If you need a mortgage to buy a home or renew one for a house you already own, you will have two options – bank or private mortgage. The major difference is that bank mortgage officers represent their institution’s products, whereas private mortgage lenders serve as intermediaries between customers and multiple lenders.
Although traditional banks are used for mortgages by many homeowners, private lenders are trending upward. Finding the desire or deal to have the best rate is the main reason many people prefer a private lender.
Private Mortgage
A private mortgage is a loan offered by a lender outside traditional banks. In general, they are individuals or small companies who offer short-term interests to borrowers.
They are funded by banks, investors, or even both. Every private lender is in business to take funds from private investors and offer them as a home equity loan.
How Private Lending Works
Similar to traditional bank mortgages, the first step involves applying for a prequalification. Basically, your pre approval will ensure you understand how to structure your search around the qualifying price range properly.
If you have identified the right property you want to buy, you will need to reach out to a private lender to give you proof of funds. The speed factor will be an added advantage if you want to invest in a home for financial purchases.
In essence, whatever the reason for your bridge mortgage, the process works the same as bank, only that it is easier and quicker.
Pros
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Offers competitive rates
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More convenient
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Personal and better customer service
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Considers personal needs
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More flexibility
Cons
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Higher interest rates
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You must create realistic exit strategies
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They are short-term
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Properties marketability should be proven
Bank Mortgage
This is a bank specialized in mortgages. It might be associated with servicing or originating mortgages, or even both.
Similar to a stated income mortgage, bank mortgages are offered to borrowers, and lenders collect payments in installments or sell loans in secondary markets.
How Bank Mortgages Work
Buying a house is the American Dream. The bank mortgage lenders offer a large chunk of cash that you should pay back with interest for some time.
Failure to do so, the bank will take away your home through the legal process, referred to as foreclosure.
Pros
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The main focus is on mortgages
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Offer competitive mortgage conditions
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Direct lender
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Lean cost structure
Cons
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Longer closing times
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Strict lending standards
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Cross-selling of more banking products
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Fewer varieties of loan products
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More fees because of additional compliance requirements
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Less mortgage lending expertise
Key Differences
Compensation is among the major differences between private mortgage lenders and bank mortgage lenders. Usually, private mortgage lenders get paid on fee-based schedules.
In many cases, loan origination fees that banks charge are paid to brokers. This figure depends on the amount of loan that influences a broker’s research and advice.
Which is better? The Bottom Line
You must decide which kind of mortgage lender is best suited for you. Direct mortgage lenders, banks, and credit unions may get the job done. But will they have it done faster to get the home you picked out?
The mortgage requires a personal touch without hurting its efficiency. This means a private mortgage lender is uniquely positioned to offer you great services at the same cost as banks do.
