Self-Employed Homebuyers Increasingly Looking To Non-Banks For Mortgages

Single family house on pile of money. Concept of real estate.

Single family house on pile of money. Concept of real estate.

A growing number of American home buyers are purchasing mortgages through non-bank financial institutions. According to USA Today, 60% of the top 10 home lenders by volume are currently non-bank institutions.

Although non-banks have been used for mortgages in the past, the mortgage market was placed back into the hands of big banks after the financial crisis of 2008. According to USA Today, the change in the competition meant banks didn’t need to offer the best mortgage rates to improve business.

“All they had to do was open their doors in the morning and they got as much business as they wanted,” said Guy Cecala, chief executive officer of Inside Mortgage Finance.

However, with time and greater regulation, banks began to focus more intently on wealthier clients. While direct mail advertising is said to convince 39% of customers to try a business such as a non-bank, it was this shift in clientele itself that opened the market doors once again to non-banks.

“There’s nothing wrong with getting a loan from a non-bank,” Cecala said. “Often you’ll get better terms, better service, and looser underwriting.”

The biggest players in the non-bank market thus far include LoanDepot.com and PennyMac Financial. The institutions have been sought after most recently by self-employed Americans.

June Richardson, a loan officer and vice president at GuardHill Financial Corporation, assists self-employed borrowers who aren’t able to make the mortgage loans commonly found at big banks. In the event that a prospective loan is unable to fit GuardHill criteria, Richardson is sometimes able to make a deal with local savings banks to meet the needs of her clients.

“Life is not a cookie-cutter circumstance,” said Richardson. “Everyone has their own set of baggage that they come to you with. You need to have the right team behind you in order to get the deal done,” Richardson said.

GuardHill, a non-bank institution, offers interest-only loans similar to those offered by banks. However, unlike big banks, GuardHill’s loans may be more suited to those who have a lower base salary and rely on periodic bonuses. The flexibility of these loan programs offered by non-banks is beneficial to first-time home buyers, who make up a total of 32% of potential buyers.

Deciding on the amount of space one needs in a home is often similar to deciding on the amount of space needed in a shed. When purchasing a shed, up to 25% of additional space should be added onto the amount of space you absolutely need. The same is true when purchasing a home. However, finding a home with ample space with a mortgage that’s both suitable and affordable for one’s income type is often difficult regardless of the age of the homebuyer.

To help prospective homeowners of every type of income bracket, non-bank lenders such as Citadel Servicing Corporation of California have been known to serve customers with low credit scores. They also ask for proof of income via bank statements rather than a W-2, which is often a challenge for those who are self-employed.

Self-employed customers make up the largest group of Citadel Servicing’s client base. Many of those who receive a mortgage chose a 30-year, fixed-rate loan. Others often choose an adjustable-rate loan with fixed payment options for the first seven years. Down payments typically run from 20% to 40%.

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