With mortgage rates at an all-time low, consumers are rushing to buy new homes, refinance and relocate. And, nowadays, consumers use the web to search for lenders and rates — and close the deal on a new loan.
Traditional bank mortgages aren't going anywhere. But conventional brick-and-mortar financial institutions are not the only available option for today's real estate investors and homeowners. Let's take a look at who will shape the lending landscape in 2021 and beyond.
The Digital Mortage Sector
As more people become comfortable with conducting business online, the digital-only mortgage sector has boomed. Quicken Loans established Rocket Mortage in 2015. Offering a wide range of lending options for new purchases and refinancing, it underwrote almost 400,000 loans in 2019.
Online-only mortgage lenders offer information and services that many banks do not. Borrowers can go through the entire process online or talk to a professional. The digital lending companies also provide basic information to homebuyers and investors about different mortgage options, educating consumers (especially new homebuyers) on real estate lending's intricacies in easy-to-understand language.
Although do-it-yourselfers may use the online sites to find an ideal real estate lender, brokers still represent about 20% of the mortgage market. They often find themselves competing with direct-to-consumer loan providers.
The advantage of working with a broker is that the buyer/investor can easily see a wide range of options and make decisions based on cost, timing and ease of application. It also cuts down on the work that the buyer needs to do on their own.
When speed is of the essence, private financing can be a great option. These lenders are often willing and able to write loans for questionable properties with high potential and do business with investors who might have blemishes on their credit histories.
Because borrowers deal with smaller and more nimble companies and individuals, making changes to a loan often occurs more rapidly but usually involves more expense. Individuals and investors must weigh the trade-off between ease, speed and cost.
Banks, Credit Unions and Traditional Financial Institutions
As the Forbes list of best mortgage lenders illustrates, established banks and credit unions are not vanishing any time soon. "Best" is defined based on ease of the application process, competitive rates and length of time required for approval and closing.
In the past, having a relationship with a financial institution was critically important to mortgage lending. Conventional bankers knew their customers intimately and were able to advocate for them when they sought out loans. As the banking system has gotten larger and more siloed, institutional divisions of large money-center banks may not communicate with each other, and lending decisions are as likely to be based on credit scores and algorithms as they are on personal relationships.
The Real Estate Lenders of the Future Sit on Your Desk
The COVID-19 pandemic has catapulted many aspects of the real estate world into the online space. Shaking hands with a lender and attending a closing in person may soon be obsolete. Younger and digitally savvy borrowers are as comfortable borrowing from a bot as they are from a human.
We expect to see consumers, brokers and investors turning to their screens to compare lending sources and making decisions accordingly.