In the realm of non-conforming lending, the emphasis is not placed upon the type of loan a borrower is applying for; rather the emphasis lies in his or her credit grade or the risk associated with the loan. The credit grades have been broken into six categories (A-, B, C, C-, D, and D-) and vary depending upon the borrower’s credit history and type of loan he or she desires.
A borrower's credit grade is often determined by their credit report. Mortgage lates and general credit derogatories within the last 24 months will often be a factor in determining a person's credit grade. Bankruptcies are generally accepted and often times a person currently in a Chapter 13 bankruptcy or recently out of a Chapter 7 bankruptcy can still buy a home! More times than not, a borrower will not have to pay off any collection account that is older than 3 years or any collection account less than $500 to $1,000 in value.
In addition, non-conforming loans generally have higher ratios ranging from 45% to 60% allowing the borrower to purchase a larger home than they would have normally qualified for under conforming guidelines.
It is important to remember that though the rates for non-conforming loans are higher than FNMA/FHLMC mortgages, there is more flexibility with the underwriting guidelines so that borrowers who would normally be denied financing under "conforming" guidelines can have the opportunity to purchase a home, pull out extra equity in their house or consolidate their high interest rate credit cards.
