Non-Conforming Loans

Within the non-conforming realm we truly have two genres. The first is what most people know as JUMBO. Jumbo is simply defined as a loan for ABOVE the conforming limit of $453,100. The second Genre is a relatively new bucket for loans that don’t fit neatly in any of the other buckets we have talked about. This would be for loans we call Non-QM.

JUMBO

When we jump above $453,100, this type loan is now called a Jumbo loan. It is similar to a conforming loan, but the underwriting guidelines stiffen just a little bit. Generally speaking the debt ratio, credit requirements, and LTV maximums tighten a bit. We can gladly talk with you about these loans. These are a very viable option for the borrower seeking a home that will exceed a sale price of $550,000. We can, however structure the loan so that smaller down payments (10%) are possible. We can also help with breaking the loan into parts so as to help you stay inside the rules for Jumbo loans. There is another very small subset of loans called High Balance conforming. Since NC has so few areas for this product, we will not discuss that program here. Feel free to call and ask us about them.

Non Conforming

While Jumbo loans are technically classified as “Non-conforming” (simply because they are not defined as “conforming”), this term is generally reserved for more non-traditional scenarios. The term Non-conforming generated a lot of debate and was even the precursor to the 2007 Webster’s dictionary “word of the year”, SUBPRIME. Many felt Subprime was a negative word and had a derogatory reference. And yes the word subprime notated an individual with potential credit challenges. Now a new category of loan options has popped up and it fits nicely here. Many of these loans Do have loan amounts that are within the Conforming limit ($453,100)but they do not conform to the standard underwriting rules. The new descriptive phrase we use now calls these loans “NON QM”. QM stands for “qualified mortgage” and a qualified mortgage is a set of parameters that are a hodge-podge of items that consider certain aspects of a loan. Some of the QM precepts are…

  • Borrower’s income has been proven or “documented”
  • Borrower’s debt to income ratio (DTI) is within a prescribed range
  • Lender has documented a borrower’s “ability to repay” the loan (ATR)
  • LOAN is absent of several loan terms that would classify the loan as a loan with Risky features. (Interest only, prepayment penalties, short term ARM’s, negative amortization)

These NON-QM loans often have features that provide latitude in documenting income and assets. In some cases, these loans have wide flexibility in granting exceptions for some major credit events like bankruptcies, foreclosures, and short Sales. What we used to call Sub-prime has been cleaned up a bit and has found a place back in our toolkit as a way to help you obtain that goal of home ownership, even if you have had some things happen that may have prevented you from buying in the past. Things like…

  • One day out of bankruptcy
  • One day out of foreclosure
  • Self employed and struggling to prove income
  • Getting creative on how to prove income
  • Repossessions or short sales that have recently occurred.

Ask us about it. YOU would be surprised what is available today.

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