Non Conforming Loans

Today, many deserving people will only qualify for a bad credit mortgage loan or a high risk loan to purchase or refinance a home because they don’t meet the traditional minimum credit guidelines for low mortgage rates. A low income home loan, loan for people with bad credit or a bad credit mortgage were rare commodities. Agencies and secondary market investors established traditional guidelines for the minimum credit property requirements that home buyers are expected to meet to qualify for a low loan rate and not a bad credit loan.

When a loan meets the industry guidelines as described, it is generally called a conforming loan. When a loan deviates from the conforming guidelines, it is generally known as a non-conforming loan or a high risk loan. This is a loan for people with bad credit or a bad credit mortgage. The more the loan deviates from the standards, the riskier the loan is in the eyes of the lender.

Not long ago, borrowers or properties that did not meet conforming guidelines found it extremely difficult, if not impossible, to obtain any type of mortgage financing. High risk loans were called bad credit loans, bad credit mortgage loans, or loans for people with bad credit and were usually subject to high interest rates and lenders frequently asked for larger down payments. Since lenders felt that high risk loans such as bad credit mortgages were riskier than conforming loans, they required a higher return on their funds.

Recently, this non-traditional way of making mortgage loans has become more attractive and come to include a low income loan and a loan for people with bad credit. By combining the elements of a reasonable down payment and slightly higher rates, some lenders are finding it more attractive to offer high risk loans.

High-risk loan programs generally relax the requirements of conforming loan programs:

  • Credit History – Lenders may be willing to lend with a number of 30 days or more late payments on the previous mortgage loan or other installment credit.
  • Bankruptcy – The applicant may have had a Chapter 7 or Chapter 13 bankruptcy discharged during the 13 Months. Some programs even assist satisfying the applicant’s Chapter 13 bankruptcy plan.
  • Foreclosure – Due to a certain life event, an applicant may have allowed a previous home loan to go into foreclosure during the last two years. Some programs help an applicant to reinstate a loan currently in foreclosure.
  • High Monthly Debt Obligations – Conforming lending requires the total monthly debt to be no higher than 36-40% of the monthly income. High risk loan programs allow the monthly debt to go as high as 60% of the applicants monthly income.
  • Employment Stability – High risk loan lenders are willing to accept two years of income verification, or they may accept applicants who are unable to verify income.
    Interest Rates – Since non-conforming loans are higher risk loans, the interest rate, margin (if an adjustable rate mortgage), and points are generally higher than conforming rates.
  • Down Payment Requirements – The amount of money required for a down payment on high risk loans is usually higher than for conforming loans due to the risk lender perceive in these loans. Generally, the down payment can be as low as ten percent of the appraised value or the sale price of the property.
  • Properties – Similar to conforming lending, single family homes, condominiums, Planned Unit Developments, two to four-family units, and leasehold properties are allowed. The additional types of properties that are allowed are residential acreage with proven marketability, mixed use properties where a portion of the property is used for commercial purposes and modular homes.
  • Loan Programs – There are a variety of loan programs, such as low income home loan or bad credit mortgage loan, that can be tailored to meet the needs of the individual applicant.

Current loan programs that are available include a Six Month LIBOR Adjustable Rate Mortgage, 30 Year Fixed Rate Mortgage, 30 Year Fixed Rate Mortgage which matures in 15 years, and a Six Month LIBOR Adjustable Rate Mortgage where the initial interest rate is fixed for a period of time and the first interest rate adjustment occurs on the 24th or 36th payment date of the loan.

To have one of our lending partners help you evaluate how you might best secure a great rate on a bad credit mortgage or a bad credit loan in spite of any credit issues, simply fill out our 1 Step Mortgage Home Loan Request Form.


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