non conforming home loans

Non Conforming Home Loans



What is a non conforming home loan?

These are loans that do not conform to a standard lender's loan approval criteria. It means an applicant with poor credit history, short time employment history, self employed, no tax return and financial statements or being a non-resident can apply for this type of home loan.

The applicant can borrow more than 80% of the value of the home and the interest rate will be higher (usually 1% to 3%) than a regular home loan. The interest rate will depend on the applicant's credit history.


Advantages and disadvantages of non conforming home loans.


Anyone applying for this type of loan is categorized by lenders as a high risk applicant and therefore the interest rate will be higher than for a standard home loan. The applicants should be aware that 1% or 2% higher interest rate may add thousands of dollars over the life of the loan. Also. non conforming home loans lenders will require stricter repayment conditions and may penalise late or irregular payments.

On the other hand if the payments are consistent and on time for a period of 1 or 2 years many lenders will reward borrowers with interest rate cuts. This will not only establish good credit record but also considerably reduce their monthly repayments. If you have several loans you could apply for debt consolidation before you look for home finance.

If non conforming home loans borrowers make regular repayments over 3 years they may be able to refinance their home loan with a standard variable interest rate home loan. Your existing lender will most likely charge you an exit fee. This fee can be a flat fee of a few hundred dollars or a percentage of your outstanding loan amount. Borrowers trying to refinance their home too early will most likely be required to pay a very high exit fee practically preventing them refinancing their home loan.

Non conforming home loans are available to borrowers not fitting traditional bank criteria, however we recommend that anyone looking for this type of home loans should contact a professional home loan consultant and obtain all details before applying for a loan. Contact our non conforming home loans specialist now.

Below is a table comparing monthly repayments for a typical home loan of $350,000 over a 25 years period with different interest rates.

Type of loan Loan amount Interest rate Monthly repayments
Home Loan 1 $350,000 5.5% $2149
Home Loan 2 $350,000 6.5% $2363
Home Loan 3 $350,000 7.5% $2586
Home Loan 4 $350,000 8.5% $2818
Home Loan 4 $350,000 9.5% $3058
Home Loan 4 $350,000 10.0% $3180

For each percent increase more than $200 is added in extra repayments per month for a home loan of $350,000.

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