Local or Online Lender: Which Kind of Mortgage Company Is Right for You?

I'm so close to starting the home-buying process, I can taste it. At this point, I only need to wait to get tax documents and have my 2023 tax return filed (necessary because I'm self-employed, so I'll have to jump through more hoops to qualify for a mortgage loan). While I wait these last few agonizing months, I'm continuing to save money and keep my credit score as shiny as possible.

Getting a mortgage loan is a major part of buying a home, and when I have that tax return in hand, I'll be contacting the lender I've chosen to get the ball rolling. Shopping around for a good mortgage lender is a cornerstone of the home-buying process, and I recently spent a few hectic days contacting with four mortgage lenders -- two that are online-only and two based in my city. Keep reading to learn the benefits of each type of lender -- and how to choose the best one for you.

What do online lenders offer?

First and foremost, online mortgage lenders offer a world of convenience. You can submit all your financial documents online -- and in fact, you might even be able to complete the entire mortgage process online, right down to an online closing and even working with a remote notary to sign all your paperwork.

Speaking of convenience, it can also be very easy to keep track of all your information if you decide to buy with an online lender. After I got pre-approved with one, the lender generated an online "dashboard" for me, where I could find my rate, the amount I was pre-approved for, and more.

All of these features make an online lender perhaps a better fit for someone who is experienced in buying homes and doesn't require a lot of hand-holding. If you're a first-time home buyer (or if, like me, it's been over a decade since you last owned a home), a local lender might be a better fit for you due to the features and perks they offer.

What do local lenders offer?

A local mortgage lender can be found in your town or city, and you can meet with a real live human, or get them on the phone during regular business hours, without accounting for a different time zone or wending your way through a phone tree at a call center. That kind of access can be worth its weight in gold to a nervous or inexperienced home buyer.

And if you need a peek into the workings of your local housing market, you can likely find it offered by a local mortgage lender, like a bank or credit union with headquarters or a branch location in your city. If you live in a small town (or even a small city), the best and brightest among local real estate agents will likely be able to recommend a local lender by name. They live in your city, too, and have a vested interest in making sure good people find good homes.

While you may have to go to your loan closing in person -- and give your signing hand a real workout getting through that pile of paperwork -- a local bank or credit union's mortgage expert might be the best friend you can make as a first-time buyer. Online lenders are the newfangled future, but local lenders have been writing mortgages for years and years, and if you're hoping for the personal touch in the home-buying process, you might want to work with one.

Weigh all your wants and needs to decide

Ultimately, the choice of whether to buy a home with an online mortgage lender or a local one is yours to make. As for me, I've decided to go with a local bank. I spent almost an hour on the phone with the mortgage originator who works there, and he was very forthcoming and reassuring about the process. And having a smooth experience is very important to me -- my first home purchase more than a decade ago was a huge mistake, and I feel as if I have a lot to make up for this time. Plus, I'm buying a house on my own, and the more allies I have in the process, the better it will be.

Finally, while mortgage rates aren't as high as they were a few months ago, they are still higher than they were during the buying frenzy centered around the COVID-19 pandemic. As of this writing, the average rate on a 30-year fixed mortgage loan is 7.03%, according to Freddie Mac. A rate like that will make my mortgage payments much more expensive than they would have been in the past few years. To add insult to injury, there's still a low supply of homes available, and finding a good one will be harder as a result. Having a lender I can trust is important.

Your needs and wants are likely different from mine -- every home buyer is unique. So consider the points above to decide which type of lender is best for you. And even if you decide to go with a local one, I recommend also talking to an online lender or two (or vice versa). Having a range of mortgage rates to choose from can help you get the best deal in a difficult market.