How the Non-Conforming Loan Differs from the Conforming
The loans are called many names. As the bi-polar opposite
of its cousin, the conforming loan, non-conforming loans
belong to the conventional loan family. The less formal
name for non-conforming loans is called ‘sub-prime’
loans. The flexibility and non-standardized guidelines
of non-conforming loans is optimal for the person with
impaired credit or an extenuating financing scenario.
With the non-conforming loans, the rules of the loan
generally vary from lending institution to lending institution.
Not to mention, the same lenders are entitled to modify
their guidelines as often as month- to-month. The reason
that some lenders or borrowers refer to non-conforming
as “sub-prime” is because the loans are
devised for the customer or prospective borrower who
has blemished credit. Another scenario, where a sub
prime loan is ideal for a potential homeowner, is when
the person is self-employed and the income is not verifiable.
As each lending institution or mortgage company has
their own set of guidelines and criteria for borrowers
to meet, the numerous loan programs are too vast to
detail. Nevertheless, sub prime or non-conforming loans
are rated based on creditworthiness. Verisimilar to
the educational grading system, the non-conforming or
sub prime loan is rated according to the following grades
‘A,’ ‘B,’ ‘C’ and
Extenuating circumstances that may necessitate a sub
prime or non-conforming loan:
• Poor credit rating
• A high debt ratio to income
• The filing of a bankruptcy
• A minimal – moderate down-payment
In the refinance and investor loans, non-conforming
loans have been a growing trend in the mortgage industry.
As each lender employs specific guidelines in the loan
application approval process, the criteria for sub-prime
loans are more forgiving, lenient and lax than for a
conforming mortgage loan.