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Tuesday, 11 December 2018 06:00

What Are Non-Bank Loans and Why Are They So Popular?

non bankIf you’re in the market for a mortgage, your first stop may be the local bank or a national lender whose commercials you’ve seen on TV.

This may be the case even if you’re a veteran of rental property investing who has already been through the mortgage process more than once.

While these lenders may offer the kinds of mortgages you want, it would be wise to consider all of your other options, too. Specifically, non-bank loans have been exploding in popularity for the past decade.

That’s for good reason, too – several of them, actually.

So, don’t accept a mortgage until you’ve reviewed them.

 

 

What Are Non-Bank Loans?

For the most part, non-bank loans are exactly what they sound like. They’re loans that originate from alternative lenders, not traditional banks. Generally, the easiest way to tell if you’re dealing with a “non-bank” is if the institution in question does not accept deposits. Doing so tends to be a distinguishing trait of traditional banks.

There are exceptions to this rule, but non-bank companies that accept deposits are insured by the Federal Deposit Insurance Corporation (FDIC) and must abide by specific reserve requirement restrictions.

Nonbanks are not a new development in the financial world.

For decades, auto companies have offered loans to customers, so they can buy their own cars. Many retail companies have also long since offered lines of credit.

However, in the past 10 years or so, many new nonbank lenders have launched, in large part to meet demand that traditional lenders are mostly unwilling to service.

Back in 2011, three of the biggest banks in the country (Bank of America, JPMorgan Chase, and Wells Fargo) were responsible for lending 50% of the money for mortgages. By 2016, their market share had shrunk to just 21%.

At that time, 6 out of 10 of the largest lenders in the country – by volume – were nonbank institutions. In 2011, only two were on that list.

So, while many people still think of disreputable products like payday loans when they hear about nonbank lending, the reality is that this alternative is quickly becoming the standard for many borrowers, even those who are looking for mortgages.

Today, nonbank lending is a $100-billion industry.

3 Reasons Non-Bank Loans Have Exploded in Popularity

Depending on your unique needs, there may be any number of reasons non-bank loans would prove to be the best solution.

However, the following three are probably most appealing to those who want a mortgage so they can purchase a rental property.

1. Fast Turnaround Times on Applications

Everyone knows the first rule of real estate is, “location, location, location.”

However, when it comes to investing in real estate, a close second is, “timing is everything.”

There’s nothing worse than missing out on purchasing the perfect property because a lender wasn’t able to put together a mortgage fast enough.

Unfortunately, it can easily take 30 days to get approved for a mortgage if you go through a traditional lender. Often times, it can take a lot longer, too.

That is not ideal when you have a motivated seller who’s looking to offload a property ASAP. At the very least, if that property is still available after a month, the seller may raise the price substantially if they’ve seen sufficient interest.

2. Familiarity with Rental Home Investors

One reason for the growing popularity of non-bank loans is because investors who want to build robust portfolios of rental properties simply refuse to wait a month or more to get approved for a loan. But another very closely-related reason is that most traditional lenders simply don’t understand these types of investors.

The mortgages they’re focused on providing are for people who want to buy homes they’ll use as their primary residences. There’s a big difference between that kind of buyer and someone who plans on purchasing a home, so they can begin renting it out right away.

As such, many traditional lenders won’t underwrite mortgages for borrowers who already have four. Some will stop at two. Even though FNMA’s 5-10 Properties Program was designed to encourage traditional lenders to offer mortgages to these types of borrowers, most have no interest in doing so.

Nonbanks, on the other hand, are usually more than happy to offer mortgages to investors who already have five or more.

3. Greater Loan Customization

Again, traditional lenders’ mortgage programs were designed for people who want to purchase their primary residences. That means most of these lenders only have a few options to offer and their underwriters are given very little freedom to customize them.

If you’re hoping to purchase multiple properties at once, this takes traditional lenders out of the running. These banks just can’t create the kind of mortgage you need for that kind of large purchase.

Most alternative lenders that offer non-bank loans would be more than happy to, though. In fact, one of the most popular non-bank loans is meant to facilitate this very type of transaction.

Known as blanket loans, they’re a single mortgage that finances multiple properties.

Furthermore, qualifying for this type of loan has far less to do with your personal financial history and far more to do with the properties you plan on purchasing.

While it certainly doesn’t hurt to have an impressive financial record, nontraditional lenders are interested in whether or not the rental properties seem like they’ll be able to help you repay the loan.

Provided they do, you shouldn’t have any problem securing as many loans as you want.

Want Simple, Straightforward Access to Non-Bank Loans?

At Rental Home Financing, we’re proud of the reputation we’ve developed among experienced property investors for our non-bank loans. We understand the unique needs of people who buy rental properties because we serve that market exclusively.

So, if you need a loan to add to your portfolio – including blanket loans for adding multiple properties with just one mortgage – we’re ready to help.

Just get started on your loan application today and we’ll let you know if you qualify ASAP.

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About Rental Home Financing:

Rental Home Financing, as the best mortgage lenders we originate rental home loan products and cash out refinance investment property loans as the best investment property refinance lenders. Commercial blanket loans are available with a commercial purpose to suit your needs.

Also, as DSCR loan specialists, we are currently authorized to make such loans in most all areas of the United States. Specific circumstances will determine whether we have the ability approve/close portfolio rental home loans in your state(s). When you are ready to get a mortgage for rental property, we are ready to serve you.

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