Non Conforming Loans

A non-conforming loan in Australia is a loan that does not meet the standard lending criteria set by major banks and financial institutions. This can include loans for amounts that are too high, for borrowers with poor credit history, or for properties that do not meet certain requirements.

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Non Conforming Loans are lending solutions for borrowers who don’t fit traditional lending criteria.

What is a non conforming loan?

In Australia, Non Conforming Loans​ are also known as “non-prime” or “credit impaired” loans. They are designed for borrowers who do not meet the standard lending criteria set by the major banks and financial institutions.

Examples of Non Conforming Loans in Australia include:

  • Low-doc loans: These are loans that require less documentation than traditional loans, making them more accessible for self-employed or casual workers.
  • Bad credit loans: These are loans for individuals with a poor credit history or low credit score.
  • Unsecured personal loans: These are loans that do not require any collateral, such as a car or property.
  • Second chance loans: These are loans for individuals who have previously defaulted on a loan or have a history of financial difficulty.
  • Self-employed loans: These are loans for individuals who are self-employed and may not have a traditional income or employment history.

Non Conforming Loans in Australia tend to have higher interest rates and fees than traditional loans, and may also require additional security or collateral. It is important to compare the options and terms available from different lenders before making a decision and to make sure that you are fully aware of the risks and costs involved.

How does a non conforming loan work in Australia?

Non Conforming Loans, also known as non-conventional loans, are lending solutions that non-bank lenders provide for borrowers who don’t fit the traditional lending criteria set by banks and financial institutions. These home loans first hit the Australian market in the mid-90s and have since become popular among borrowers who have difficulty getting approved for traditional loans.

Unlike banks and credit unions, non-conforming lenders in Australia offer more flexible terms and less stringent guidelines, making it easier for borrowers to get approved for a loan. It is important to note that not all non-bank lenders are non-conforming, and it’s important to distinguish between them and bank-owned lenders as a whole. These loans can be a good option for those struggling to get approved for traditional loans.

Non Conforming Loans

Requirements and How to Apply?

When applying for Non Conforming Loans​, it is essential to evaluate the charges and interest rates before committing to it. Additionally, it is vital to consider the restrictions and costs of paying off the loan in advance or refinancing it at a lower rate. It is also essential, to be honest, and provide the lender with complete information about your financial situation, which will help you find the right loan that fits your needs and determine if you can take on a home loan. For those not typical first-time home buyers, your local lender can recommend different loan types, such as a non-conforming loan, to help you start purchasing a home.

When it comes to getting a non-conforming loan, it’s important to know what to expect from the lender. Looking for a non-conforming loan? Fill out our contact form and one of our specialists will be in touch with you quickly.

Non Conforming Loans vs Low Doc Loans

Low-doc loans are a type of loan that requires minimal documentation for approval, making them ideal for borrowers who may not have access to the necessary documentation for a traditional loan. These loans may be available to borrowers with excellent credit scores who can provide evidence such as a letter of support from a financial advisor, bank statements, and the most recent Business Activity Statement (BAS). Non Conforming Loans, on the other hand, are loans that do not meet the standard lending guidelines and may be available to those with poor credit histories.

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Advantages of a Non Conforming Finance

Advantages of non-conforming loans include:

  • Higher loan limits: Non-conforming loans have higher loan limits, which allows borrowers to finance more expensive properties.
  • Flexibility: Non-conforming loans often have more flexible underwriting guidelines, which can make it easier for borrowers with unique financial situations to qualify.
  • Lower rates: Non-conforming loans can have lower interest rates than conforming loans, making them a more affordable option for borrowers.
  • No mortgage insurance: Some non-conforming loans do not require mortgage insurance, which can save borrowers thousands of dollars over the life of the loan.
  • Variety of loan types: Non-conforming loans include a variety of loan types such as jumbo loans, portfolio loans and bank statement loans, that may be a better fit for a borrower’s unique financial situation.

Drawbacks

The disadvantages of non-conforming loans include higher interest rates and fees, stricter requirements, and lower down payment requirements. They also involve more personalized requirements, which may put you at a disadvantage. Additionally, non-conforming loans typically have higher interest rates and may carry some additional costs.

Case Study: Non Conforming Loan in Sydney

We helped one of our clients in Sydney to obtain a conventional loan with only 10% down. Despite having a lower credit score and debt-to-income (DTI) ratio than is typically required for conforming loans. Mr Warner was able to navigate the lending process to get their loan approved and was able to purchase a home with a lower down payment.

Frequently Asked Questions (FAQs)

Is the low document considered a non-conforming loan in Australia?

The term “low doc” refers to Non Conforming Loans. However, the National Consumer Credit Protection Act (NCCP) controls low-credit lending. The borrower and lender risk becomes less. Since the lenders ask for more details about the borrower’s ability to pay, it may include looking over the business activity statements of a borrower (Low doc with BAS and Low doc with no BAS). Thus, fewer defaults and arrears for borrowers who apply for Non Conforming Loans can result.

Is a non-conforming loan costly?

Non Conforming Loans are more expensive in comparison to conventional loans. The cost difference is contingent on the quality of the application and the information contained in the application. For instance, if an applicant were to obtain a non-conforming loan with years of poor credit, it’s appropriate to say that this borrower would pay around 1- 5 per cent more than a conventional loan.

Additionally, when one can take out a non-conforming loan but still have excellent income streams, it reduces the price gap from a conventional loan. In this scenario, the interest rate will typically be between 0.1 per cent and 0.5 per cent higher than the standard loan. In scenarios like this, this individual can obtain a decent amount of money without diving deeper into the procedures.

How can non-conforming loan lenders offer it? Where do they get the amount to lend?

Conventional non-conforming lenders are usually owned by private companies and may be listed on the stocks exchanges of Australia. These lenders raise funds by issuing debentures to potential investors, which often have higher interest rates to cover the risk associated with borrowers. Investors in these loans can benefit from potentially high returns as the risk is generally lower than other types of investments.

What is the Max LVR for Non-confirming loans?

In the current market, it’s possible to get a non-conforming lender and obtain a loan up to 95 per cent LVR for a home loan and 80 per cent LVR for commercial loans.

Without proof of income, can I still be eligible for a non-conforming loan?

Evidence of income is needed to get a loan without proof. If you’re self-employed or an investor, you might be eligible for a low-doc home loan. If you cannot present proof of income with the application, pay slips or related documents might be required if you cannot submit income proof with the application.

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