Real estate buyers often have two main options for their mortgage. First of all, there's the bank, often the first stop when it comes to shopping around for a mortgage. Secondly, there's the private loan -- also called private lending or in-house lending -- provided by the developer of the property.
Each one has its pros and cons. Consider the following and make the decision that suits your situation best.
Banks offer mortgage rates as low as 5.5%. Additionally, the term of the loan may be set at 20 years -- or even more, in some cases.
Banks also provide certain discounts for long-time clients. For these reasons, many property buyers look to banks to finance their purchase.
Banks also screen their mortgage applicants carefully. They require income verification and a good credit score, primarily. On the plus side, their measures determine whether you're in a position to purchase real estate. On the downside, however, their requirements can be stringent and the application process may take time. Banks may also charge certain fees for the application.
Under this setup, the company who owns or developed the property provides the loan to the buyer, such that he or she can avail of its own product or service.
Unlike banks, private lending entails less requirements and qualifications from its buyers. Under certain arrangements, buyers need only provide the downpayment and proof of income. The application process is also less time-consuming, and these private companies also don't charge as much in fees.
But this comes at a cost. In-house lending often employs higher interest rates to secure themselves from risk. The term of the loan is also shorter. In terms of commercial property, the property must be proven a viable source of income. Additionally, the property itself may serve as the collateral in the loan.
A bank loan would usually suffice for a traditional real estate purchase. Private lending, on the other hand, is often turned to as an alternative for buyers who don't qualify for a standard mortgage; buyers who need to secure the funds immediately; or buyers looking into property that banks don't provide mortgages for.