Non-conforming Home Loans vs Conforming Loans

The simple definition of a "non-conforming home loan" is: You have got a occupation and can do 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 impart to borrowers who are in
foreclosure or who are currently in a bankruptcy.

Borrowers who are
in these states of affairs often have got the worst possible credit. Lenders protect
themselves by keeping the LTV low, about 65% to 70% of the appraised
terms of the property. By doing this, the lender is very well
protected. If the borrower travels into foreclosure again with the new
lender, the LTV is low adequate that the lender can take the property
back, sell it at a price reduction 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
place gets the return 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' GUIDELINES

Lenders usage 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 number no more than than than than than 28% of your monthly gross
(before-tax) income.

Your monthly lodging costs plus other long-term debts should number
no more than 36% of your monthly gross income.

Basically, lenders are saying that a household should pass not more
than about one-fourth oits income (28%) on lodging and not more than
about one-third of its income (36%) on entire 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 got to worry about loan
defaults and foreclosures.

2. Credit:
Any late payments must have got good accounts and generally no more than
than one 30-day late payment is permitted within 12 months.

3. Funds to Close:
You must have got the down payment, which must be your ain funds, and
the shutting costs. In addition, you must have got at least two month’s
extra payments in the bank.

NON-CONFORMING LENDERS' GUIDELINES

1. DEBT RATIOS:
Every non-conforming lender have a different set of guidelines;
therefore, this subdivision should be used only as a general example. These types of lenders are saying that a household should pass not
more than than than about one-half of its income (50%) on lodging and not more
than about two-thirds of its income (60%) on entire 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 got to worry about loan
defaults and foreclosures. These guidelines can be pushed with other
compensating factors.

2. Credit:
Used for calculating hazard of loan (interest rate).

3. Funds to close:
Can come up from many different sources; e.g., marketer carry-back, gift
letter, equity.