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Sub-prime lenders specialize in what the mortgage industry terms non-conforming loans. A non-conforming loan basically is any loan that doesnt meet the loan guidelines set by the Federal National Mortgage Association also known as Fannie Mae. The federal government established Fannie Mae in 1938. Their loan guidelines are pretty simple to understand. Fannie Mae basically has three simply guidelines for mortgages. They place limits for debt-to-income ratios. They require a homeowner have verifiable employment for a minimum of two years and they set limits on the amount of the loans. Here are the 2006 loan limits from FannieMae.Com: First mortgages One-family loans: $417,000 Two-family loans: $533,850 Three-family loans: $645,300 Four-family loans: $801,950 Note: One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country. Second mortgages $208,500 In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750 Sub-prime lenders step in when a homeowner doesnt meet these guidelines. These non-conforming loans allow the homeowner to qualify for more with less, but expect to pay. The interest on most non-conforming loans are higher, sometimes in the 9-12% range. How should you prepare if you know your situation is less than ideal? First look at your credit. Try to find a way to make yourself look as good as possible. Second, a down payment is always a good idea. If you dont have a down payment, sub-prime lenders could help you with an 80-20 piggy back loanone loan for the home, one loan for the down-payment. Third, try to find an Adjustable rate mortgage or ARM. Sometimes these are easier to qualify for and usually have lower interest rates at the beginning of the loan. |
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