Non-Conforming Or Sub-Prime Loans
Author: nixuzer
Posted: Fri Sep 16, 2005 5:06 pm
Post subject: Non-Conforming Or Sub-Prime Loans
Since I'm a little under educated about loan types can someone please explain what non-conforming conventional loans are? Also, if they could provide some research links that would also be appreciated.
Thanks.
Author: BestMortgageInfo
Posted: Fri Sep 16, 2005 9:36 pm
Post subject: Non-Conforming Or Sub-Prime Loans
The residential mortgage world is divided up several ways.
First there are Government loans: FHA/VA/etc.
Then there are the rest of the loan types, called conventional.
You further divide the conventional:
Conforming: "Fits the box" of Fannie Mae and Freddie Mac. Rules say 39% DTI (Debt to Income ratio), 95% LTV (Amount of the value of the home you can borrow) 2 months of PITI (Principal-Interest-Taxes-Insurance) in assets, that have been there 60+ days. The down payment has to be in the account for 60+ days, etc. Must escrow/impound the Taxes and Insurance. Great Rates, no Prepayment penalty
Non-Conforming:
The other parts of Conventional loans.
1) Most people call Sub-prime. 50% DTI (can even go to 55%), 100+ (or more) LTV, No assets, No escrow required. Down payment can be seasoned (in the account) for an hour. High rates. In theory should be temporary loans, just to get the new home buyer to the point that they can qualify for conventional loans.
2) Alt-A or A-, Sort of 1/2 way inbetween subprime and conforming.
The lines are getting blured anymore however. There are times when a person with good credit goes with a sub-prime or an Alt A loan, because they have limited proof of self employment, or not great job history etc.
Author: nixuzer
Posted: Fri Sep 16, 2005 10:34 pm
Post subject: Non-Conforming Or Sub-Prime Loans
Well BestMortgageInfo I did get this from your website so I appreciate your response.
Good information but since I love to learn, If you could assist me with a couple more questions since you do this for your career it would be appreciated.
1. A loan where someone does manual underwriting, if I recall the term correctly, because someone has a low credit score (due to no debt/credit) but has a decent income would be considered a non-conforming loan?
2. Lets say we have two people that have the exact same income and are looking at the same house with the same FICO score. Would someone with a bad payment history/bankruptcy have the same interest rate and closing costs/processing fees vs someone with a low score due to no debt and a non-existent or sparse credit history? If the either person has a lot more assets (retirement, cash, etc) would that make a difference on their interest rate?
Thanks for your time on this.
Author: BestMortgageInfo
Posted: Sat Sep 17, 2005 7:50 am
Post subject: Non-Conforming Or Sub-Prime Loans
1. A loan where someone does manual underwriting, if I recall the term correctly, because someone has a low credit score (due to no debt/credit) but has a decent income would be considered a non-conforming loan?
To answer your question on terms. Yes, there is automated and manual underwriting. Sometimes if a loan almost fits some lenders have a manual UW available. Rare, because as said before, conforming needs to fit the box. Part of that box is using the automated underwriting systems.
If your score is under 620, then you are for sure Non-Conforming. If over 620, and the lender can do a manual UW, then you can be approved, but at a higher rate than one approved with the automated approval.
2. Lets say we have two people that have the exact same income and are looking at the same house with the same FICO score. Would someone with a bad payment history/bankruptcy have the same interest rate and closing costs/processing fees vs someone with a low score due to no debt and a non-existent or sparse credit history? If the either person has a lot more assets (retirement, cash, etc) would that make a difference on their interest rate?
The first one would have the highest rates. If there are credit scores on the second one, they would get into a conforming loan. If the 2nd has no scores, then it is a sub-prime loan. If #2 has 3 or more open accounts with companies that don't report (Utility co, Cell phone, monthly car insurance, etc) then a loan can be done. Otherwise better to be in #1's position. Generally the rates would be about the same, but if #1 has a BK that is less than 3 years old, or 30 day late in the past year on a rent or home payment, then #1 will have the higher rate.
Posted: Fri Sep 16, 2005 5:06 pm
Post subject: Non-Conforming Or Sub-Prime Loans
Since I'm a little under educated about loan types can someone please explain what non-conforming conventional loans are? Also, if they could provide some research links that would also be appreciated.
Thanks.
Author: BestMortgageInfo
Posted: Fri Sep 16, 2005 9:36 pm
Post subject: Non-Conforming Or Sub-Prime Loans
The residential mortgage world is divided up several ways.
First there are Government loans: FHA/VA/etc.
Then there are the rest of the loan types, called conventional.
You further divide the conventional:
Conforming: "Fits the box" of Fannie Mae and Freddie Mac. Rules say 39% DTI (Debt to Income ratio), 95% LTV (Amount of the value of the home you can borrow) 2 months of PITI (Principal-Interest-Taxes-Insurance) in assets, that have been there 60+ days. The down payment has to be in the account for 60+ days, etc. Must escrow/impound the Taxes and Insurance. Great Rates, no Prepayment penalty
Non-Conforming:
The other parts of Conventional loans.
1) Most people call Sub-prime. 50% DTI (can even go to 55%), 100+ (or more) LTV, No assets, No escrow required. Down payment can be seasoned (in the account) for an hour. High rates. In theory should be temporary loans, just to get the new home buyer to the point that they can qualify for conventional loans.
2) Alt-A or A-, Sort of 1/2 way inbetween subprime and conforming.
The lines are getting blured anymore however. There are times when a person with good credit goes with a sub-prime or an Alt A loan, because they have limited proof of self employment, or not great job history etc.
Author: nixuzer
Posted: Fri Sep 16, 2005 10:34 pm
Post subject: Non-Conforming Or Sub-Prime Loans
Well BestMortgageInfo I did get this from your website so I appreciate your response.
Good information but since I love to learn, If you could assist me with a couple more questions since you do this for your career it would be appreciated.
1. A loan where someone does manual underwriting, if I recall the term correctly, because someone has a low credit score (due to no debt/credit) but has a decent income would be considered a non-conforming loan?
2. Lets say we have two people that have the exact same income and are looking at the same house with the same FICO score. Would someone with a bad payment history/bankruptcy have the same interest rate and closing costs/processing fees vs someone with a low score due to no debt and a non-existent or sparse credit history? If the either person has a lot more assets (retirement, cash, etc) would that make a difference on their interest rate?
Thanks for your time on this.
Author: BestMortgageInfo
Posted: Sat Sep 17, 2005 7:50 am
Post subject: Non-Conforming Or Sub-Prime Loans
1. A loan where someone does manual underwriting, if I recall the term correctly, because someone has a low credit score (due to no debt/credit) but has a decent income would be considered a non-conforming loan?
To answer your question on terms. Yes, there is automated and manual underwriting. Sometimes if a loan almost fits some lenders have a manual UW available. Rare, because as said before, conforming needs to fit the box. Part of that box is using the automated underwriting systems.
If your score is under 620, then you are for sure Non-Conforming. If over 620, and the lender can do a manual UW, then you can be approved, but at a higher rate than one approved with the automated approval.
2. Lets say we have two people that have the exact same income and are looking at the same house with the same FICO score. Would someone with a bad payment history/bankruptcy have the same interest rate and closing costs/processing fees vs someone with a low score due to no debt and a non-existent or sparse credit history? If the either person has a lot more assets (retirement, cash, etc) would that make a difference on their interest rate?
The first one would have the highest rates. If there are credit scores on the second one, they would get into a conforming loan. If the 2nd has no scores, then it is a sub-prime loan. If #2 has 3 or more open accounts with companies that don't report (Utility co, Cell phone, monthly car insurance, etc) then a loan can be done. Otherwise better to be in #1's position. Generally the rates would be about the same, but if #1 has a BK that is less than 3 years old, or 30 day late in the past year on a rent or home payment, then #1 will have the higher rate.
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