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Non-Conforming Loans
In the realm of non-conforming lending, the emphasis is not placed upon
the type of loan a borrower is applying for; rather the emphasis lies in his or her credit
grade or the risk associated with the loan. The credit grades have been broken into six
categories (A-, B, C, C-, D, and D-) and vary depending upon the borrower’s credit
history and type of loan he or she desires.
A borrower's credit grade is often determined by their credit
report. Mortgage lates and general credit derogatories within the last 24 months
will often be a factor in determining a person's credit grade. Bankruptcies are
generally accepted and often times a person currently in a
Chapter 13 bankruptcy or recently out of a Chapter 7 bankruptcy can still buy a home!
More times than not, a borrower will not have to pay off any collection account that
is older than 3 years or any collection account less than $500 to $1,000 in value.
In addition, non-conforming loans generally have higher ratios ranging
from 45% to 60% allowing the borrower to purchase a larger home than they would have
normally qualified for under conforming guidelines.
It is important to remember that though the rates for non-conforming
loans are higher than FNMA/FHLMC mortgages, there is more flexibility with the
underwriting guidelines so that borrowers who would normally be denied financing under
"conforming" guidelines can have the opportunity to purchase a home, pull out
extra equity in their house or consolidate their high interest rate credit cards.
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