| The simple definition of a "non-conforming home loan" | | | | spend not morethan about one-fourth oits income |
| is: You have a job and can make the payments. Your | | | | (28%) on housing and not more thanabout one-third of |
| credit is used only to determineyour interest rate and | | | | its income (36%) on total indebtedness (housingplus |
| the loan amount to value of the home ratio. | | | | other debts). Lenders feel that if they follow |
| This ratio is referred to as your "LTV" or "Loan To | | | | theseguidelines, homeowners will be able to pay off |
| Value". | | | | their mortgagesfairly comfortably and lenders will not |
| There are many lenders who will lend to borrowers | | | | have to worry about loandefaults and foreclosures. |
| who are inforeclosure or who are currently in a | | | | 2. Credit: |
| bankruptcy. | | | | Any late payments must have good explanations and |
| Borrowers who arein these situations often have the | | | | generally no morethan one 30-day late payment is |
| worst possible credit. Lenders protectthemselves by | | | | permitted within 12 months. |
| keeping the LTV low, about 65% to 70% of the | | | | 3. Funds to Close: |
| appraisedprice of the property. By doing this, the lender | | | | You must have the down payment, which must be |
| is very wellprotected. If the borrower goes into | | | | your own funds, andthe closing costs. In addition, you |
| foreclosure again with the newlender, the LTV is low | | | | must have at least two month'sextra payments in the |
| enough that the lender can take the propertyback, sell | | | | bank. |
| it at a discount for a quick sale, and still pay off | | | | NON-CONFORMING LENDERS' GUIDELINES |
| thedebt. | | | | 1. DEBT RATIOS: |
| The lender rarely cares if there are other mortgages | | | | Every non-conforming lender has a different set of |
| against theproperty, as long as the lender is in the first | | | | guidelines;therefore, this section should be used only as |
| position. You see,when a lender takes a property back | | | | a general example. |
| from a borrower the first lienposition gets the | | | | These types of lenders are saying that a household |
| proceeds of the sale first, then the second, thenthe | | | | should spend notmore than about one-half of its |
| third, etc. Rates for these types of loans are usually | | | | income (50%) on housing and not morethan about |
| 1% to 6%higher that conforming rates. | | | | two-thirds of its income (60%) on total indebtedness |
| CONFORMING LENDERS' GUIDELINES | | | | (housing and other debts). |
| Lenders use three qualifying guidelines to determine | | | | Lenders feel that if they follow theseguidelines, |
| what sizemortgage you are eligible for. They are as | | | | homeowners will be able to pay off their |
| follows: | | | | mortgagesfairly comfortably and lenders will not have |
| 1. Debt ratios: | | | | to worry about loandefaults and foreclosures. These |
| Your monthly costs (including mortgage payments, | | | | guidelines can be pushed with othercompensating |
| property taxes,insurance) should total no more than | | | | factors. |
| 28% of your monthly gross | | | | 2. Credit: |
| (before-tax) income. | | | | Used for calculating risk of loan (interest rate). |
| Your monthly housing costs plus other long-term debts | | | | 3. Funds to close: |
| should totalno more than 36% of your monthly gross | | | | Can come from many different sources; e.g., seller |
| income. | | | | carry-back, giftletter, equity. |
| Basically, lenders are saying that a household should | | | | |