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What are non conforming loans

what are non conforming loans

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

(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



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


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.

Category: Credit

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