Having a hard time getting a mortgage even though you have major plans about building your dream home? Banks have become reluctant when it comes to granting mortgages given the new regulations and legislation surrounding the financial sector. The rules are especially strict for self-employed workers, seniors, and expats.
What you may not know is that this is not reason enough to give up your dreams. This is a great time to be getting a new home because the marketplace has a refreshing array of options, and you no longer have to rely on banks. Whether you are looking to buy or build your home, alternative mortgage financing is available from several sources.
What Are Alternative Mortgage Lenders?
Alternative mortgage lenders are non-bank entities that offer home loans. They provide rapid application processes, possible online applications, unique loan terms, and more. They are also very easy to qualify for, unlike bank loans.
Additionally, most of them are not as strict as banks when clients have low credit scores of spotty employment histories. In this post, we’re going to discuss several alternative mortgage lenders and make it possible for you to make an informed decision.
Alternative Mortgage Financing Lenders Available in the Market
First, you need to understand that you’ll encounter two categories of lenders. The first category includes direct lenders that offer home loans directly to you. These include credit unions and online-only lenders.
The second category includes middlemen or matchmaking professionals who will connect you to direct lenders. These include brokers and other lending marketplaces. Let’s take a more in-depth look into each one and see how they’ll impact your home-buying decisions.
1. Credit Unions
Though credit unions may have similarities with traditional banks, they may offer you better rates, especially if you have a good credit score. They are direct lenders, but the loan structures they offer are also quite similar to banks. Your credit score will matter, and so will your income, your debt-to-income ratio, and your ability to pay.
However, a credit union is a not-for-profit cooperative that aims at serving its members. They are highly competitive and offer personalized services and loans.
They process mortgage loans much faster compared to banks since everything happens in-house. One of the significant advantages is that they’ll never sell your loan, which could lead to future frustrations for you. The biggest drawback is that you need to be a member of the union before you can get a mortgage loan.
Credit unions members tend to have a bond that could be anything from community memberships to a geographical location. It may be hard to join if you are not a part of that bond.
2. Online Mortgage Lenders
Technology has advanced so much so that getting a mortgage online is a possibility. Online lenders are an incredible alternative mortgage financing option, especially for people with low income or low credit rates. Borrowers with non-traditional jobs, such as freelancers or self-employed business owners, may also have a better shot at getting financing from online alternative mortgage lenders.
One of the most significant advantages of online alternative mortgage financing is that you’ll have a wealth of choices to pick from. You can research, compare, and cross-reference before making a decision. The next best thing is that you’ll possibly get lower interest rates, convenience, and flexibility.
The online experience is more interactive, and it’s possible to use the mortgage calculators provided by the lenders to know what your monthly installments will be. The drawbacks include online scammers, whom you should be wary of, and possible low customer services. You’ll also be going through the process without professional guidance, and the possibility of making a mistake is much higher.
3. Lending Marketplaces
When dealing with lending marketplaces, you’ll not be dealing directly with the loan provider. These are matchmaking services, and once you offer your personal information and the kind of loan you want, they’ll give you different loan options from regional and national lenders. When you compare and make a decision, they will complete the loan process for you.
4. Brokers
Loan brokers are middlemen just like marketplaces, and they act as a liaison between you and the financial institution. Some have offices, while others operate online. Professional, licensed, and regulated brokers are highly informed about the mortgage market, and they will present you with options you may not have thought of.
They will take you through the whole process, ensuring that everything goes smoothly. At closing, you pay them a commission, which most of the time comes to 1% of the loan.
The most significant drawback of dealing with brokers is that the one you choose may have a limited number of lenders to work with. This will, in turn, limit your options as well. Worse, if the broker is receiving a substantial financial benefit from a certain lender, they may offer you a loan that’s not suitable for you just because they are getting something out of it.
5. Hard Money Lenders
If you still can’t acquire a mortgage loan from all the options above, a hard money lender is also a feasible alternative mortgage financing option. This is usually the last resort for most people because hard money lenders can easily seize the house. You see, they offer very fast closing times, they may customize your loan repayment schedules, and they may not even check your credit score.
However, they usually ask for a loan-to-value ratio of 50-70%. This means you’ll need a home equity or assets of 30-50%. Besides that, most of them come with hefty fees, high-interest rates, and short-term. If you want an alternative mortgage loan that will last up to 30 years, then this option is not viable.
Seek Alternative Solutions
Besides these alternative mortgage financing options, you can go a different route to acquire your dream home. For instance, you can borrow from your retirement account, get a soft loan from a family member, from your insurance policy, or seller financing. You can also rent to own or simply save up if you are in a position to do so.
If you’d like more in-depth information about loans or have questions you’d like answered, kindly check out our website. If you are currently looking for a loan, get in contact, and get a quote.