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Non-Conforming mortgages

What is a non-conforming mortgage product and who is it for?

Non-conforming mortgages are mortgage product where traditional mortgage lending guidelines/rules are not followed by the lenders. Traditional or old fashioned or prime mortgages (as lenders like to call em) are for people who have excellent credit rating, good asset base, stable job or income history and lot of money (25%) for down payment. When you lack one or more items described above, you do not meet the big banks' lending guidelines and you can not qualify for a prime mortgage. Some lenders see a business opportunity in this and as a result more people are able to get a mortgage to buy a home.

There are 2 types of non-conforming mortgages:

1 - Alt-A / Near Prime

Alt-A is an alternative mortgage product for people who

  • Have good credit history
  • Have good down payment (30-35%) / low loan to value ratio
  • Don't have proof of income or job security (mostly because they are self-employed and don't show all the income to the taxman)
Big banks are lending to this type of clients now, because they are able to get insurance from Canada Mortgage And Housing Corporation or Genworth (GE). Usually the interest rate you get is as good a a prime mortgage product. More and more lenders are competing in this segment of the market.

2 - Sub-prime (or B mortgages)

Sub prime mortgage is for people who
  • Have bad credit history
  • Low asset base
  • Not enough savings for down payment/high loan to value ratio
Exceed, Home Trust, Wells Fargo, AGF plus several trust and private mortgage companies compete for this business. Client would generally pay a higher interest rate, anywhere from 6% to 15% in today's market. . Interest rates are based on risk involved in the deal. People with high debt load, new Canadians, single parents, people entering the expensive housing market usually take advantage of sub-prime mortgage products.

talk to your mortgage broker if you were not able to get a mortgage from you bank. mortgage brokers deal with all types of lenders. In most cases a mortgage broker can work out a deal for you.

check out Mortgage And Mortgage regularly for more mortgage information.

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