Bank or Non-Bank Lender: Which Is the Best Option for Mortgage?
It has become easier to secure a loan as banks are finally relaxing their requirements after the recession of 2009. However, it’s still a challenge for many to get a good mortgage, especially if you consider the minimum credit rating requirements. However, today there is an alternative to bank mortgage. This type of mortgages has been growing by 30% every year and it looks like it will soon rival bank lending.
This sounds impressive, but are alternative lenders truly better? These mortgages are associated with some risks that you have to consider before making any decisions.
Why Choose Non-Bank Lending
Please note that a non-bank mortgage is very different from quick loans you can get online today. Those are often called payday loans and their main attractions are low eligibility requirements and short approval times. You can get that kind of loan in a couple of hours, but they usually have a rather low maximum loan amount.
Also, this type of lending doesn’t include bad credit mortgages. Those are programs with specialized requirements for which not everyone is eligible. You should research them separately to find out if it’s an option for you.
A mortgage is most likely the biggest loan you will ever take. Therefore, both bank and non-bank lenders have similar eligibility requirements for it. In this sense, you don’t really get any major advantage by applying to an alternative lender. You still need to have a credit score over 700, a stable source of income and meet all legal eligibility requirements for this loan. You also need to prepare the important questions to ask a lender or a mortgage broker. This will allow you to understand what you are getting into exactly and determine if the lender can be trusted.
However, there is one big difference between banks and non-banks, which is the processing time. By taking out an alternative mortgage, you should be able to get it by at least 10 days faster than you would while dealing with a bank.
There is also the added convenience of being able to apply for and manage your mortgage online. Alternative lenders are more progressive and innovative, therefore, they use a variety of fintech solutions. Being able to manage their debt online and make digital payments is another thing that the borrowers of today want badly.
All this considered, it might be worth getting a non-bank mortgage for the sheer convenience of it.
Why Banks Might Still Be a Better Option
So, applying to a bank for mortgage might take a while and it’s often a stressful, time-consuming, and tedious process. However, you need to understand that when you get a loan from a bank, you actually deal with the institution that has the money.
Non-bank lenders, however, do not have the capital to back the loans they offer. They operate by selling loans to investors, thus using credit to fund them.
Another issue to consider is the legality of it all. While many non-bank lenders are perfectly serious and reliable businesses, some are not. And considering their business structure, this means that you might end up with a loan that will cost you a lot more than it should down the line. All this can happen because of the lack of regulation for these lenders.
As they aren’t banks, the authorities cannot hold them to the same standards and impose the same regulations on them. This can be good, because the leeway allows these lenders more flexibility, so they might bee able to offer better rates and terms. However, this also means that you, as a customer, aren’t as well-protected.
Now, remember that this is the biggest loan of your life, and should something go terribly wrong, it might ruin you completely. Are you still willing to take the risk?
If yes, be sure to research the lender thoroughly as you must be 100% confident in their trustworthiness and dependability.