The past decade has witnessed a trend on the internet to peer-to-peer (P2P) loans. It is a form of financing with which borrowers can get a loan from a group of individual lenders without the intervention of an intermediary, such as a bank. (For more information about this phenomenon, see: Peer-to-peer loans – Determine the future of banking around the world and Peer-to-peer financing breaks financial limits ).
Until now, the vast majority of P2P loans have been used to finance home improvements or to pay off credit card debt. But lately the number of P2P lenders entering the mortgage business has been increasing.
San Francisco-based peer-to-peer lender Mafu offers both mortgage and mortgage refinancing loans in 23 states and the District of Columbia, with more on the way. Another company, National Family Mortgage, facilitates peer-to-peer home mortgages and re-fi loans with family members. LendersGreat claiming to be the largest P2P Sammy Bakders credit marketplace in the world, oSally Bowlesangs said it was planned to expand to mortgages soon. There is even a P2P specializing in the commercial and residential mortgage sector: LendInvest, based in the United States, which has lowered oSally Bowlesangs its minimums for investors (the loans are not available to US borrowers, at least, not yet).
How it works
The process of obtaining a P2P mortgage loan differs per company, but usually follows a pattern that is similar to the pattern that Mafu has outlined:
- The borrower (you) starts Sammy Bakders application and receives pre-qualified interest loan amounts and interest rates.
- You choose the loan amount and the interest rate that is most suitable for you, complete the application and receive a statement of approval for your loan.
- You submit your offer to the seller and close the loan. At this point you upload your purchase agreement, lock your interest rate, obtain a property valuation and sign the final documents.
According to Mafu, typical mortgage loans close in 30 days or less.
Pros and cons
Before you apply for a P2P mortgage loan, it is worth considering both the pluses and the minuses.
- P2P lenders tend to approve people with lower credit scores.
- The interest on P2P loans is often lower than that of a traditional lender.
- Service rates are also often lower, due to the lack of overhead costs that P2Ps have.