When it comes to home loans, there are two options: bank financing or a mortgage company. Which is better? At Metropolitan Mortgage Corporation: mortgage lenders in Kansas City, we have developed this guide to give you a detailed insight into both options and help you determine the perfect choice for you.
First, you must compare what each has to offer. Bank financing offers lower rates but stiffer requirements which may be beneficial for some borrowers. Mortgage companies offer greater flexibility but higher rates with more lenient requirements that are probably best for those who want less involvement in the loan process. You must weigh these two factors against each other to determine which one best satisfies your needs and preferences.
Rates
You should consider rates when comparing bank financing and mortgage companies. Mortgage companies have higher rates than banks in most cases. However, the differences in rates between a bank and a mortgage company are subjective. While the lower rates from banks are attractive, it is not uncommon for a borrower’s credit score to get you high-interest loans. As a result, it would be better to focus on what rate you are getting the loan at, and not necessarily who is giving it to you.
Requirements
Banks typically require higher credit scores and larger down payments than mortgage companies. Down payments for bank loans are often about 20% to get a good loan rate. Mortgage companies typically require a down payment of about 5%. Credit requirements are also more stringent with banks, with many preferring a FICO credit score above 660.
When determining the best house loan, you must consider the amount of money saved for a down payment and how much the monthly mortgage payments will be. If a lender requires 20% down, but this is more than you can afford, it makes little sense to choose this lender over one that offers lower requirements.
Loan Type
Many banks often offer fixed interest rate mortgages which remain constant until the loan is paid off. This is a fairly good option for borrowers who have a fixed income. It might be better for those with fluctuating income or in business to choose a mortgage company that offers adjustable-rate mortgages (ARMs).
With an ARM, the interest rate will change to keep up with market rates and inflation. This change has its advantages since it allows borrowers to make payments according to their current financial situation. On the other hand, ARMs are also more expensive than fixed-interest loans since they are tied to short-term market rates, whereas bank loans are linked to long-term rates.
Loan Term
Banks typically offer loans that last between 30 and 40 years. Some mortgage companies offer loans lasting up to 50 years. The shorter the term of your loan, the quicker you will gain more equity on the property, getting you closer to owning the property outright.
Repayment and Financing Terms
Bank loan payments are assessed based on the interest rate of the loan and the principal that you have paid. Some banks will also allow you to make extra payments, reducing your interest rates and the loan duration. Mortgage loans are repaid in a variety of ways, depending on the terms and the financial institution. The borrower can be required to make fixed payments for a predetermined period, after which the monthly payment can increase. A fixed-rate mortgage has an interest rate that doesn’t change over its duration. In some cases, borrowers can also choose to defer their monthly loan repayments until a later date.
Fees and Other Costs
Banks and mortgage companies sometimes charge fees to process the loan. Banks generally do not charge closing costs, but mortgage companies often do. Homeowners insurance is generally included in the price of a house through the mortgage company but not through banks. Banks may provide higher quality service and more consumer protection than mortgage companies. On the other hand, they also charge borrowers more for these services.
Give us a Call
Banks and mortgage companies have a lot in common, but they have their differences. It’s important to remember that both can legally lend money to home buyers looking for financing. It is your responsibility to research both options and decide which one will be the best fit for your home buying goals. If you need help finding a qualified local mortgage lender, reach out to us at Metropolitan Mortgage Corporation: mortgage lenders in Kansas City.
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