Non Conforming Loans

Non Conforming Loans

Specialist lenders offer non-conforming loans to people who don't meet  mainstream lender's strict lending criteria, including older borrowers (over 55) for whom a 25-year loan may not be appropriate because they are close to retirement; people with a bad credit history, perhaps with a history of late repayments, loan default or possibly even formerly bankrupt; new migrants with no borrowing record; seasonal, casual or self-employed workers.

common scenarios

There are a number of common scenarios which would see you in the 'non conforming' borrowing area. Ironically, many people with inconsistent employment are surprised to find that getting 'mainstream' credit as not as easy as they had thought. As are people starting new businesses.  These days however, if you have the ability to repay, there is probably a non conforming lender who will give you credit.  

• Short term self employed:  You might be starting new business or recently started a new business. If you can explain your situation in a way that will give comfort to the non conforming lender you will normally be considered.
  
  
• Short term or 'speckled' employment:  Some non conforming lenders will consider borrowers changing jobs or on probation. They are generally less strict with casual employment than mainstream lenders and even multiple jobs in short periods of time may be fine if you have an acceptable explanation and can work with a reduced LVR.
  
  
• Borrowers with previously irregular income:   You will be considered if the lender can get some comfort in the regularity of future earnings.
  
  
• Recipients of centrelink payments or benefits:   With the exception of unemployment benefits, many non conforming lenders will take centrelink payments as a source of income. An example may be a single mother receiving a parenting payment, family tax benefits and maintenance. This income could potentially service a small home loan.
  
  
• Defaults, Judgments & Bankruptcy:  If you have a bad credit history, you could still be considered as long as they have a satisfactory explanation for your situation. Typical explanations include: divorce, failed business, illness or unexpected cash flow issues.
  
  
• Tax Debts:  Many non conforming lenders will consider borrowers with tax debts that need to be paid out, as part of the refinance. Some may even not attribute any interest penalty to this for credit impairment.
  
  
• Borrowers with large numbers of CRAA enquiries can be considered if they are able to explain their situation.
  
  
• Borrowers with large amounts of consumer debt:  Non conforming lenders typically like you as they will normally be improving your monthly commitment levels dramatically.
  
  
• Self certified or low document loans:  Non Conforming Lenders will consider borrowers that fit within this category even if they have a bad credit history. They will also often look at higher LVRs (loan to value ratios) than the mainstream lenders.

"My partner and I have recently gone through the sometimes overwhelming task of getting a mortgage. Troy Erickson has been our broker and I must say that without his understanding, patience and empathy towards us, it would have been a very frustrating task." Jenni Sanders, Melbourne

tell your broker or lender the truth and don't leave anything out

One of the most important things to remember when you find yourself in a position where non conforming credit is your only option is to ensure your broker or lender understands your situation precisely - how events occurred and what is different now.  Don't leave anything out as there is nothing more disappointing (and possibly terminal) in unexpected 'bad news' or 'additional information' coming to light after a loan application has been submitted.

How does your Credit History affect the Interest Rate you pay?

As a rule of thumb, you can be pretty sure that the greater risk your current situation or previous history presents, the higher interest rate you will pay. This doesn't mean that you don't have options however. There will almost certainly be a number of different lenders with different rates and terms on offer even for the same situation.

Rebuilding a Bad Credit Rating or creating a new Credit Rating

Some non-conforming lenders now offer interest rate reductions after 12 months or so of consistent on time payments.  At the same time, mainstream lenders will also consider you favorably for refinancing after anywhere between 6 - 12 months of consistent repayment. Talk to a local mortgage broker for your options.