Before applying for a mortgage with your bank, read this

Craig Berry
Craig Berry
The Mortgage Reports Contributor
December 30, 2019 - 6 min read

The big bank mortgage paradox

Understandably, when it comes time to apply for a mortgage, many people’s first thoughts are to contact their bank.

It makes sense, after all. You have a preexisting relationship with your bank.

But many people who get a mortgage from their bank — without looking at other options first — miss out on lower rates and excellent service available elsewhere.

That’s not to say your bank isn’t the right choice for your home loan. But it pays to shop around before choosing a lender.

What to know about shopping for a mortgage

There’s no shortage of options when it comes to obtaining a home loan.

Consumers can choose to work with their bank or credit union.

Or, they can work with a mortgage broker or direct lender (think loanDepot or Better).

But many people go with the first option. “My bank already has my information,” they think, “so getting a mortgage should be quick and easy.”

I’ve lost a number of clients who simply felt more comfortable with their bank — because of their name alone.

Is getting a mortgage from your bank more convenient?

Contrary to popular belief, having preexisting accounts with a bank doesn’t mean that your personal information can just be auto-populated into your mortgage application.

Having preexisting accounts with a bank doesn’t mean that your personal information can just be auto-populated into your mortgage application.

Further, just because you bank with them doesn’t mean you’ll get a better deal. And it definitely doesn’t mean you’ll receive better service. A quick Yelp search can support this.

Unfortunately, I’ve work with a number of folks that found out about these facts the hard way.

“We are just going to work with our bank,” say home buyers

These words can be scary to real estate professionals.

After all, there’s a reason most Realtors don’t refer their buyers to big banks.

Allison Barnett of the Barnett Realty Group in Marietta, GA can speak to this first-hand.

Barnett has worked with a number of potential buyers who’ve said, “We will be working with our bank.”

According to Barnett, “These words always make me cringe. I can’t tell you how many times I’ve worked with big-name banks and credit unions that have turned out to be dreadful experiences.”

“I can’t tell you how many times I’ve worked with big name banks and credit unions that have turned out to be dreadful [mortgage] experiences.” —Allison Barnett, Barnett Realty Group

“I think loan officers and processors at these places are instructed to have minimal if any contact with Realtors,” says Barnett.

“While I understand privacy laws with regard to information sharing, as a buyer agent, I need to be able to communicate with the bank to ensure a smooth process for my clients,” Barnett continues.

“I can’t tell you the number of unreturned calls and emails I’ve experienced. It can be very frustrating.”

Why buyers don’t shop around for a mortgage when they should

The majority of home buyers begin their search by looking online at homes for sale.

Often times, after seeing photos of a home that piques their interest, they contact an agent so they can view the property.

This has become somewhat normal when it comes to buying a new home.

Buyers look at listings first, then contact an agent to view homes, and don’t worry about financing until they’re already set on a place.

>> Related: 10 steps to buying a home, in the right order

It makes sense that it’s many people’s instinct is to find a home before they think about a mortgage. That feels natural.

But by shopping before you find a lender, you limit your window to shop around and compare loan estimates.

If there’s competition to buy and you’re in a time crunch, you’re more likely to go with the first lender you find — which often isn’t the best deal.

A real-life story where "working with our bank" went wrong

In one instance, Barnett was working with first-time home buyers, Mr. and Mrs. Wilson.

As is often the case with first-time buyers, the Wilsons were excited to start their home buying journey. Also like many first-timers, they were nervous and in need of some extra guidance.

Understandably, the Wilsons assumed that their bank, whom they’ve been forever, would be the natural go-to for getting a mortgage.

After contacting their bank, the Wilsons were soon met with their first hurdle. The saying “banker’s hours” — referring to an in-late-out-early attitude — certainly applied in this case.

Like many young couples, the Wilsons both had full-time jobs.

This made it difficult to connect with their bank during business hours.

And contacting their bank on the weekend was equally challenging. Even though some branches were open on Saturdays, loan officers and processors were unavailable until Monday.

After making arrangements to speak to someone during their lunch hour, the Wilsons finally spoke with a mortgage loan originator.

Seven days later, the couple was told they were pre-approved to buy a home with a purchase price of $205,000.

On a side note: They didn’t realize that many lenders can get you pre-approved in just 24 – 48 hours.

Many lenders — especially digital lenders — can get you pre-approved in 24-48 hours.

Pre-approval in hand, the Wilson’s set out on their journey to find their first home.

After finding their dream home and having their offer accepted, the Wilsons were anxious for instructions from their bank regarding what’s next.

From nightmare to happy ending

Roughly 10 days before closing, I received a call from the Wilsons’ Realtor, Allison Barnett. Both the buyers and Barnett were in a state of panic.

The Wilson’s earnest money was in jeopardy. Not to mention they were now concerned that they could lose their dream home.

Not only had their calls and emails gone unreturned for several days, after finally escalating their concern to management, they were informed that their loan had been declined.

The reason? According to the bank, one simple document had not been received.

The Wilson’s could have easily provided the document in question, and possibly revived their mortgage loan with the bank. However, neither the Wilsons nor Barnett had any confidence in the bank at this point.

Fortunately for Mr. and Mrs. Wilson, their Realtor contacted me.

I stepped in and closed the Wilson’s loan in just 17 days. Not only did this save the Wilson’s earnest money deposit, but they didn’t lose out on purchasing their dream home.

How can you know if your bank is a good lender?

There are a number of myths out there when it comes to getting a mortgage loan. This is especially true with regards to mega-banks.

Just because your bank is a big name, just because they’ve been around for a while, just because you have other accounts with them, working with a mega-bank may be a mistake.

You can find out whether this is true for your bank by shopping around and doing research.

>> Related: How to choose the best mortgage lender for you

Just about anything you need to know regarding a mortgage company is available on the internet. While no company can make everyone happy 100% of the time, if you see a trend, there’s usually a reason.

You can also ask your Realtor for a recommendation. For good reason, you’ll rarely find a Realtor that recommends a big-name bank.

The takeaway: Don’t go with the first lender you find

Getting a mortgage can be complicated and time-consuming.

But those that do their research and find the best mortgage lender can save thousands — even tens of thousands — over the life of their home loan.

And remember: Finding the lowest rate is important, but good customer service and communication shouldn’t be compromised, either.

So don’t just go with your bank because your bank with them. And don’t just go with the first lender you contact. If you do your due diligence, it will pay off.

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