Big banks are no longer the only place to get a mortgage. In fact, many banks have chosen to step back from the mortgage industry because of tougher regulations and the sting of federal lawsuits. As a result, getting a mortgage from the big banks is tougher than it used to be; these lenders prefer highly qualified borrowers with sparkly credit ratings and substantial income. If you don't meet those requirements, consider one of these alternative mortgage sources.
1. Your friendly neighborhood bank (or credit union)
As the big banks loosen their stranglehold on the mortgage industry, smaller banks are rushing in to fill the gap. Small banks don't have the same kind of regulatory requirements that big ones do, so they're more comfortable lending to someone with credit issues, especially if that someone is a longtime client or is otherwise known to them. Credit unions are not-for-profit banks, so they can often take slightly bigger risks and/or charge lower fees than standard banks. To get a credit union mortgage, you'll need to be a member, but membership requirements and fees are usually easy to meet these days. Some credit unions even offer low- or zero-down-payment mortgages that don't require private mortgage insurance -- a perk that could save these lucky borrowers thousands over the life of the mortgage.
2. Community home lenders
Some locally owned, small to midsize businesses do nothing but mortgages for borrowers in their immediate area. They have advantages similar to smaller banks and credit unions -- namely, they don't face the same kinds of regulations that hamper the mortgage departments of big banks. These lenders are also more comfortable giving FHA and VA loans than the big banks are.
3. Online mortgage lenders
Online lenders are blessed with the same advantages as online banks: Because they don't have brick-and-mortar locations, they avoid all the costs associated with physical branches, and because they're internet-based rather than regionally based, they can work with borrowers all across the country. Many online lenders make a show of offering super-speedy approvals. One lender even promises a full mortgage approval online in as little as eight minutes. Others, such as PennyMac, promote FHA and VA loan options, which are often easier to qualify for than standard mortgages.
4. Housing finance agencies (HFAs)
HFAs are state-chartered organizations that exist to help low- and moderate-income residents find affordable housing options. These agencies have so far provided 2.6 million mortgages for first-time homebuyers, and their credit requirements are typically lower than those of traditional mortgage programs. Most HFA mortgage programs also have flexible down payment options, which can be a big help for cash-poor borrowers. You can locate your state's HFA offices by using the directory on the National Council of State Housing Agencies website.
Look before you leap
Predatory lending practices were largely responsible for causing the Financial Crisis of 2008, and while it would be nice to think that we've all learned our lesson from that catastrophe, in reality that's far from certain. Before signing up for any mortgage, be sure that 1) you understand the terms, fees, and requirements perfectly, and 2) you're positive you can really afford the loan. If you're not clear on either of these points, walk away until you are.
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