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What You Need to Know About Non-Bank Lending

If you’re looking for a mortgage loan, you may think you have to go through a bank. You would be wrong! In fact, half of all home loans are through non-bank lending – also known as alternative lending.

As the name implies, a non-bank lender is not a bank or credit union. It can be an online lender, a mortgage firm, or even an individual investor (like a Lending Club or Prosper loan). The most commonly-used non-bank lender is Quicken Loans.

Many individuals and small businesses are wary of borrowing money from an institution other than a bank. However, banks have been more stringent about approving mortgages since the economic crisis in 2008. Non-bank lenders are more likely to approve these types of loans. They have many other benefits, as well.

If you’re in need of a loan, after checking with your bank for their rates, see what a non-bank lender has to offer. Here are some things you should know about this form of lending that’s growing in popularity:

  1. All mortgage lenders must abide by state and federal laws. It’s understandable to be a little cautious of non-bank lenders. However, rest assured that they are trustworthy. Any institution that intends to lend money to you must follow state and federal laws regarding lending. They must be upfront with you about rates and fees and cannot mislead you.
  2. Non-bank lenders are often cheaper. These types of lenders often offer better rates than banks with lower upfront costs and fees, making them a more affordable option. If you’ve been offered a rate by a bank, you might want to compare the rate to a non-bank lender. They will compete with banks for your business.
  3. The lending criteria for non-banks is less stringent. Banks go off of W-2s, income, credit scores, assets, savings accounts, and many other factors. Non-banks are more relaxed in this regard. You don’t have to have a perfect score and a seven-figure income to qualify for a loan. You can still get a decent loan if you’re lacking in certain areas. You just need to prove that you have the ability to pay back the loan.
  4. Non-bank lenders tend to have shorter closing times. Banks may take many weeks or even months to close on a mortgage loan. By choosing a non-bank lender, you can get your money quicker – sometimes in as little as 15 days. Time is of the essence. If you want to get your business up and running quicker, try for a non-bank loan.
  5. Non-bank lenders are more amenable to your needs. Banks tend to have just a few mortgage products, and they are rarely customizable. With these loans, it’s all or nothing. Non-bank lenders, on the other hand, can tailor your loan to fit your needs. Banks tend to be interested more in larger loans because those are the ones they make the most profit from. With non-bank lenders, you can get a loan as small as $10,000 or $20,000 and pay it off in just a couple years. Many banks don’t have that option.
  6. Non-bank lenders may not be as accessible. The nice thing about banks is that you can go inside a local branch and apply for a loan right then and there. Many people like being able to talk to someone in person and get all their questions answered before they apply, rather than simply fill in some information online and hope for the best. Plus, some people feel comfortable using a bank they already use for their checking or savings accounts, like Wells Fargo, the top mortgage lender.
  7. Banks tend to be more established than non-bank lenders. Many non-bank lenders are new to the market, but some have been around for about a decade. Still, that’s nothing, compared to Wells Fargo, which has been around for nearly 165 years. Many other banks have been around for 50 years or longer. This amount of experience makes banks an asset. They must be doing something right if they’ve been around that long. Because of their longevity, banks tend to be the safer choice, as a non-bank lender may not be protected in the event of a financial crisis.
  8. Many non-bank loans have risky terms. You must be careful when you agree to a loan from a non-bank lender. The loan may look good on paper, or the lender may explain it to you in such a way that is sounds too good to be true, so be wary. In order for you to qualify for a specific loan, a lender may try some tactics such as interest-only payments or adjustable rates. You may have to pay a crazy down payment or be forced to make a huge balloon payment in just two years. Many people default on their non-bank loans because they were unaware of the terms and unable to make the payments. Be sure to read the fine print before agreeing to a loan that you may not be able to pay back.

A non-bank loan can be beneficial for you based on your unique situation. Just make sure you know what it entails before you sign on the dotted line.

If you’re in need of a warehouse, office space, or another type of commercial property, you will likely need a loan to make it happen. Think outside of the traditional bank scenario and take advantage of all the lending opportunities available to you. Don’t limit yourself; after all, you don’t want to miss out on the ideal property for your business or investment.

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About Tim McMahon

Work by editor and author, Tim McMahon, has been featured in Bloomberg, CBS News, Wall Street Journal, Christian Science Monitor, Forbes, Washington Post, Drudge Report, The Atlantic, Business Insider, American Thinker, Lew Rockwell, Huffington Post, Rolling Stone, Oakland Press, Free Republic, Education World, Realty Trac, Reason, Coin News, and Council for Economic Education. Connect with Tim on Google+