New research from Ohio State University suggests that homeowners who obtain home loans from local mortgage lenders are less likely to default than those who borrow from more distant banks.
The researchers noted that even if two similar homeowners received the same type of mortgage with the same interest rate, the borrower who went with the local bank might be better off.
“The door you walk into when you’re looking for a loan matters a lot,” said Stephanie Moulton, assistant professor in the John Glenn School of Public Affairs at Ohio State University, in a statement.
“Local banks seem to offer some protection to homebuyers, particularly those with low incomes who may be seen as risky borrowers.”
Moulton attributed the phenomenon to more prudent underwriting at local banks, who tend to look at income and employment history more closely to ensure borrowers can actually make their mortgage payments.
“Many mortgage brokers base their decisions on whether to offer a mortgage on one or more key numbers, such as a credit score,” she added.
“In other words, if your credit score is above a certain level, and you meet other criteria, the broker will offer the loan. The same may be true of large, non-local banks.”
But local banks and lenders typically have established relationships with their borrowers, including checking/savings accounts, so they know more about those being extended home loans.
Many of these local banks also get their borrowers to set-up automatic mortgage payments, which could lead to a lower default rate.
All that said, you should always shop around to find the best mortgage rates!