Are you looking to buy a home, but not sure if you qualify for a traditional mortgage? Whether you have bad credit or just want to explore options, there are some unconventional loans to help you finance your home.
Read on to learn more about these loans to see if one of these options is right for you.
What Are Non-Conventional Loans?
Wondering what is considered a non-conventional loan or mortgage? It’s a type of loan that does not follow your typical mortgage guidelines. They are also referred to as non-conforming loans.
Conventional loans have guidelines for eligibility based on loan amounts, debt-to-income ratios, down payments, and credit scores. Non-conventional loans are more flexible.
The Federal Housing Administration (FHA) backs FHA loans. These loans are meant for borrowers that have lower credit scores and smaller down payments. This is a popular option for many first-time homebuyers.
There are a few requirements including a credit score of at least 580 with a 3.5 percent downpayment. If the borrower has a 10 percent downpayment, the credit score requirement is 500.
The home must also be your primary residence, and you may have to pay your PMI (primary mortgage insurance) upfront or annually if you are putting less than 10 percent down.
The Veteran’s Administration backs this loan for active-duty military, veterans, and reservists. There is no PMI, and depending on the lender, there may not be a credit score requirement.
Credit unions are often forgotten by borrowers. If you have good credit, you may qualify for a loan from a credit union. You will still have to meet some requirements, but they have more flexible options for consumers.
Many big banks limited their mortgage limits along with their products during the housing crisis, but non-bank lenders still have options.
Online Mortgage Lenders
Online lenders are alternative mortgage lenders and offer consumers refinancing and mortgage options in minutes by using an algorithm. This is popular for those that like to shop online and get instant gratification.
Ask Hayes Barnard about an online lender, Loanpal, that offers friendly financing for home loans.
Marketplace and Brokers
Like online mortgage lenders, popular sites like LendingTree and Zillow offer consumers a list of loan products. These loans are also generated from an algorithm.
The shopper supplies basic information and then the algorithm matches non-conforming mortgage products and rates. The consumer then selects the product and finishes the application.
The marketplace or broker is a middleman and receives a fee for supplying lenders these leads.
How to Get an Unconventional Loan
Don’t get frustrated with the typical conventional mortgage if you want to buy your dream home. There are mortgage alternatives. It can be difficult to save that 20 percent downpayment and have perfect credit with student loans, increasing property values, and the cost of living.
Homeownership doesn’t have to just be a dream for you anymore. With unconventional loans, you have options. Do your research, contact your credit union, or check out online lenders.
Check out our Finance section for more money advice as you work your way toward homeownership or how to save after buying that dream home.