Lenders pursue new options for “riskier” applicants

Thanks to alternative financing, home ownership is a more plausible dream for many.

Financial institutions have a vested interest in making home ownership an attainable dream for as many people as possible. However, they also have an equal interest in reducing the amount of risk they are exposed to, and ensuring that repayments are regular and complete. Personal loan software is a valuable tool in managing the details from the institutional side, but when it comes to designing a plan that borrowers can adhere to, creativity is often required. 

To that end, lenders are offering new options for buyers, geared towards first-timers and those with compromised credit. These alternatives reduce the risk to which the financier is exposed, while making the dream of owning a house more broadly accessible. They include: 

  • VA loans: The most limited of these options, these loans are only for eligible members and veterans of the armed forces. However, for those that do qualify, VA loans are an option well worth looking into as they often do not require a down payment or mortgage insurance. 
  • USDA loans: These loans do require mortgage insurance, but are a good choice for those with limited income who live in rural areas. Sponsored by the Agricultural Department,  USDA loans are down payment-free, making them an ideal option for borrowers with limited immediate funding but the ability to pay back over time. 
  • Portfolio loans: While most conventional loans are eventually sold to investors, portfolio loans reside with the institution that initiates them. This allows the lender significantly greater discretion in terms of to whom to issue funding. 
  • FHA loans: Insured by the Federal Housing Administration, they do require a down payment and annual mortgage insurance, but the premiums are lower than they have been in recent years, and the credit standards are looser than what has traditionally been acceptable. Unlike most loans, which require that some of the down payment comes via the applicant's income, these loans work even if the down payment was a gift.