What are Alternative Lenders?
Banks are not the only place where home buyers are getting their mortgage these days. Something called “alternative mortgage lenders,” basically non-banking enterprises, have become a big part of today’s mortgage industry.
Times have changed from when you had to sit down in a big bank to apply for a mortgage. In fact, many of the big banks think of small home mortgages as something that offers a low profit and too much risk to be good business. So, they are not the leading lenders in the $1.5 trillion mortgage industry any longer. Instead, alternative lenders are leveraging online capabilities to improve the process of getting a home loan and refinancing options.
In general, their mission is to offer transparency in their mortgage rates – and their products – and increase the ease and speed of the lending process. In a nutshell, they can offer greater efficiency and easier online application and document procedures.
Let’s break down potential benefits of working with an alternative lender:
Online loan applications create a streamlined process.
Alternative lenders remove annoying delays from traditional methods by using automated loan-decision algorithms, electronic document gathering, and secure online communications.
You may be given several mortgage lender options.
Sometimes online lenders are actually middlemen between borrowers and lenders. Examples of these companies are LendingTree or eLoan. Their mortgage rate algorithms gather your initial application information and present you with a list of potential lenders and rates to choose from. After you choose, you complete your loan process with the lender that appealed to you and your wallet the most.
You may qualify even with less-than-perfect credit.
Alternative lenders are smaller than the big banks, so sometimes they take more risks in building a community - many are locally-owned or family-run businesses serving their hometowns. As a smaller lender, they may also be subjected to fewer federal regulations, so they service customers with less-than-perfect credit.
If you’re concerned about your credit score, it pays to shop around. For example, FHA loans are perfect for first-time home buyers since they now only require a 580 credit score and a low down payment of 3.5%. But not all lenders will approve borrowers with such a low credit score and instead require a higher score around 620. If one lender says no to your application, remember that another lender may have different products or different requirements and say yes.
Look at all lending options
Alternative mortgage lenders can solve some of your lending challenges with faster approvals, online application and document processing, and loan options for those with a challenging credit score. It pays to explore your options, especially if time is short or your credit worthiness is questioned by the big banks.
Have more questions about mortgages? Check out our article about how to get a mortgage.
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