Why Local Lenders Often Outshine Big Banks
Local lenders often outperform major banks.
Countless financial institutions spend millions of dollars to make sure that when you think "mortgage," you think of them first. It's hardly a surprise, then, to learn that the most recognizable name brands in banking services are also among the most popular mortgage lenders in the U.S. However, a recent study from NerdWallet proves some of these preconceived notions wrong. In fact, on a local level, homebuyers tend to choose their hometown lenders just as often as the name-brands, if not more so.
The NerdWallet study reviewed 2015 data from the Home Mortgage Disclosure Act, a law that mandates the release of a massive trove of data on the U.S. real estate market once per year. In its analysis of the HMDA data, which contains details on every mortgage transaction of the year throughout all 50 states and Washington, D.C., NerdWallet made some surprising discoveries.
"In most states, local mortgage lenders are the most popular."
Primarily, the study found that around 60 percent of the time, the most popular home lender in a given area was a local financial institution. In a total of 31 states, the most common choice of mortgage lender was not a national chain. And in almost half of all states, local banks or credit unions accounted for the majority of home loans. In Hawaii and South Dakota, all of the top five biggest mortgage lenders were local.
In NerdWallet's estimation, this trend could be explained by the ability of local institutions to offer more favorable terms, more approved applicants, and crucially, lower interest rates, when compared with national firms. In addition, the study's authors noted how spread out the mortgage market tended to be - on average, the top lender in a given state held just 10 percent of the market share. In Texas, that top figure was only 4 percent.
Finding the right lender
Whether you've already got your dream home picked out or are still saving up for the down payment, it's never too early to begin looking for a lender who can help make those plans a reality. But with so many to choose from, and a dizzying array of promotions and perks from each, finding a great mortgage lender is tough to say the least. Before making such a major decision, understand what to look for in a lender, as well as how lenders will be looking at you before extending an offer your way.
Low interest rates aren't everything, but they make for a good starting point when searching for a lender. With your credit history in check and a working knowledge of the lending landscape, take some time to research current loan rates from various lenders. A great place to start this research is on a simple tool available online from the Consumer Finance Protection Bureau.
As you'll find in using this tool, there are several factors that can affect how much a mortgage will cost you, including your location, credit score, down payment and loan type. Play around with these variables to see how even the slightest change might affect your rates. For example, take note that even a seemingly small difference in interest rate could mean thousands of dollars in savings. Over the first five years, a mortgage with an annual rate of 4.75 percent will cost $5,561 more than one with a rate of 4.125 percent. Over 30 years, that comes out to a premium of almost $24,000 It might not seem obvious, but when dealing in terms of a house, a few tenths of a percent can make a huge difference.