Peer to peer mortgage lending Dallas Texas
Peer to peer mortgage lending is an online platform or company that connects borrowers with lenders. It is an alternative means with which real estate investors/developers can acquire capital from investors instead of seeking loans from banks and other traditional means.
It cuts out the lending protocols of the bank and makes it easy for investors to seek capital from other investors. Peer to peer is conducted by a P2P platform who brings the borrowers and the lenders together.
The P2P platform does not lend money to investors seeking for funds; they only bring the investor seeking for funds with other investors who want to invest.
Peer to peer lending platforms has made it easy for investors to get funds to expand fund their investment without going to the bank to seek loans.
P2P lending involves low-interest rates, simple applications, and quick decision making. All these have made P2P a better alternative to traditional means of seeking loans from the bank and made it a huge success in the modern world. The number of P2P lenders getting into the mortgage business has increased steadily.
The lender can set the interest rate and compete for the lowest rate reverse auction model or fixed by the P2P company on the basis of the analysis of the borrower’s credit score.
The lender’s investment is not normally protected by any government guarantees. This means the government cannot guaranty repayments in case a borrower is defaulting to pay back.
For this reason, the lender mitigates risks by choosing which borrower to lend to. The lender can also further mitigate risks by diversifying his investment loan among many borrowers.
According to a report by PriceWaterhouseCoopers, US P2P platforms have issued approximately $5.5 billion in loans in 2014. It is estimated that by 2025, the market could reach up to $150 billion or higher.
Process of obtaining a peer to peer mortgage loan
The process of obtaining a P2P mortgage loan varies by companies. Different P2P mortgage lending companies have different processes before giving out loans, however, the process typically follows a similar pattern.
The pattern is:
- The developer/borrower begins an online search and application for a loan. The borrower then receives pre-qualifies interest loan amounts and interest rates from the P2P company.
- The borrower then chooses the loan amount and interest rates which he/she wants and is most convenient. The borrower will then complete the application and receives a letter of pre-approval from the P2P company.
- The borrower will then submit his/her offer to the P2P company and close the loan. Here, the borrower will need to upload his/her purchase agreement, state his/her interest rate, obtain a property agreement and sign final documents.
As a developer/borrower, before applying for a mortgage loan, you need to know the ups and downs. You need to know all it entails.
What are the Pros?
- P2P lenders tend to approve loans for people with low credit scores more than for people with high credit scores.
- The interest rates on P2P loans are typically lower than the interest rates of other traditional loan lenders.
- Service fees on P2P loans are also typically lower than other traditional loan lenders.
What are the Cons?
- The time to process and approve a P2P loan may be longer than that of the traditional loan lenders.
- Collections fees for borrowers who don’t pay back on time can be very steep.
Peer to peer intermediaries provide the following services to better secure a lenders investment:
- An online investment platform that enables borrowers to attract lenders. It also allows lenders to identify and give loans that meet their investment criteria and expectations.
- The P2P intermediary identifies borrower’s identity, bank account, employment status, and income.
- Develop credit models for loan approvals and pricing.
- Perform borrower’s credit checks in order to filter out borrowers that are not qualified.
- Provide customer service to borrowers and also collect fees from borrowers who default in payments.
- Process payments from borrowers and remitting the payments to the lenders who invested in the loan.
- Ensure legal compliance and reporting.
- Loan servicing.
- Find new lenders and borrowers and connect them together.