Credit card companies and mortgage lenders are already trying to get into the home loan market.
Now, they’re trying to make it easier for you to do the same.
Loan-to-equity conversion companies, or LEOs, are a new way to convert mortgages into equity loans, and they’re designed to help people with lower incomes afford homes.
You can see how they work in this infographic by The Wall Street Journal.LEOs offer the option to convert your home to equity, and in some cases they offer discounts to lower income borrowers.
The idea is to make equity loans less expensive than traditional loans, which can cost you more and result in fewer options available to you for a down payment.
The LEO business model was pioneered by the online lending company Bankrate, which launched its first LEO in March.
But LEO companies have been around for years, and it’s becoming easier for them to reach the middle class and the low-income communities.
Lone Star Home Loans, a LEO based in California, said its first customers were the elderly and low- income people who couldn’t afford traditional mortgages, which could cost them tens of thousands of dollars in interest.LIVEUPLINE, a startup that sells mortgage-to, equity loans on behalf of the LEO community, said it’s also seeing a surge in new clients.
“We’re seeing more and more LEO customers and the average age of our customers is around 55 years old,” said cofounder and chief executive officer Ryan McDonough.
He said that for them, the business model is “a natural fit.”
For the elderly, he said, they may have been able to afford mortgage interest rates as low as 3 percent.
For low- and moderate-income households, it’s less clear.
But it’s not impossible to qualify for a loan from an LEO, as they can offer low interest rates on loans up to $1 million, said McDonoug.
“The reality is that the LROs are a way to connect with the lower income communities,” he said.
For people in the middle of their mortgage payments, a traditional mortgage is often too high and they may not have the means to buy a home.
But for people who need a downpayment, it might be possible to qualify with an LRO, he added.
“There are certain things that they are not necessarily able to do in the traditional mortgage market.
The LRO can help them with that,” McDonou said.
The new LEO models will make it much easier for people with low income to get loans.
“People will see a more attractive and more affordable loan option, and that will help them to make the purchase of a home,” Mcdonough said.