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The Difference between Big Banks and Private Lenders

Read Time: 3 Minutes January 03, 2021

In 2019, borrowers have more options when it comes to home loans than ever before. Traditionally, big banks have dominated the mortgage market. But increasingly, new homeowners are finding it easier and more cost effective to finance their home purchases with the help of private mortgage lenders, like Newrez.

While they each share the same goal, private mortgage lenders differ from their big bank counterparts in a few key ways. Homeowners should first research what kind of loan fits their life, then match that to a lender who offers that loan. If you’re just starting the steps toward a home loan and need help choosing one, the loan officers at Newrez are on hand to help!


Why Go Private?

The world is full of lenders, including big banks, local credit unions, and online lenders. So why not just fill out an application and borrow from one of them?

For starters, borrowers might not be able to qualify for a loan from a traditional lender. Banks require a lot of documentation, and sometimes your finances won't look the way the bank wants. Even if you're more than able to repay the loan, mainstream lenders are required to verify that you have the ability to repay, and they have specific criteria to complete that verification. For example, self-employed individuals don't always have the W-2 forms and steady work history that lenders require, and young adults might not have good credit scores (yet). Private lenders have flexibility in their qualifying guidelines that big banks don’t. This allows private lenders to offer products, like the SmartSelf loan from Newrez, that are designed to fit the needs of borrowers that other lenders reject.


Private Lenders are Fully Licensed

At any financial institution, the person who reviews and approves mortgage applications is called a loan officer. But despite similar titles, there are some differences between a loan officer working at a typical bank and one at a private lender.

One of the biggest differentiators between the two can be seen in legally mandated licensing and registration requirements:

  • A loan officer working at a depository institution, like a bank or credit union, must be registered under the National Mortgaging Licensing System. Once approved under this federal system, the loan officer is authorized to conduct business in all 50 states.
  • Private lenders, however, are held to a different, arguably higher standard. Since they are considered "non-depository institutions," loan officers at a private lending firm must not only be registered under the NMLS, but also must obtain a license in the state where they will operate.

This additional license requirement means private lenders must undergo at least 20 hours of state-mandated coursework, as well as at least eight hours of continuing education per year. The course requirements vary by state but usually include extensive coverage of federal and state lending laws, ethics courses and other technical training.


Your Next Steps

Once you’ve completed some basic research, and determined what kind of loan fits your life, it’s time to go shopping for a lender. No matter who you pick, it’s also important to get a pre-approval letter so that you can shop with confidence. If all of this has your head spinning, that’s OK! Your lender should have intelligent and patient loan officers (like the ones at Newrez) to walk you along the steps to qualifying for a home loan.

Contact Us Today!


Learn more in our other educational series.

We’ve assembled a treasure trove of jargon-free information to demystify home-financing and arm you with valuable insights and actionable options.

Why Newrez?

Newrez believes the lending business shouldn't just be about home loans - it should be about homeowners. That's why our employees get to know our customer's real needs, through final closing, and beyond.

Industry leading loan options
Simple pre-qualifications and application processes
Loans for everyone, from seasoned investors to first-time buyers
Putting power back into underserved communities