Saturday, July 9, 2022

Is It Better to Get a Home Loan From the Bank or a Lender?

When you are ready to buy your home, there will be plenty of choices. The two most common options to finance your home are non-bank lenders or large banking institutions. However, each of them has some differences, and your choice could depend on what's important to you. Learn more about how they differ below.

What is the Difference Between a Bank or Mortgage Lender?

Either a bank or a lender can help you get the funding to secure your new home. The applications will depend on credit, income, and debt qualifications. However, there are some critical differences between the two.

Mortgage lenders have several loan options, while banks have fewer options. Also, banks will usually have tighter credit requirements. It's common for mortgage lenders to sell your loan to another lender after closing. Home loans can be secured with either option, but you should consider how they differ.

No matter who you choose, having a decent credit score can only help in your effort to secure a loan, whether it be through a lender or a bank. 

If you’re unsure of your credit score or how it would perform, you’ll want to focus on increasing your score to at least 700 or higher. In fact, if you were able to get a score of over 800, you could likely get yourself a better interest rate.

How to Know Which Is Right For Me?

There are some pros and cons to each option. Let's start with banks. Banks generally have lower interest rates and will continue to service your loan after closing. Also, they may offer special rates if you already have other financings through them. Banks typically try to promote better loan terms and products to maximize their revenue.

Some cons to bank lending include having stricter lending standards, more fees, and longer closing times. One of the more challenging pieces of a bank loan is getting approval. It's generally more difficult to qualify for a bank loan, and the process takes much longer.

Mortgage lenders have many pros, including more options, quicker loan closing, and may be more willing to negotiate the terms. However, some cons include the servicer selling your loan to another lender after closing, meaning you can expect changes to how you’d pay your loan to the new lender.

Lenders and banks both have their advantages and disadvantages to offering loan services. Thus, it's best to shop around and determine which option is best for you. You can get quotes from several different lenders and banks and compare rates, terms, and closing costs from each. Ask lots of questions to understand your agreement.

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