Banking has changed a lot in the past 100 years. In the early 20th century, building and loan associations and mutual savings banks became popular across America. These institutions were based solely on relationships. Customers worked with their friends and neighbors, and getting a loan or mortgage from anywhere else was unheard of.
Fast forward to the late 20th century, and the lending landscape began to shift with national banks and lenders becoming more common. With the 21st century, the internet age brought a new player in the mortgage industry: online mortgage lenders. These are mostly nonbank institutions that offer home loans and service mortgages, but don’t offer the full range of financial services such as checking and savings accounts.
Suddenly, borrowers had the world at their fingertips, and could apply for and receive a home loan from their couch instead of across a desk. After the 2009 financial crisis, banks became more cautious with lending, and nonbanks began to see an increase in mortgage market share due to more lenient regulation.
The pandemic gave online lenders another boost, as in-person meetings came to a halt and many processes moved remote. 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 haven’t fallen totally behind. With 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 the best possible deal when it comes to their mortgage
Today, homebuyers have something previous generations didn’t: options. But how do you choose? It’s important to analyze how each works and know what is available to you. After all, it's good to have choices, and at the end of the day, customers want a home that meets their needs that they can comfortably afford.
The key difference between traditional banks and online mortgage lenders is that traditional banks offer the convenience of consolidated services, allowing customers to manage multiple financial products in one place. Online mortgage lenders specialize in one thing only: mortgages. This focus allows them to put all their time and resources into delivering that service.
For some, there’s real value in the established trust and security that comes with many long-standing banks, with charters dating back over 100 years. Expertise has been developed over decades, and many customers trust their existing financial institution to help them with a mortgage. 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.
In a time where countless tasks are done online, many people still prefer face-to-face interaction and document handling at their local bank branch. Homebuying is more than just price and rate - it's a personal strategy based on your specific situation. Having a mortgage lender sit down with you in person to review everything can offer peace of mind you may not find in an app.
That’s not to say that traditional bank lenders aren’t adept at online lending. Many banks, like Arvest, have invested in digital tools, such as mortgage calculators and apps to manage the mortgage process.
Local lenders have a keen understanding of their market and available programs for everyone, from first-time homebuyers to veterans. 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.
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. A trusted mortgage lender can help you get started.
