A non-conforming home loan is offered to borrowers who do not meet the standard financing criteria. When a lender assesses your mortgage application, they want to be sure that you will be able to repay the mortgage. To minimize their risk, each lender has minimum eligibility criteria that you must meet to qualify for a home loan. Some of the standard requirements may include a down payment covering at least 20% of the property price, a credit score of 700 or above, and a stable work history.
If you don’t meet their minimum criteria, some lenders may view you as a risky business and avoid lending you money. However, not all lenders use the same criteria to judge your repayment capacity. You may still find yourself eligible for a home loan from some lenders, even if you don’t meet the standard loan criteria, provided you can demonstrate your ability to repay the mortgage.
These loans are also known as non-conforming home loans. They are accessible to people with bad credit or those who do not meet the minimum deposit requirements. People close to retirement or those who have recently started working may also be able to apply for a non-conforming home loan.
Of course, not all borrowers with a bad credit history or low deposit are approved for a nonconforming home loan. As non-conforming borrowers are generally considered high risk, they are approved for a mortgage on a case-by-case basis.
The law requires a lender to ensure that they are not advancing you a loan that you cannot afford to repay. Therefore, a non-compliant lender will only approve your application if they are confident of your financial health and repayment capacity. If you are applying with a bad debt, the lender may want to inquire about the circumstances that led to your financial distress and how your situation has changed. So even if a non-compliant lender works with non-standard borrowers, it doesn’t mean that they will approve your application if you are unemployed or regularly late on paying your bills.
A low-doc home loan is also a type of non-conforming loan used by freelancers, contract workers, and freelancers to qualify for a home loan without any payslips to prove their income. However, low doc loans are only offered to people with a clean credit score. You will also likely need a minimum deposit of 20% to qualify for one.