What is a Non Conforming Home Loan?

by Rae E. Non Conforming Loans

Prime lenders such as Banks and Credit Societies have strict criteria around who is eligible for a mortgage. If you don’t tick all their standard boxes, your application for a home loan will generally be declined. Unfortunately, being a unique individual may be a big plus, but standing out from the gang may be a problem when it involves landing a home loan. If you don’t meet the credit criteria set by these mainstream banks and lenders in Australia, there may be options available. One such possibility may well be a non conforming home loan, but it’s important to know how they work and also the potential costs and risks involved before committing to a mortgage.

What is a non-conforming home loan?

A non-conforming home loan is a home loan offered to borrowers who don’t meet the standard lending criteria set by banks and other major lenders. as an example if you’ve got a poor credit record, a past history of bankruptcy, or difficulty proving your income because you’re self-employed. If that sounds familiar, you’re in no way alone. Specialist lender Non Conforming Loans has estimated one in five people will require a non-conforming loan because they can’t get credit from a standard lender.

How do non-conforming home loans work?

In many ways, non-conforming loans are like regular home loans and may offer variable, fixed or split rates, redraws and offset accounts with the flexibility to create extra repayments. With a non-conforming loan, you’ll often be required to pay a higher interest rate than a prime lender would charge. The upfront fees may be higher, and also the loan can include high ongoing and exit fees. These additional costs compensate lenders for the additional risk they take on when offering a non-conforming home loan. On the plus side, if you are taking out a non-conforming loan and maintain your repayments over time, you’ll steadily improve your credit rating, which could mean you’re ready to refinance to a lower rate loan further down the track. It’s important to read the lender’s Key Facts Sheet or other documentation for any mortgage you’re considering.

Who are non-conforming home loans suitable for?

In general, non-conforming home loans could potentially be suitable if you:

Have a bad credit history – this could include paid or unpaid defaults, discharged bankruptcy or part 9.
Currently have arrears or late repayments with creditors
Have a low credit score
Earn unstable or irregular income, which may well be the case if you’re employed on an informal or contract basis
Have a tax debt
Have been refused credit within the past.

Before applying for a non-conforming loan, consider the fees and interest rates on offer as they will be more than most traditional home loans and examine whether there are any limitations or costs related to paying off the loan early or refinancing it to a less expensive rate. If you are applying for a non-conforming home loan take care to only deal with an experienced Mortgage Broker that has several options.