What is a non-conforming home loan? | RateCity

A non-conforming home loan is offered to borrowers who don’t meet the standard lending criteria for funding. When a lender assesses your home loan application, they want to make sure you’ll be able to repay the mortgage. To minimise their risk, each lender has minimum eligibility criteria that you must fulfil to qualify for a home loan. Some of the standard requirements may include a deposit covering at least 20 per cent of the property price, a credit score of 700 or higher, and stable employment history. 

If you don’t fit their minimum criteria, some lenders may perceive you as risky business and avoid lending money to you. However, not all lenders use the same yardstick to judge your repayment capacity. You may still find yourself eligible for a home loan with some lenders, despite not meeting the standard lending criteria, provided you can demonstrate your ability to service the mortgage.

Such loans are also known as non-conforming home loans. They can be accessed by individuals with poor credit scores or those who don’t meet the minimum deposit requirement. People nearing retirement or those who recently started working may also be able to apply for a non-conforming home loan. 

Of course, not every borrower with a bad credit history or a low deposit gets approved for a non-conforming 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 they don’t advance you a loan you cannot afford to repay. Therefore, a non conforming lender will only approve your application if they are convinced about your financial health and repayment capacity. If you are applying with bad debt, the lender may want to find out about the circumstances that led to your financial distress and how your situation has changed. So even though a non-conforming lender works with non-standard borrowers, it doesn’t mean they’ll approve your application if you are unemployed or delay your bill payments regularly. 

A low-doc home loan is also a type of non-conforming loan used by self-employed individuals, 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 individuals with a clean credit rating. You’ll also likely need a minimum 20 per cent deposit to be eligible for one.

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