People generally take a home loan in order to buy a property as it is a big investment. These loans are usually long term secured loans and can be taken from a variety of sources. However, there is a debate about obtaining the financing for a new home for any one particular source.
Ideally, you can either take out a loan from private lenders or use bank financing for that purpose. Both options have their pros and cons. Here, we discuss both options for your deliberation.
Private lenders usually generate funds by getting participations from lending investors, who are looking to gain better returns for their funds. They want to enjoy higher interests than those provided by traditional banks and investment avenues.
Private lenders therefore, offer loans in an easier manner, but at higher interest rates. This is mainly because not only do these lenders have to cover their costs with the interest, they also have to provide good returns for their investors. They also provide a home loan option for people who are rejected for a mortgage by a bank.
They in turn, entice consumers by offering them home loans even when they have a lower credit rating. The lenders cover their risk factor by charging a higher interest from these consumers and usually charge at least around 6% in order to cover all of these expenditure heads. However, a charge of up to 10% interest is applicable by all successful lending organizations.
In contrast, banks have several advantages when it comes to financing a new home. Banks usually enjoy access to federal funds that are available to them at a very low interest of around 0.25%. This means that they can easily cover all their costs and still offer an interest rate of around 4% to the end consumers in most cases.
Banks though, only give loans to people and businesses that fall into a certain category in terms of their credit score and history. They are designed by nature to safeguard the money of their depositors and use precautionary measures to avoid risky investments. This means that you have to apply for a bank loan with a good credit history and also clearly show the capacity of returning the loan, especially for a new home.
A home loan usually amounts to thousands of dollars and even a small change in the interest rate can bring you the advantage of saving a few hundred dollars on your loan. The best option for taking a home loan therefore, remains the mortgage options offered by different banks.
They are a clear winner, when compared to private lenders because they offer a lower interest rate and their stringent background check means that you are only given a loan when you can repay it. It saves you from entering a dangerous position in terms of debt.
What’s more, if you are paying your smaller bank loans back in the proper manner, then you can also improve your credit score, which you may ultimately require when you try to take a larger home loan to finance a new home. Todd Frank Home Loans allow you to take out the perfect mortgage loans via the Bank of Texas, especially in the Dallas Ft.Worth area. Contact us for assistance today