Alternative mortgage lenders include online lenders and non-bank lenders. They’re shifting the real estate marketplace and making it much simpler and easier for consumers to get a mortgage. So what should you know?
There are three main categories that alternative mortgage lenders tend to fall into.
There are online mortgage lenders, which work to add transparency and efficiency to the home loan process. They simplify and shorten the timeline.
There are marketplaces that help borrowers as they’re comparing rates and shopping around for mortgages.
Then, there are non-bank lenders that tend to market their services to borrowers with less-than-perfect credit.
Alternative Online Lenders
Mortgage originators that serve as alternative lenders work online. Quicken Loans is one of the largest and most well-known, and they’ve also become the most popular mortgage lender in the country as far as the number of clients.
They introduced their Rocket Mortgage service with full mortgage and refinance approvals in as few as eight minutes.
It’s almost real-time mortgage approval, which is removing traditional delays that make the process to get a mortgage time-consuming and frustrating.
Some of the ways alternative online lenders can offer approvals so quickly include automated algorithms fueling lending decisions and electronic document collection.
A lot of tech startups break into mortgages by being a middleman. There are marketplaces that are ideal for shopping around and finding the most competitive terms. Zillow and LendingTree are two examples.
These marketplaces use your information to generate originators in line with your needs.
Some of these marketplace platforms also have advisors to walk you through the process.
Non-Bank Alternative Lenders
Non-bank alternative lenders have become a response to many of the big banks retreating away from mortgages. Big-name banks are tending to work only with the highest-qualified borrowers.
Non-bank lenders tend to offer options for people with credit that isn’t perfect, and they may face less stringent federal regulations. You can also include credit unions in this category.
When you go with a non-bank alternative lender, you’ll see the benefits of less regulation. These organizations have more flexibility to lend to consumers who might have been otherwise turned down. They’re also more likely to issue government-backed loans like FHA mortgages and VA loans for high-risk borrowers.
Most non-bank lenders go through the loan process almost entirely online, making it convenient.
While there are certainly advantages to working with a non-bank lender, it’s not without potential downsides. You will see that if you’re a less-qualified borrower, a mortgage still comes at a price, much like at a traditional bank. Your interest rate may be higher than the average so that the lender can minimize their risk exposure.
Examples of popular non-bank mortgage lenders include Quicken, New American Funding, LoanDepot, and HomeBridge.
The prevalence of alternative mortgage lenders is growing. They make up nearly half of all home loans, and they are changing what the process to get a mortgage looks like. They’re also delivering more competition into the marketplace.