Non-conforming Home Loans vs Conforming Loans
The simple definition of a "non-conforming home 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
lender, the LTV is low enough that the lender can take the property
back, sell it at a discount for a quick sale, and still pay off the
debt.
The lender rarely cares if there are other mortgages against the
property, as long as the lender is in the first position. You see,
when a lender takes a property back from a borrower the first lien
position gets the proceeds of the sale first, then the second, then
the third, etc. Rates for these types of loans are usually 1% to 6%
higher that conforming rates.
CONFORMING LENDERS' GUIDELINESLenders use three qualifying guidelines to determine what size
mortgage you are eligible for. They are as follows:
1. Debt ratios:
Your monthly costs (including mortgage payments, property taxes,
insurance) should total no more than 28% of your monthly gross
(before-tax) income.
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
than about one-fourth oits income (28%) on housing and not more than
about one-third of its income (36%) on total indebtedness (housing
plus other debts). Lenders feel that if they follow these
guidelines, homeowners will be able to pay off their mortgages
fairly comfortably and lenders will not have to worry about loan
defaults and foreclosures.
2. Credit:
Any late payments must have good explanations and generally no more
than one 30-day late payment is permitted within 12 months.
3. Funds to Close:
You must have the down payment, which must be your own funds, and
the closing costs. In addition, you must have at least two month’s
extra payments in the bank.
NON-CONFORMING LENDERS' GUIDELINES1. DEBT RATIOS:
Every non-conforming lender has a different set of guidelines;
therefore, this section should be used only as a general example.
These types of lenders are saying that a household should spend not
more than about one-half of its income (50%) on housing and not more
than about two-thirds of its income (60%) on total indebtedness
(housing and other debts).
Lenders feel that if they follow these
guidelines, homeowners will be able to pay off their mortgages
fairly comfortably and lenders will not have to worry about loan
defaults and foreclosures. These guidelines can be pushed with other
compensating factors.
2. Credit:
Used for calculating risk of loan (interest rate).
3. Funds to close:
Can come from many different sources; e.g., seller carry-back, gift
letter, equity.
Special Loans (
http://www.special-loans.com) specialises in providing secured finance where banks will not. If you have credit problems, are fully employed or self-employed, have income issues or employment issues, we have the best solution for you! We provide Non-conforming home loans offering wholesale home loan rates as well as Standard Home Loans, unsecured personal loans, refinance products.
http://www.special-loans.comAlex Rad
