As we discussed in our previous Money Musing, not all borrowers are created equally. With the big lenders cracking down on who they give their money, getting a home loan may seem impossible for some. But don’t give up hope if you are one of these people, for there are is another type of lender you can look at. These lenders are referred to as non-conforming lenders.
So what is a non conforming lender?
Sounds like some sort of hippy lender who goes against the grain, driving through a red light and shouting "Damn the man!", right? In weird way, kinda accurate. Non-conforming lenders shout "Damn the man!", with "the man" being your major lenders. These lenders think outside the box when looking at who they borrow their money to. While the big banks may have said "No", non-conforming lenders are more flexible with their criteria and may be more willing to give people who would otherwise be out of the market a chance at owning their own home.
Who is a non-conforming lenders' target audience?
There's a variety of people that a non-conforming lender might consider when a bank sticks their nose up at them.
Bad credit clients: Banks all work off of your credit score. Unfortunately, sometimes, life - and the inconveniences that it throws your way - may mean you have missed a few payments and caused your credit score to take a hit. Non-conforming lenders, if provided a valid reason for this credit score, may still consider you for a loan.
Bankruptcy: Be it bad business or bad life decisions, bankruptcy can happen to some people. Besides having to deal with the circumstances that may have gotten you there, you also then have to deal with it leaving a big black mark on your file for the next 5 to 7 years. Prime (Conforming/big bank) lenders will likely avoid you like a child avoid vegetables. Non-conforming lenders may - on a case by case basis - consider giving you a chance.
Gifted funds/inheritance: Most big lenders love 3 months of genuine savings when purchasing a home. Non-conforming lenders may accept gifted or inherited funds immediately, without the wait time.
Employment Variations: Employment can come in all shapes and sizes - be it newly employed, numerous casual jobs, contract work or self-employed. When your employment isn’t a simple 9-to-5 full-time position, some banks will not touch you. Non-conforming lenders however may consider all of the above as long as they can see income in your bank account and the funds there to pay the mortgage.
What's the catch?
I know - you are now sitting there and thinking "Well, why wouldn’t everyone just go non-conforming? Sounds like they would even lend money to my dog!". Well, for starters, your dog doesn’t have employ, so it would still be a "no" for them - but on a serious note, interest rates can be higher with a non-conforming lender. If you fit into the outer edges of a main bank's comfortable zone, the non-conforming lender still potentially views you as a "high risk", which could mean you could be given an interest rate 2% higher then a regular lender. That is big time costs in the long run. Some non-conforming lenders also apply a "high risk fee" which increases repayments also.
So: to become the perfect lender and wait? Or purchase now and try a non-conforming lender? That is up to you and your home ownership plan - do you want a home now and are willing to take a bigger hit on your funds in the long run, or do you take your time, build up a deposit and try to meet the banks' potentially high standards for a little less outlay in repayments?
And hey, still confused? I know this amazing broking firm that would be happy to have a chat. *wink wink*