differences in a Bank Loan vs a Mortgage ?

Question

Good Morning,I was doing some reading last night on various ways to get financing for properties ,a nd I came across a comparison of Getting a bank Loan vs a MortgageIt seems that a Bank Loan is the preferred method for Lenders ?Would the credit score / DTI be more lenient with a Bank Loan vs a Mortgage , sine a Mortgage is also FHA, VA, USDA loan , of which these three all have stricter guidelinesI am calling my Lender today to discuss getting a Bank loan on this property I have been pursuing, and was just trying to get as much information before I call them as possible .And lastly.... This property is in a Trust , and also from what I read , this too can be a benefit to the borrower, as the likelihood of getting this property is greater ?Thanks so much - Michael

Jon Holdman · Answer

Not sure what you're reading, but I think its getting you confused. Strictly speaking a "mortgage" (or, in some states "deed of trust") is a document that gives the lender a security interest in a property. These documents are typically associated with loans, and give the lender the right to foreclose if the borrower doesn't pay. A mortgage or deed of trust is created whether a bank is the lender or someone else.Colloquially, the term "mortgage" is used to mean a loan secured by a property.Bank loans are simply any loan made by a bank. When a bank lenders on a property, a mortgage or deed of trust is almost certainly going to be created. But banks make other sorts of loans, too. Perhaps when you say "bank loan", you're referring to some other sort of loan, such as a HELOC.Are you trying to buy a property? Refinance?There are a lot of different types of mortgages. You mention three, but there are many others.

Jon Holdman · Answer

@Judah Hoover that makes sense. "Bank loan" may mean what a lot of folks call "portfolio loans". Loans banks make and hold in their own portfolio of assets. Those are also called "commercial loans" because they don't follow all the rules established for "residential loans" aka "conventional loans".

Justin Whitfield · Answer

A mortgage is just the security of a loan, it is something recorded at the courthouse and a lien on the property. The mortgage secures the note (promissory note or mortgage note), which is the loan.A bank loan would almost assuredly have a mortgage with it.

Michael Dunn · Answer

Hi Jon,I am looking to purchase this propertyAre Bank Loans more lenient , as to the guidelins that a property has to meet ( in comparing it to say an FHA loan )?If I try for a bank loan , and can get this property ( purchase price ) for around 70% " under " it's ARV , hopefully this will be an incentive enough , for the Bank to do a Bank Loan.... perhaps ?This way they'll know there's plenty of equity already built into the property ( once it's fixed up and the repairs are made ) ..... Plus, the bank would be lending to me at around a 70% LTV ..... which seems would be a positive for them ( even though I wouldn't be putting down, a 30% down payment )On a typical bank loan, what is the required down payment ( percentage ) wise ?And how are the repairs factored in with a bank loan , vs say an FHA 203K ? Do they also , just set the money aside for the repairs in Escrow ?Thanks so much for all of the help - Michael

Judah Hoover · Answer

Okay @Nadine Massarelli I think I now understand what the point of confusion is. And it could be the same issue @Michael Dunn is having. There is a difference between Commercial and Residential loans. BOTH however are called "mortgages" when they are attached to real estate. Commercial loans are done "in house" and the bank sets their guidelines... but all banks follow many of the same rules. They will lend to an LLC, on mixed use properties, above 4 units, and many other situations that would not allow someone to use conventional/residential financing. These loans are also kept by the bank and not sold on the secondary market. because the bank uses its own funds to make these loans they have rates that are tied to savings rates, and usually have terms fixed for 5 years or less, but you can sometimes find 7. Prepayment penalties are common but not 100% unavoidable.Residential loans are much more like the loans people get on their houses they live in. 30 year fixed terms, interest rates a point lower (roughly). no prepayment penalties. Taxes can be escrowed. 99.997% of these loans are sold to Fannie May, Freddie Mack, USDA, FHA, or VA. That means the banks are using the guidelines set by a 3rd party... in some cases 2 or more 3rd parties if they don't sell direct, and then placing their own "overlays" on top of them. DONT BE FOOLED even if a bank still collects the payments on the loan, called "servicing the loan", they have sold it and down own it.I have been in lending for 15 years. I never cease to be SHOCKED how little commercial loan officers know about residential loans and guidelines and vice versa.Lastly I would say it seems from even just the little they have commented @Jon Holdman and @Justin Whitfield are also very knowledgeable and may want to add more now that I think we have uncovered the confusion.

Nadine Massarelli · Answer

I have come across the issue of bank Loans versus conventional loans. Our community bank does bank loans for some of it's more established clients. The interest is slightly higher but the loan does not have the same qualifying factors.Good luckNadine