers have something previous generations didn’t: options. But how do you choose?
As a mortgage lender for a traditional bank, I have some obvious biases when choosing between online lenders and traditional banks for mortgages. Still, I think it’s important to look at how each works. After all, it’s good to have choices, and at the end of the day, lenders want to see buyers get into a home that meets their needs and they can comfortably afford.
Services
The key difference between traditional banks and online mortgage lenders is that traditional banks offer the convenience of consolidated services, allowing customers to manage various financial products in one place. Meanwhile, online mortgage lenders specialize in one thing: mortgages. This focus allows them to put all their time and resources into delivering that service.
Strength & Stability
There’s also established trust and security that comes with many long-standing banks, with charters dating back over 100 years, including Arvest. Online lenders, on the other hand, are considered “young” when compared to some of our U.S. banking institutions. The first online mortgage lender launched in 1999, and even then, the process wasn’t fully automated and online until 2015.
Innovation
While doing many tasks online is convenient, many people still prefer the option of face-to-face interaction and document handling through local bank branches. Home buying is more than just price and rate — it’s a personal strategy based on everyone’s unique needs. Having a mortgage lender can help you look at everything and offer peace of mind. Local lenders have a keen understanding of their market and available programs for everyone, from first-time homebuyers to veterans.
That’s not to say that traditional lenders aren’t experts at online lending. Many banks, like Arvest, have invested in digital tools comparable to those of online lenders and have skilled lending officers who are adept at supporting customers through the online process during their home buying journey.
Relationships
Another advantage to having a local lender is one we see at Arvest often after damaging storms. While not all mortgage lenders keep the loans they originate, those that do can offer homeowners a more streamlined insurance claim payment process – something you don’t typically get with online mortgage lenders. Arvest services more than 95% of our mortgages.
Whether buying a home or refinancing, it’s a big investment. If you value relationship banking, traditional banks may be the best fit for a mortgage, especially if you qualify for bundled discounts. On the other hand, if your situation is straightforward and you’re comfortable with fully online processes, non-bank lenders may work for you.
The most important thing is to find the best option for you and your situation. A trusted mortgage lender can help you get started. Connect with an Arvest mortgage loan specialist today.
Jason Peters, NMLS # 402102, is a senior vice president and mortgage loan manager for Arvest Bank - Greater Kansas City and can be reached at japeters@arvest.com.
With more than $27 billion in assets, Arvest is a full-service bank that delivers financial solutions to individuals and businesses of all sizes. Since entering the Kansas City market in 2009, Arvest has grown to a top 20 bank and the sixth largest mortgage lender in the metro. The bank has 20 locations in the metro area. Arvest is an Equal Housing Lender and Member FDIC.