|
If you have some late payments to creditors or even a bankruptcy
in the past you may still be able to get financing for your home.
A large portion of this website explains rules, guidelines, etc.
that pertain to conventional, conforming loans. Conventional, non-conforming
loans have a whole different set of rules and guidelines.
What Is a SubPrime Mortgage?
Before jumping into non-conforming rules and guidelines, it is best
if we define a non-conforming loan. In general, conforming lenders
define non-conforming loans as "jumbo" loans. The type
of non-conforming loan we are going to discuss in great detail has
nothing to do with being a jumbo loan. As you may have read or know
from other sources, a jumbo loan is a home loan for over $322,700.
A jumbo loan is referred to as non-conforming because its larger
size calls for more stringent and sometimes different guidelines
than smaller loans.
We are more interested in defining the type of non-conforming
loan for borrowers with past credit problems. These loans are considered
non-conforming because lenders who offer them have much different
guidelines and usually higher interest rates than for conforming
loans. The purpose of this type of loan is to help people with credit
problems obtain home financing and/or refinancing of their current
mortgage. In the mortgage industry, this type of loan is called
a "B" or "C" Loan (Conforming loans are called
"A" loans). For brevity, we may refer to this as a "B"
loan in the future. Conforming lenders also like to refer to B-loans
as "sub-prime" loans.
Are Non-Conforming Loans Only for people Who Have Had Credit
Problems?
Nonconforming or stated income loans can be used by people with
good credit whose debt ratios are too high to obtain a conforming
loan.
How Are Non-Conforming Guidelines Different Than Conforming
Loan Guidelines?
For B-loans there are no hard and fast underwriting rules. Unlike
conforming loans, each lender does not have the same basic guidelines.
There are as many different sets of underwriting guidelines for
B-loans as there are B-lenders. With non-conforming loans a borrower
can shop around with many different brokers and lenders, attempting
to find the best rate and/or lowest closing cost to suit them. If
you have credit problems and need a non-conforming loan, your shopping
becomes very limited. Although not true in all cases, with credit
problems, you should be searching for a broker or lender who can
get the loan completed while charging the least amount of up front
points. Frontier Mortgage takes pride in being very fair with points
and fees charged to borrowers with less-than-perfect credit.
Who Can Use a Non-Conforming Loan?
We have attempted to make the list below as comprehensive as possible.
Hopefully, we are addressing your situation with this list, but
if we do not or you are not quite sure if you are eligible for this
type of loan, please E-mail or call us about your situation. It
never hurts to ask or apply for a loan online and it will not cost
you anything.
Potential borrowers who are living with the types of circumstances
and situations illustrated below may be eligible for non-conforming
financing and in many cases Frontier Mortgage will be able to save
you a lot of money:
- You currently own a home, have equity, and need to pay off
other bills and/or collections.
If this is the case, you can do a cash-out refinance or debt consolidation
refinance. The equity you have in your home can be used to pay
off other bills, get rid of high interest debt, and greatly reduce
your monthly payments. This is food for thought: Conforming lenders
allow you to do a cash-out/debt consolidation refinance at up
to 80% LTV. Non-conforming lenders may allow you to do the same
type of refinance transaction at up to 95 or even 100% of the
value of your home.
- You have had a bankruptcy in your past or are currently in
bankruptcy.
Usually, the longer you have been out of your bankruptcy the better
your interest rate will be. Keep in mind that a bankruptcy is
a serious hit to your credit. If you have had a bankruptcy but
have not established any new credit since, your chances of getting
new mortgage financing are not very good. Also, if you are currently
in a bankruptcy (it has not yet been discharged) you will not
be able to get financing for greater than 75% of the value of
your home.
- Contract for Deed or Lease Purchase Agreement.
This applies if you are currently renting a home from an individual
and your lease is written such that a portion of each monthly
payment goes toward equity in the home. After twelve monthly payments
(one year's worth) are made you may be able to exercise an option
in the contract of purchasing the home. Conforming lenders do
not allow any portion of your lease payment to be considered as
equity in the home. Many non-conforming lenders consider this
to be a refinance transaction and will allow you to get a home
mortgage based on the fact that you now have equity in the home.
Remember, depending on your credit, you may have to come up with
additional funds so that you have enough equity in the home to
meet the lender's underwriting requirements.
- Gift Equity Purchase.
If your parents currently own a home that you live in or want
to buy from them you can do it with a gift equity purchase. Parents
or other immediate family members can help you get into a home
without actually giving you cash. Instead, they can give you equity
in the home that you can use as a down payment. As a general rule,
but not always the case) you must still come up with 5% of your
own funds for the down payment.
- You currently pay cash for everything and have no credit.
As strange as this may sound, when you pay cash for everything
and have no debt, it is not necessarily a good thing if you are
trying to buy a home. The only way a lender will feel comfortable
lending you money for a home mortgage is if you have a history
of making debt payments on time. If you have no history of making
payments, lenders do not know if you are capable of making payments
and, unfortunately, are forced to assume the worst case scenario.
A non-conforming lender will not assume that you are going to
be the best credit risk but will grade you as a middle-of-the-road
risk and will usually give you the opportunity to obtain a home
mortgage.
You make your payments on current debt but do not always make
them on time.
If this describes you, then join the club. B-lenders cater to
customers like you and these are the most common non-conforming
loans.
- You have made late payments on you mortgage in the last
24 months.
This type of customer is very similar to the customer above. If
you have one late payment on any mortgage during the last 24 months
and the rest of your credit is squeaky clean, you may be able
to get conforming conventional financing. If you have any more
than one late payment, you will most likely have to get a non-conforming
loan.
- You have multiple collections against you in the past two
years.
In general, conforming lenders will not allow you to get a home
mortgage if you have any open collections against you. B-lenders
will allow collections to remain open in many cases.
You have any type of debt judgements or tax liens against you.
Conforming lenders almost always require that any judgements and
tax liens be paid off before you can get a home mortgage. B-lenders
may allow judgements or tax liens to remain open in many cases.
- You are self-employed, have credit problems, and your income
is difficult to verify.
Some B-lenders allow you to state your income and they will not
verify the amount that you state. Keep in mind that this type
of loan usually requires a larger amount of equity in your present
home or for the purchase of a new home.
Please understand that if any of these criteria apply to you, you
must disclose them up front during the application process. If you
do not disclose this information up front, it will be discovered
at some point during the mortgage loan process. In most cases, serious
negative credit information discovered late in the application process
will kill the loan, wasting everyone's time and effort.
IMPORTANT NOTE: THESE ARE GENERAL RULES AND ASSUMPTIONS. AS WITH
ANY RULES, THERE WILL BE EXCEPTIONS, AND THEY COULD BE IN YOUR FAVOR
OR AGAINST YOU.
How Does a B-Loan Help You?
You may be asking yourself why you should try to obtain a non-conforming
loan when interest rate and payments will be higher than a conforming
loan. Here are some reasons:
- First, you are not able to get a conforming loan if you have
credit problems.
- By obtaining a B-loan, you can get your credit back on the right
track. If you make all your payments on time after obtaining a
non-conforming loan, you can refinance your home mortgage within
12 to 24 months and usually obtain a lower interest rate and lower
payments.
- If you have a lot of debt and high monthly payments, a debt
consolidation loan can greatly improve your cash flow situation
and get you back on your feet financially.
What Is Different About the Non-Conforming Loan
Process?
The B-loan process as a whole is generally the same as the conforming
loan process. The biggest difference occurs at the very beginning
of the mortgage process. When you first apply or are attempting
to get pre-approved, Frontier Mortgage checks your credit to see
what type of potential borrower you are. If you are a conforming
customer, Frontier Mortgage will give you the best conforming rate
and terms available. If you are a non-conforming customer, Frontier
Mortgage must figure out what classification or "grade"
you fall into. Frontier Mortgage accomplishes this by sending the
information that you have provided to us to one or more B-lenders
to find the best rate and terms available. This usually takes between
24 and 72 hours. After this phase is complete, and you agree to
the terms provided, your loan process should be completed as smoothly
as any conforming loan.
|
