Is it beneficial to seek the help of a conventional lender?

A conventional lender offers traditional mortgage loans on normal or conventional terms and conditions. The loans are held in his investment portfolio until they are repaid fully. There are some benefits of using the conventional lender:

1. The conventional lender is ready to negotiate or eliminate certain loan fees. Building a good relationship with him helps the borrower enjoy certain benefits.

2. The lender keeps the loan in his own lending portfolio, so he allows more underwriting flexibility. Since the loan does not require meeting secondary market guidelines, he offers more flexibility.

3. The conventional lender may have the willingness to provide financing to personal property along with the real estate loan. The borrower can therefore utilize the amount for buying appliances, furniture, etc.

4. The loan is held in portfolio, so the appraisals require meeting the guidelines of the conventional lender only, whereas non-conventional loans require strict appraisal of the Federal Housing Administration.

5. If the borrower finds it difficult to obtain private mortgage insurance, then the conventional lender insures the loan and charges a high rate of interest for facing a greater level of risk.

6. When the borrower experiences cash shortage, the conventional lender may provide funds to settle closing costs. However, he may charge a high interest rate for the same.

7. The lender may allow some creative financing options to the borrower.

8. Generally, conventional lenders do not require an upfront mortgage insurance premium when a borrower closes the loan.

9. There is no loan limit in conventional lending, so the borrower can raise funds to meet all his business requirements.

10. Conventional lending does not involve red tape. It requires shorter processing time. It offers great flexibility to the borrower.

11. Conventional lenders offer various options to the borrower, like fixed interest rates, variable interest rates, etc.

Despite the benefits, there are some disadvantages in seeking the help of conventional lenders. The lender would not lend on a property that is in poor condition. He may not be willing to lend on property that has insufficient cash leverage. Again, if the borrower’s credit score is too low or if the borrower seeks fast closing, the conventional lender may not be able to lend.

Conventional lenders usually require larger down payments than non-conventional lending institutions. The lender sets the interest rates and so there is chance of higher interest rates.

Conventional lenders stick to specific lending programs, so they are unable to suit the specific needs of individual borrowers. Most of the lenders offer loans based on the cost of the project. They offer 50 to 80% of the cost of the project. However, private lenders lend based on future value of the property.

Though potential borrowers are more likely to turn to private lenders to get rid of their financial difficulties, conventional lenders are considered as one of the major financial source by the borrower. In fact, conventional lenders charge lesser fees as compared to private lenders. Most of the conventional lenders charge 1-point origination fee whereas the private lenders charge 3 to 6 points.