Nonbank mortgage lenders are originating home loans more and more in recent years. These types of lenders are defined as financial institutions that solely focus on lending, and do not offer other traditional banking services such as depository checking accounts.
The role of nonbank lenders has grown exponentially. According to an Urban Institute study, from 2013 to 2018, the nonbank share of government loan originations (FHA, VA, USDA loans) grew from 35 percent to 81 percent. Over the same time period, the nonbank share of conventional loan originations (Fannie Mae, Freddie Mac loans) increased from 35 percent to 56 percent.
In short, there is no doubt that nonbank lenders are key players in the mortgage industry.
Indeed, such lenders have greatly opened up access to home mortgages, particularly to borrowers who were denied for a mortgage by their bank. These borrowers tend to be self-employed or have issues with their credit.
The latest Urban Institute monthly report shows the differences between what banks require versus what nonbank lenders require:
- For banks, the median FICO score required was 748, versus 714 for nonbank lenders.
- For banks, the median debt-to-income ratio allowed was only 36 percent, versus 38 percent for nonbank lenders.
In other words, compared to banks, nonbank lenders are more accommodating regarding a borrower’s credit score and debt-to-income ratio.
If you are looking for access to as many lenders as possible, a mortgage broker can help make those connections for you. We also specialize in helping borrowers who were turned down by banks for a home mortgage get approved elsewhere, such as with nonbank lenders.
David A. Krebs is a licensed mortgage broker offering commercial and residential loan programs beyond your regular bank. Call us at 321-239-2781, click here to submit a message, or click here to book a free consultation.