A non-conforming loan is a loan that does not meet conventional financing guidelines or the guidelines of a conventional lender or bank.  Loans that do not meet these requirements will need to be funded with alternative lending options.  These types of loans are also called Jumbo, Alt-A or subprime loans.

Every conforming or conventional lender will have underwriting guidelines they choose to use which is also based on the loan type.  Government-backed loans like FHA or VA will have a set of underwriting requirements to qualify.  While conventional loans must meet the underwriting guidelines set by Fannie Mae and Freddie Mac which are the companies that buy the majority of originated loans from the bank or lender.  Underwriting is the process any lender uses to determine the risk of the loan collateral, the risk of the borrower, and the likely hood that a borrower is capable of repaying the loan.  The most common metrics, used in the underwriting of a loan and borrower are:

• LTV – Loan to Value. This metric is calculated by dividing the value of the property by the loan requested.
• Cash seasoning – The money you use in most cases must be yours, not be borrowed from another source, and be in the bank (seasoned) for a period of time
• Debt to Income – This metric is calculated by dividing the average gross monthly income of the borrower and the average monthly expenses.
• Credit requirements most conforming loans require a minimum credit score in the 620 to 640 range, but it can be lower for an FHA or VA loan or higher depending on the lender on the lender.
• Supporting Documentation – You have to prove your income. Lenders will require, bank statements, tax returns, pay stubs, basically any source of income will need to be validated.
• Property type – Most conforming loans are made on single-family homes or dwellings that are less than 4-units. Multifamily, commercial property or unorthodox properties generally do not qualify for a conforming loan
• Baseline loan limit – Conforming loans have limits, that vary but range from about $450,000 to $680,000.
• Occupancy- Conventional loans can only be obtained when you are getting a loan on a primary residence, a second home, vacation home, or a rental property. FHA or VA loans can only be obtained when it is the borrower’s primary residence.

Examples of Non-conforming loans

• Commercial non-conforming loan examples would be industrial buildings, retail projects like strip malls, retails space, RV parks, raw land, gas stations, medical office buildings, and more.
• Residential non-conforming loans are still regulated and depending on the state, the need to be provided by a licensed mortgage lender.

Northwest Private Lending (NWPL) makes loans on non-conforming loans, both in the residential and commercial space.  NWPL is lending private money and does not need to underwrite the borrower or collateral in the same way a conventional lender is required to.  A Hard Money or Collateral based loan is a loan based on the equity inside the asset and is a great option for people who are buying non-conforming investment properties or who do not qualify for a Government or conforming loan when purchasing or refinancing an investment property.  We make our own decision, so give us a call and our single point decision-maker will discuss whether your situation will work for us.