Non-Bank Financing

One of the first steps in short-term real estate investing is knowing your financing options. Getting the right loan is what helps your vacation property gain traction.

However, what some people might not know is that your choices expand beyond traditional commercial banks. We have many non-bank lenders at our disposal, and deciding between the two lending types might require some reading.

In this article, we will discuss what non-bank lenders are and a few of the advantages of using non-bank financing.

What is a Non-Bank Lender?

As the name suggests, a non-bank lender is any lender that is not a commercial bank or credit union, but one that still retains the funds necessary to lend to would-be borrowers.

Non-bank mortgage lenders, more specifically, provide similar services to traditional bank mortgage lenders, though typically at overall lower upfront costs and more relaxed credit criteria. This is because non-bank mortgage lenders can conduct business without holding the full banking licenses required of commercial banks that provide other financial services.

This results in a faster loan approval process and more attractive interest rates.

Non-bank mortgage lenders typically provide both initial home loans and home loan refinancing. Home loan types might include traditional fixed loans, Federal Housing Administration (FHA) loans, jumbo loans, and reverse mortgage loans.

Six Advantages of Using Non-Bank Financing

While there are several potential advantages of using non-bank financing, six of the main ones are:

1. Flexible Mortgage Terms

Because The Office of the Comptroller of the Currency (OCC) regulates all national commercial banks, those banks typically follow strict lending policies.

Non-bank lenders, on the other hand, are more flexible regarding typical pain points, such as loan types and repayment options. They also typically offer the option to extend repayment periods, which can make your monthly payments more doable.

2. Simple Application Process

The commercial bank loan application process can take weeks (if not months) to complete. There are piles of paperwork to complete and countless hurdles to jump before the bank approves your loan.

However, non-bank mortgage lenders typically have a simpler application processes.

Most applications include a minimal number of straightforward forms that can be filled out online (there is no need to go into the bank and deal with loan officers in person). This means no unnecessary appointments to schedule or letters to send.

Rather, you can complete all necessary interactions over the phone or online.

3. Lenient Financial Requirements

When it comes to traditional mortgage lenders, your credit scores and other financial information go a long way in deciding your fate.

The eligibility criteria for non-bank mortgage lenders, however, are much more lenient.

Non-bank lenders consider much more than your credit score, and some do not require a copy of your tax return. They also tend not to focus on your personal debt-to-income ratio (DTI), which is the percentage of your paycheck that is required to meet your monthly bills.

Non-bank lenders also tend to review mortgage applications on a case-by-case basis instead of comparing them against a boilerplate checklist of universal requirements. Some even specialize in providing to borrowers with weak credit scores or without a significant financial history.

4. Competitive Interest Rates

Non-bank mortgage lenders are typically smaller than commercial bank lenders. They are not burdened with the expenses associated with maintaining a large corporate structure, which often includes running branch offices and subsidiaries that provide additional services.

As discussed earlier, they also are not regulated by a central bank. This means they are not required to send applications to a parent entity before approving a loan, which would increase administrative costs.

In short, non-bank lenders tend to have significantly lower upfront and ongoing costs related to providing a loan, which means they can still turn a profit when offering lower interest rates.

5. Fund Use is Not Restricted to Home Purchases

While commercial banks typically follow very particular rules regarding how you can spend loan proceeds, non-bank lenders provide the freedom to use the money as you so choose.

In other words, the loan does not need to be applied directly toward a house purchase. It can be used for other business purposes, such as funding an LLC.

6. Quick Access to Funds

Even after the long and drawn-out application process with your local bank has concluded, there is still the matter of receiving the funds. It is not abnormal for the cash to take weeks (or sometimes even months) to hit your bank account.

However, non-bank lenders provide financing quickly. They review your application almost immediately, and if you are approved for the loan, you will have the money in a matter of days – not weeks.

Find the Loan That Works Best for YOU

It is important to understand the advantages of non-bank financing before choosing a mortgage provider. Shopping around with various lenders and creditors is encouraged, because it helps you find the loan that works best for you. Everyone faces differing circumstances, and with those come differing needs.

At Vacation Rental Loans, we are a non-bank lender who understands that more goes into a loan application than just credits scores and tax returns. We believe that each case deserves genuine consideration – not a quick decision based on a strict set of criteria.

Our team of experienced loan professions will fight hard to get you approved for a loan, and then work with you to tailor that financing to your specific needs.

Contact us today to request a quote.