Here’s a look at how both types operate and how working with them might impact your homebuying process.
Credit unions: Credit unions operate under an entirely different business model from banks. “We are a not-for-profit financial services organization,” says Debbie Ames Naylor, president of mortgage banking and corporate executive vice president at Pentagon Federal Credit Union. “We are actually owned by our customers, and we like to call them ‘members.’”
A credit union is a direct lender, meaning that the credit union itself is the loan originator and not the middleman. A credit union can offer the same popular mortgage structures that banks do, and according to the National Credit Union Administration’s consumer resource site MyCreditUnion.gov, credit unions generally offer fewer fees and better interest rates on loans. Plus, a credit union can give you options for how you want to go through your mortgage process that you may not have with other alternative lenders.
First-time homebuyers may feel more comfortable going to a credit union’s branch or speaking on the phone with a representative. Meanwhile, veteran homebuyers might appreciate the ease of using the online application tools.
Keep in mind that each credit union has its own requirements for membership and its own suite of financial products. So do your research before joining a credit union in order to get a mortgage.
Online lenders: With advances in technology, online lenders are an increasingly popular means of securing a loan directly from the lender. Quicken Loans, with its Rocket Mortgage product, is one of the largest and best-known online lenders. Rocket Mortgage features customizable loans, mortgage approval in minutes and technology that limits the hassle of paperwork. Other big companies in this space include Lenda and PennyMac.
Benefits offered by online lenders typically include the ability to get a mortgage without leaving your couch, the ability to provide documentation electronically, fast application and approval processes, access to high-quality loans and sometimes low fees.
On the flip side, some online lenders make it tough to reach a real person if you need help. You’re on your own in filling out those online applications, so there’s a greater likelihood that you’ll make a mistake without a professional walking you through the process or handling it for you.
Lending marketplaces: Lending marketplaces exist as matchmaking services that pair borrowers with the right lenders for their needs. The marketplace doesn’t itself offer loans. So, once borrowers have chosen a loan, they work directly with the lender to complete the lending process.
LendingTree, loanDepot and SoFi are some of the best-known marketplaces for securing many types of loans, including home mortgages. To get started, you provide some basic information about yourself, your finances and what you’re looking for in a loan. Then, you’re offered a variety of loan options from regional and national lenders, allowing you to compare. According to a Consumer Financial Protection Bureau report from 2015, only about half of borrowers shopped around for their mortgage.
Brokers: Like lending marketplaces, loan brokers are another type of middleman in the lending process. A broker works with you one-on-one and acts as a liaison between you and the lender. You can find some brokers maintaining brick-and-mortar offices, while others operate primarily online.