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
significant risks.

Making sense of the story

• 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
  purchase price.
• 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.