Who are 'Non-conforming' Loans for?

Other people who may not be eligible for many loans include Australian citizens living overseas or non-Australian residents buying investment property in Australia, and newly- arrived people in Australia who have no borrowing record here. It may also be difficult to secure a loan against properties not considered as secure investments such as company title or serviced apartments. Older borrowers may have difficulty in obtaining loans with a 25-year or longer repayment term.

Some lenders that provide non-conforming loans in Australia are Easy Loans, Bluestone, General Electric Mortgage Services, Liberty Financials, Morgan Brooks Direct, Save Finance and Pepper Home Loans. Other lenders may offer some non-conforming options to borrowers with limited credit-impaired histories or other barriers to securing a conventional loan. You should check with lenders to find out if they offer any such options. The best way to find non-conforming loans is to go through mortgage brokers who can advise on lenders and the loans they offer.

Generally non-conforming loans tend to have lower levels of documentation compared with conventional loans, due to a lower number of lending criteria. There are various types of non-conforming loans. A low documentation self-employed loan does not require a small businessperson to substantiate their income in the loan application. However, they are often required to certify their ability to make repayments with an accountant’s verification.

A low documentation P.A.Y.G loan may assist those employees earning additional income relating to their usual job that they are not able to substantiate. For example, a tradesperson may earn extra income doing additional jobs in their own time. This may make them able to afford the loan repayments.

A line of credit loan, or home equity loan, allows you to borrow against the accumulated equity in your home, enabling you to gain access to a line of credit facility. The amount of this facility generally depends on the value of your security. A ‘no documentation’ private loan does not require the borrower to provide details of any income, assets or liabilities. It is purely an unregulated loan that is designed for business or investment purposes.

Credit impaired loans can assist those borrowers with a poor credit history, by providing debt consolidation and refinancing options. The interest rate offered will be higher for poorer credit histories.

It is important for prospective borrowers to realise that they must still abide by the conditions of the loan contract they have signed, and that they must make minimum monthly repayments. Interest rates are likely to be higher than for conventional loans because the lenders are taking a greater risk of the borrower defaulting on the loan. Borrowers are still subject to interest rate rises.

Summary

Non-conforming loans are for:

• People with poor credit histories.
• The self-employed and those with infrequent and variable incomes.
• Non-Australian residents.
• Older borrowers.

Types of non-conforming loans include:

• Low documentation self-employed and P.AY.G loans.
• Line of credit loans.
• No documentation private loans.
• Credit impaired loans.

Article correct at its author date: Dec 2006. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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