Non Conforming Loans
If your credit has been damaged, you may not qualify for a conforming ( sold to Freddie Mac or Fannie Mae) loan. However, there are many lenders who will still do the loan, and often at a very reasonable cost! We want you to know all of your options before you apply. Please email me with any non conforming loans questions. I also offer non conforming business equipment leasing to business owners.
Not all loan officers write non-onforming loans. As a matter of
fact, most do not - because they require a lot more work.
We have had many people come to us after they had been told by other
loan officers that it was impossible for them to consider buying or refinancing a
home. In most cases we were able to work with them successfully; by
getting them the right loan and helping them find the right real
estate agent and the right house at a price they could live with.
It is the job of the loan officer to decide whether your loan
package will be a "conforming loan" or a "non-conforming loan".
The simple definition of a "conforming loan" is: A loan you can
get approved for at most any financial institution have good credit
with no late payments on any accounts within 12 months, at least two
years’ job stability at the same job, have a substantial down
payment, money for closing costs, at least two months house payments
extra after all costs, and your income to debt ratio is under 38%.
Rates for these loans are very close to what you read in the
The simple definition of a "non-conforming loan" is: You have a job
and can make the payments. Your credit is used only to determine
your interest rate and the loan amount to value of the home ratio.
This ratio is referred to as your "LTV" or "Loan To Value".
There are many lenders who will lend to borrowers who are in
foreclosure or who are currently in a bankruptcy. Borrowers who are
in these situations often have the worst possible credit. Lenders protect
themselves by keeping the LTV low, about 65% to 70% of the appraised
price of the property. By doing this, the lender is very well
protected. If the borrower goes into foreclosure again with the new
Your monthly costs (including mortgage payments, property taxes,
insurance) should total no more than 28% of your monthly gross
Your monthly housing costs plus other long-term debts should total
no more than 36% of your monthly gross income.
Basically, lenders are saying that a household should spend not more
NON-CONFORMING LENDERS' GUIDELINES
1. DEBT RATIOS :
Every non-conforming lender has a different set of guidelines;
therefore, this section should be used only as a general example.
of lenders are saying that a household should spend not
In the past, banks and savings associations simply loaned their
deposits to those needing funds. This soon become inefficient for
two reasons: Savings deposits are considered short term liabilities,
because a depositor can withdraw funds at any time. Mortgage loans
are considered long-term assets, because the term of most mortgage
loans is 25 to 30 years, with some exceptions. History has shown
that the average mortgage is repaid within 7 to 9 years of its
inception. This short-term versus long-term problem soon created a
mismatch forcing some institutions to borrow additional capital to
meet loan demand.
Simply borrowing more money became too expensive as interest rates
increased, forcing lenders to seek alternatives. One solution was to
sell the mortgage loans but retain the right to collect the monthly
payments. A secondary mortgage market was created whereby certain
investors purchased the loans, then entered into a servicing
agreement allowing the institution that sold the loans to collect
monthly payments, pay property taxes when due, and generally
administer the loans. The investor simply accepts the monthly
payments, minus whatever servicing fee is agreed upon. This fee is
usually about three-eighths of one percent (.375%). This arrangement
allowed lenders to originate, sell and service mortgage loans year
around without having to match deposits with loan volume.
As investors started buying these loans it opened up the market for
the non-conforming lenders. Investors who would like to see a higher
rate of return on their money and would also accept a higher degree
of risk started buying higher-risk loans. This kept climbing until
the market opened up for the serious high-risk, high-rate investor
who will buy any loan so long as it is secured by real property.
The secondary market from which lenders draw mortgage money is
sometimes called the Capital Funds Market. It consists of a great
variety of institutions: FNMA - Federal National Mortgage
Association, also known as Fannie Mae; FHLMC - Federal Home Loan
Mortgage Corporation, also known as Freddie Mac; GNMA - Government
National Mortgage Association, also known as Ginny Mae (all quasi
governmental agencies); as well as private financial institutions
such as banks, life insurance companies, private investors, and
thrift associations and, lately, Wall Street.
This market also considers alternative investments such as
government bonds. Buyers of mortgages will often compare the yield
they are offered with those of government securities. It is best to
think of money as a commodity, like bread or potatoes. As such, it
As a Certified Mortgage Planning Specialist. I offer an analysis of your situation today can make suggestions on how small changes in how your consumer and mortgage debt is structured today can have a life changing effect in the years to come. Read more about this free, no obligation service.