If you’re one of many who will be home shopping this spring, you might be interested in using an alternative lender for your mortgage. These days, banks are far from the only place to get the money to make your dream a reality. In fact, close to half of all home loans are made by an institution other than a bank, such as Quicken Loans.
The good news is, all mortgage lenders — banks, non-banks and credit unions — are subject to federal lending laws. But there’s plenty to think about when going against tradition.
- What’s the attraction? “They can do a lot of deals that banks can’t do, and often close deals much faster than big retail banks. There are programs for borrowers with a recent short sale or foreclosure, or if a borrower can’t qualify with a traditional 1040 income, there are programs to qualify with bank statements,” says Sebastian Amaya, a mortgage adviser with GuardHill Financial in Manhattan.
- Proceed with caution. According to a report by Consumer Action, an advocacy group in Washington, D.C., while it’s possible to get good mortgages from alternative, non-bank lenders, there are things to be aware of. For starters, non-bank Federal Housing Administration loans to borrowers with less-than-perfect credit and small down payments have shown a greater potential to lead to borrower default. You might get the loan you want, but if you can’t handle it, trouble awaits.
Though you may get a loan despite your low credit score, expect higher interest rates.
Know who you’re dealing with. Research the lender to make sure they are legit.