Where are the best places to get a mortgage loan in today’s market?
While interest rates may be headed up, and new credit scoring models are causing confusion, there is no doubt that there are more mortgage options than we’ve seen for almost a decade. Getting a home loan or investment property mortgage might still be a little quirky. However, there are many new and returning home mortgage programs to turn to. Many of these can also be layered with local down payment and home improvement assistance programs. There is also a whole new lineup of loan ‘stores’ to choose from. Many of the old ones are gone, but there are plenty of new options too:
1. Big Banks: The big banks that are left may be shedding a lot of employees, and anticipating a major downturn in refinance activity. They also need to lend to generate revenue, and higher interests rates will make them bolder. In fact, they are already competing quite aggressively. This may be most notable via new email campaigns being sent out to customers to lure them from renting to buying homes. Some are offering three percent down mortgage deals, with credit scores of just 620.
2. Credit Unions: Credit unions and smaller, regional banks are hungry to make more loans too. They sometimes offer more attractive deals, as they are more focused on serving members, and are better in touch with the local market. This is also an opportunity for locals to become members, and to ensure their deposits are being reinvested in their local communities.
3. Mortgage Companies: Recent data shows non-bank mortgage companies making serious gains against bank mortgage originations. Recent estimates credit around 40 percent of new originations to mortgage companies. However, the calculations are a little unclear. This number could be far higher when including investment property financing and new lending platforms. Back in 2004, some estimates pointed to mortgage brokers originating around 60 percent of new loans. These companies, conduits and brokers are more focused just on mortgage lending. Those that have survived the last 10 years have built considerable trust in the marketplace, perhaps even more so than the banks. They can often provide borrowers better rates and terms, and even more creative and flexible borrowing options. In the end, most of these loans will probably end up in the hands of the same loan servicers.
4. Borrowing from Family and Friends: Data suggests that getting help from personal contacts and family is still a strong trend. There are a number of factors driving it, too. There are still a lot of credit issues out there, and many fear the pain of even trying to go to the bank to apply for a mortgage. If they do, they at least want to be armed with large down payments. Others are just still so turned off to bad bank practices and poor service that they simply look forward to saying “no” to the bank offers of credit. They know that even if they get approved for a home loan with a big bank that there can be years of hell afterwards due to illegal practices. At the same time, family members and friends are looking for solutions for investing their money. They also distrust big institutions and have no intention of settling for sub five percent returns on their money.
Lending that money directly to homebuyers, they know can be a great win-win. However, it is critical for everyone to be alert to new Dodd-Frank Act regulations. Multiple loans, even to family members, may be seen as unlicensed professional activity by regulators and the IRS. This could trigger severe penalties. In some cases, this runs up to an absurd $1 million per day in fines. The National Association of Realtors has vowed to fight back and ensure that seller financing and other types of informal lending are allowed.
5. Crowdfunding and Social Finance: There are a rapidly growing number of alternative lending channels. These range from long established peer-to-peer lending sites and social finance lenders, to crowdfunded lenders. SoFi, Patch of Land, and CIX are just some on the names in this arena today. Some offer very attractive rates and terms. Others offer more creative financing for investors.
How will you fund your next property?
