Home bargains abound, but willing lenders are rare breed
Faced with finicky lenders, would-be home buyers are increasingly turning to
family members, friends, and even strangers they meet online. While this
is understandable, given the abundant bargains on the market, they also present
Making sense of the
- So-called peer-to-peer
lending sites, such as Prosper and Lending Club, say demand for
home-related financing is on the rise. In September, Weemba, a
social-networking site, launched a platform to connect lenders directly
with prospective home buyers and other borrowers.
- Despite historically low
mortgage rates, traditional lenders remain reluctant to provide mortgages
to anyone with less than stellar credit. And, in certain markets,
lenders are requiring down payments of more than 20 percent of the home’s
- Borrowers taking loans from
family members – so-called intrafamily loans – save on interest since
family members are likely to charge less than the banks.
Additionally, parent lenders can earn a higher return from their child’s
interest payments than they would on a certificate of deposit or
money-market fund. Under federal law, on a loan of more than nine
years, parents must charge at least roughly 2.8 percent, in most cases.
- Consumers who prefer to look
for loans beyond the family can apply at peer-to-peer lending sites.
If approved for a loan after a screening by the companies, applicants may
then receive money from investors.
- However, these alternative routes to financing
can be expensive for borrowers. Rates at Lending Club run from
around 7 percent to 28 percent. At Prosper, rates run roughly 7
percent to 35 percent. The companies say these rates, which are
fixed, are higher than traditional mortgage rates in part because their
loans are unsecured.
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