Financial institutions continue to create innovative mortgages that fit the diverse needs of borrowers, rather than forcing them to conform to rigid standards.
Traditionally, mortgages in the U.S. are financed by banks that also operate other lines of business, like offering deposit accounts and insurance products. But today, the American homebuyer is anything but traditional, and they are looking to lenders other than banks to fill the gap. Fortunately, financial institutions continue to create innovative mortgages that fit the diverse needs of borrowers, rather than forcing consumers to conform to rigid standards. The end result is more people with the financing to afford the home they need, rather than being shut out of homeownership entirely.
The trend away from banks and toward nontraditional lenders is a very recent development that is reshaping the financial landscape in the U.S. This can be seen in a snapshot of the top U.S. mortgage lenders by market share in 2011 compared to 2016. In 2011, 50 percent of all home financing was underwritten by the five biggest banks in the nation. Just five years later, six of the top 10 mortgage lenders by volume were considered nonbank lenders that focus on home loans almost exclusively.
Explaining the shift in the mortgage market
Why are more homebuyers choosing alternative lenders over traditional banks? Much of the shift has to do with the increasingly strict standards that banks adhere to when vetting mortgage applications. Prospective homebuyers are now expected to have stellar credit scores, high income and significant net worth already established before being approved for a traditional loan. However, this is not the financial reality for millions of Americans. It's also not because excluded borrowers can't afford a home - alternative mortgages are designed for self-employed individuals whose income may be inconsistent from month to month. They often work better for families that have imperfect credit for one reason or another and just need a second chance. Ultimately, these loans are well-suited to the countless prospective homeowners who lie just outside the margins of conforming mortgage options.
Innovation in the home lending sphere has not been limited to application requirements or loan terms, either. Many alternative mortgage lenders are succeeding because they simply make the process of getting a loan easier and less stressful. Traditional banks are not known for their efficiency, and the result for mortgage applicants is a long, drawn-out process of signing paperwork and enduring waiting periods. On the other hand, new mortgage lenders have taken the market by storm purely on the basis of the superior service and support they provide. That helps explain why alternative mortgage lenders have overtaken a significant portion of the U.S. home lending market in just five years, approaching almost half of all mortgages originated by volume.
Just like the process of actually purchasing a home, you have plenty of options at your disposal when it comes to choosing a mortgage. Speak to one of our mortgage professionals to learn more about how innovative lending solutions can help you afford the perfect home.