You’re in the market for a home and are beginning to shop around for the home loan that’s best for you. That’s when you discover you can choose between getting a loan from the government or a private lender. Which is best for you? It depends on what you’re looking for:
Do You Want a Lower Down Payment?
Government loans tend to have lower down payments than loans from a private lender because they have many programs in place to help you plan your finances, like down payment assistance.. Just remember that a low down payment often leads to a higher interest rate.
Do You Want a Lower Interest Rate?
Both government and private lenders can offer you low interest rates—you just have to shop around and compare prices. However, interest rates tend to be lower with government loans. Private lenders more often than not have higher interest rates. The cost of lending from private lenders can typically higher because it costs them more to obtain the funds for your mortgage.
Are You Looking for a Loan with Fewer Approval Requirements?
If so, private loans are your best choice. Government loans are typically harder to qualify for, though they do have programs that make it easier for people with imperfect credit to apply. However, the rules have recently changed, which means it will be harder to get approved for a loan.
While some private lenders can and will give you a loan despite your financial situation, be wary and keep an eye out for the signs of predatory lending. If you’re being pressured into a loan you can’t afford, don’t sign anything and find a reputable private lender.
Do You Want Flexibility?
If you need a loan and want repayment flexibility, you can get a legal private loan from family members or friends. These loans tend to be more flexible and have lower interest rates than loans from the government or other private lenders. The only downside with borrowing from family and friends is that it could potentially put a strain on your relationship.