Are you getting ready to apply for a mortgage loan? Are you confused about where to go to borrow money for your house? The first step is to understand the differences between private mortgage lenders vs banks. Read on to learn everything you need to know so you can choose the right option for your needs.
Private Money Lenders vs Banks: What’s the Difference?
Let’s start with the basics. What’s the difference between banks and private lenders for mortgage loans?
Banks are funded by the federal government and have to follow federal lending regulations.
Private lenders, on the other hand, get their funding from investors (although, some are also funded by banks). They’re still regulated, but the regulations aren’t quite as strict as the ones in place for banks.
Pros and Cons of Private Mortgage Lenders
There are plenty of reasons to consider working with private mortgage lenders rather than banks. Here are some of the pros and cons to remember:
It’s often easier to get approved for a private mortgage loan. Private lenders have less stringent requirements for things like credit scores and debt-to-income ratios, so those who might not qualify for a regular loan have a better shot with a private lender.
The approval process is typically faster, too. You can fill out your application and get approved right away since the lenders don’t have to jump through as many government-regulated hoops.
Private mortgage loans often have shorter repayment periods than traditional loans from banks. They also tend to have higher interest rates.
Most borrowers don’t mind this, though, because they appreciate the faster approval process. This is especially true of borrowers who are looking to buy a house to fix up and flip or rent out to tenants.
Pros and Cons of Banks
There are pros and cons to holding a private mortgage, but there are also pros and cons to getting a mortgage loan from a bank. Here are some of the most important ones to consider:
When you borrow from a bank, you may be able to get a loan with a lower interest rate than you would if you worked with a private lender. Your loan will also come with a longer repayment period, which allows you to make lower monthly payments.
A downside of a traditional mortgage loan is the length of the approval process. Because banks have to follow stricter rules put in place by the government, it takes longer before you can get approved.
You may also have a harder time getting approved, especially if you have a lot of debt or a low credit score. In 2021, for the best interest rates, you need a credit score of at least 760, which isn’t exactly easy to come by.
Private Mortgage Lenders vs Banks: Which Will You Choose?
Now that you know more about the differences between private mortgage lenders vs banks, which one seems like a better fit for your needs? Keep this information in mind so you can find a lender that works for you and helps you get the best mortgage rates possible.
Want to learn more about getting a loan for your new home (or investment property)? Head to the Real Estate section of our site today for additional resources and advice on finding the best mortgage lenders.