LendingHome, a marketplace lender that claims it’s “the best way for borrowers to get a mortgage,” announced this week that it funded more than $550 million in mortgage loans during 2015.
That represents a 600% increase from 2014 as marketplace lending continues to surge in popularity.
If you’re wondering just what the heck marketplace lending is, it’s essentially a setup where individuals obtain and invest in mortgages at the same time.
LendingHome refers to themselves as a “direct lender with a marketplace of investors who buy our loans.” They close the loans with their own funds and then offer them to investors via a secondary sale.
So Joe Investor backs a mortgage (via a fractional note) taken out by Jane Homeowner after LendingHome funds it. Institutional investors are also involved in the process.
To that end, some $200 million in principal and $20 million in interest has been doled out to investors in LendingHome mortgages.
LendingHome Mortgage Products: Fix & Flip or Primary Residence
If you’re a borrower seeking a mortgage, you have the ability to choose from either a “fix & flip” product or a standard owner-occupied mortgage.
Let’s talk about the first option first. Assuming you’re an investor, you get the ability to apply for a purchase or refinance loan on a rental property.
LendingHome will ask you a series of questions online about the property, including whether you’ve found it yet, and if an offer has been made.
As far as the loan goes, you have the ability to add rehab funds on top of the desired loan amount if you need to finance improvements before unloading it again. The loan term appears to be set at 12 months because it’s basically a bridge loan.
They ask the typical questions such as property value, loan-to-value, your estimated credit score, and your real estate experience. Specifically, they ask how many properties you’ve purchased in the past six and 12 months, the number you’ve purchased in your lifetime, and the average purchase price.
The product is available in Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Maryland, Michigan, Missouri, North Carolina, Nevada, New York, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, and West Virginia at last glance.
LendingHome Rates Appear to Be Favorable
If you want to take out a mortgage on a primary residence you intend to occupy, it appears you can only do so in Nevada and Oregon at the moment, though I’m sure that list will grow soon enough.
I did a mock application to see what kind of rates you can get and they weren’t bad at all. For a 30-year fixed, the rate was advertised at 3.5% with no mortgage points. For a 15-year fixed, the rate was 2.75%, and for a 5/1 ARM it was 2.625%.
LendingHome’s rate estimates assume a $750 origination fee and a $400 escrow fee plus 0.07% of the loan amount. There’s also a smaller application fee.
For the record, I geared the quote toward a pristine borrower with excellent credit and a sizable down payment. When I inputted a 600 credit score it was deemed too low for financing.
However, a 620 credit score got me back in the game and rates were still low, with the 15-year fixed unchanged at 2.75% and the 30-year fixed a slightly higher 3.875%.
So a borrower with a low credit score may benefit from their forgiving pricing structure.
LendingHome aims to be speedy, with a three-minute rate quote, a 20-minute full application, and a closing date in just 10-14 days. In fact, they aim to close all loans in less than 2 weeks. That’s pretty fast!
The process is also done 100% online, with questions answered via online forms and documents uploaded via their website. You can also keep track of your loan progress via their customer portal and contact a human if you so wish.
If anything changes along the way, they may need to adjust your rate, but they’ll let you know if and when that happens.
For those who wind up getting denied, the company claims it will work with you to provide a creative counter-offer if at all possible.
Becoming a LendingHome Investor
If you want to invest in LendingHome mortgages, you need to be an accredited investor. This typically requires a six-figure income and assets north of $1 million. If that sounds like you, there’s an option to earn a healthy yield on mortgages.
Assuming you choose to invest, LendingHome’s marketplace requires a minimum opening balance of $50,000, with a minimum investment of $5,000. When you invest in one of the company’s mortgages, you can earn a “yield upwards of 10 percent on average.”
The company differentiates itself from other FinTech platforms by allowing investors to put their money behind secured loans backed by real estate, as opposed to unsecured loans offered through competing marketplace lenders like SoFi.
Once you choose a mortgage to invest in, you’ll receive a monthly payout of principal and interest when the borrower on the loan makes a payment.
And because you’re taking a fractional interest, you can diversify your mortgage holdings so you don’t just wind up with one sour loan.
Your money is basically locked up until the loan matures, which could be earlier than the actual loan term if the mortgage is prepaid.
Should You Apply for a Mortgage at LendingHome?
All in all, it appears that LendingHome is targeting a niche market that has either been shunned by traditional mortgage lenders, or simply doesn’t want to deal with them because of the many restrictions investors with lots of properties face.
While I don’t know what the mortgage rates are for the fix & flip loans, my assumption is that they’re going to be significantly higher than what you’d find with a conventional mortgage lender. I’ve heard something about rates being closer to say 7-10%, as opposed to the 6% rate you’d find on a traditional 30-year fixed issued by a large national bank, credit union, or mortgage banker.
However, companies like LendingHome (and Sindeo or Lenda) may offer more flexibility than the big mortgage players, which is probably why a borrower would seek them out in the first place.
As noted, their rates on owner-occupied loans are quite competitive, though they only appear to be offered in two states at the moment. You may also be able to gain approval even if the loan doesn’t fit the Qualified Mortgage rule.
What’s great is how simple the process appears to be. Their automated system even recognizes and removes documentation requirements that a traditional mortgage provider would ask for but isn’t needed for your loan. They’re all about speed and convenience, something Millennials seem to be pretty fond of.
If they can compete on price and keep closing costs low (via technology), they should be a viable alternative to the standard big bank approach, even if you’re a vanilla borrower.
On December 8th, 2016, LendingHome announced that it had surpassed $1 billion in mortgage loan originations.
In late August 2018, the company said it had surpassed $3 billion in origination volume, with the third billion lent out in a mere eight months, 33% quicker than the time it took to dole out the second billion and some 375% quicker than it took to originate the first billion in home loans.
So I guess they’re growing…