Non-bank mortgages can be really helpful when the bank says no. It means you can bypass the strict, one-size-fits-all criteria of the banks and still buy your first home.
Not every situation is going to suit a bank and there are various reasons for this too, but the good thing is some of the top mortgage advisers have a good understanding of non-bank mortgages. In most cases, when advisers suggest a non-bank, it’s because the situation you’re currently in does not quite meet the bank criteria, but it doesn’t mean that you’re stuck with a non-bank forever.
Low Deposit Home Loans – one of the more common reasons for needing to go with a non-bank is that you might not fit the criteria for the banks or the Kainga Ora First Home Loan. The next best option might be a non-bank mortgage even if it’s just to help get your first home and knowing that you will refinance to a bank when you can.
Difficulty Proving Income – where you just don’t fit any of the bank criteria, are self-employment, or have inconsistent income. Banks have very set criteria about how they calculate your income, and it doesn’t always fit with how you get paid. Self-employed is a common area where banks struggle, especially if your income has been a little bit inconsistent over the past two years, or you have started a business and do not have two years of financials available. With non-banks, they can be more flexible and understanding about how your income is made up. It’s often about demonstrating that you have consistent income or enough income rather than having to prove it in the manner that the bank might insist on.
Credit Issues or Bad Credit – these are also other reasons that a mortgage adviser may suggest using non-bank lenders. Banks can be very tough when there’s been some credit issues, whereas non-banks are a little more understanding in that area. We know when you’re young, credit is easy to come by, and we all think that we’re invincible. But we do learn that we’re not necessarily invincible, and we can have relationships that break up, we can lose a job through redundancy, or we might be in a situation where we just don’t get the overtime that we once were. These are all things that happen in life, but when you’re young and just starting out, you often do not have any reserves to fall back on, and you can end up having credit issues.
Other Debt – when you have other debt, the banks may think that you have a habit of debt and therefore are not willing to give you a financial commitment like a mortgage. So there are a number of reasons you might use a non-bank mortgage, and there’s also a number of types of non-bank mortgages. We talk about these as fitting into three categories: the prime, the near prime, and the specialist.
With non-banks, a prime mortgage is something that would just fit outside of normal bank criteria for whatever reason. And so the interest rate on these, in most cases, are pretty close to what a bank might offer. When you are going to a prime-type non-bank lender, there will be some fees, but the hope is that you’ll be with them for a short period of time before you can refinance back to a bank.
FAQ's
Why use non-bank lenders?
Non-bank mortgages can help you to bypass the strict, one-size-fits-all criteria of the banks and still buy your first home. It can be a bit more expensive than standard bank lending and so the best use of non-bank lending is for the short-term so you can then refinance to a bank.
Which is the best non bank loan?
That’s impossible to answer, but we can say there are some “prime” non bank options that are very good, and then there are near prime and specialist too. There is a range of loan types and non-bank lenders and most have a specific niche where they might be the most suitable. The key is to use a mortgage adviser that specialises in non-bank lending and therefore knows the best option for you.
Are non-bank loans more expensive?
In most cases a home loan with a non-bank will be more expensive than a bank’s home loan; however the bank options should almost always be the first choice. You are therefore using non-bank lending because that’s the only option and therefore you need to weigh up the benefit of using a non-bank. In most cases there will be some fees with non-bank lending and also the interest rates may be higher than a bank. Some non-bank lenders also only have floating rate home loans and so you need to be prepared for the interest rates to increase in the future.
Can you get a 30-year loan with non-bank lenders?
Yes, there are quite a few options for 30-year home loans and then there are short-term options too. Often you might choose a longer loan term but plan to refinance to a bank sooner, and that’s okay and expected too.