FeaturedHome Improvement

Choosing Between a Direct Mortgage Lender and a Bank – Which is Best?

Buying your own home is an expensive affair. Fortunately, you’ll find plenty of sources to support your home financing decision.

This includes both bank and non-bank options, such as mortgage companies. But which option is best? 

That’s what we’re going to discuss in today’s post. But let’s begin with the basics first…

Mortgage Lender vs. Bank

Mortgage lenders are usually funded by investors or banks. 

Dallas mortgage companies take money from investors and then offer different financing/mortgage options to those who need it to build their homes. 

What sets private lenders apart from financial institutions and credit unions is that they offer a wide range of home financing solutions to the owners. 

Also, they do not have stringent credit lending requirements. The borrower can even sell their loan to another lender after closing. 

Private lenders expect a reasonable return on their investments. That is perhaps the reason their interest rates are usually higher than bank-offered rates. 

Banks, on the other hand, have fewer financing options. Also, they tend to have strict credit lending requirements. 

Both private lenders and banks offer home financing options to potential owners. 

Both options are convenient and feasible as long as your credit score and DTI are satisfactory. 

Wondering which is the right option for you? Let’s find out…

Private lenders

Private lenders, as discussed above, are less strictly regulated than financial institutions. Because of this, they tend to offer more customizable home financing options to their customers.

If you have unique financial needs, your credit history isn’t satisfactory, you’re not getting regular pay stubs, or you want to acquire a loan bigger than the set limit, then a private lending option can be your safest bid. 

It is also important to understand that not everyone can start their private lending business. Private lenders are experienced, trained, and knowledgeable individuals who’re required to pass several courses and exams before they start practicing their lending business. 

The only downside is some of these lenders are only available online. That means they don’t actually have any physical office/location where you can contact them in case of an emergency. 

In addition, they can also resell your loan to another lender after closing. 


  • More loan options
  • Trained and experienced lenders
  • Expert guidance
  • Easy terms and conditions
  • Quick closing


  • Lenders can resell your loan to another lender after closing
  • They might not have excellent customer service due to online services
  • They don’t have a physical office/location to facilitate face to face dealing


Another financing option you can trust is banks. Some banks offer specialized deals and loan discounts to their regular customers. 

But because banks are commercial entities, they sometimes try to promote other financial products alongside their home financing solutions. 

Besides that, their home mortgage options come with strict conditions. This might make it challenging for you to fulfill their requirements if your credit history isn’t satisfactory or your income flow isn’t stable. 

The process also usually takes more time than private lending options. 

As far as benefits are concerned, you can expect lower interest rates compared to private lending solutions. Some banks also have after-closing servicing options. 


  • Lower interest rates
  • Better customer support due to the presence of physical location/office
  • You can expect additional benefits/discounts if you’re a regular customer
  • After-closing services


  • Stringent terms and conditions
  • They may try to cross-sell their other financial products
  • Higher fee due to compliance
  • Delayed closing
  • Lack of expertise and experience

Choosing between a direct mortgage lender and a bank

Which option is right for you?

If you know a reliable bank or mortgage broker with which you had a good experience in the past, you can give this option a try. 

But if you’re not sure and your mortgage requirements are different, it is better to research your options and try shopping around. 

There are countless private lending options available online that offer a range of mortgage options based on your credit history, income level, and unique home financing needs. 

Prequalification will also give you a clear idea of the exact terms and conditions you can expect from a bank or a private lender. 

Ask questions about:

  • types of loan options they’re offering 
  • closing cost
  • interest rate
  • a rough idea of how long the entire process will take 

It is also important to get yourself credit ready for a mortgage. You can do this by rebooting or rebuilding your credit score.

Try to pay every bill on time. Remember, a single late payment will hurt your credit score. If you have any outstanding debts, try to clear them right away. 

Also, do not acquire any other type of debt until your home mortgage is successfully funded. 

Final Words

Honestly, both options come with their own pros and cons. We’re in favor of private lending because it is more versatile, reliable, and borrower-friendly. The choice is yours…

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button