Non-conforming loan
Encyclopedia
A non-conforming loan is a loan
that fails to meet bank criteria for funding.
Reasons include the loan amount is higher than the conforming loan
limit (for mortgage loans), lack of sufficient credit
, the unorthodox nature of the use of funds, or the collateral
backing it. In many cases, non-conforming loans can be funded by hard money lenders, or private institutions/money. A large portion of real-estate loans are qualified as non-conforming because either the borrower's financial status or the property type does not meet bank guidelines. Non-conforming loans can be either A-paper
or subprime loans.
The flexibility of private money can allow for a much wider range of deals to be funded, although more detailed and substantive collateral and documentation may be required by a lender.
s, and comprise a large portion of all non-conforming loans. They are used to fund industrial and retail projects like RV parks, theatre complexes, gas stations, medical centers and more. Many commercial non-conforming loans are bridge loan
s.
Residential non-conforming loans are strictly regulated, usually with much higher rates than banks. Some states have legal limits against non-conforming loans for residential real estate.
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
that fails to meet bank criteria for funding.
Reasons include the loan amount is higher than the conforming loan
Conforming loan
In the United States, a conforming loan is a mortgage loan that conforms to GSE guidelines.In general, any loan which does not meet guidelines is a non-conforming loan...
limit (for mortgage loans), lack of sufficient credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
, the unorthodox nature of the use of funds, or the collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
backing it. In many cases, non-conforming loans can be funded by hard money lenders, or private institutions/money. A large portion of real-estate loans are qualified as non-conforming because either the borrower's financial status or the property type does not meet bank guidelines. Non-conforming loans can be either A-paper
A-paper
A-paper is a term to describe a mortgage loan for which the asset and borrower meet the following criteria:* In the United States, the borrower has a credit score of 680 or higher* The borrower fully documents his income and assets...
or subprime loans.
The flexibility of private money can allow for a much wider range of deals to be funded, although more detailed and substantive collateral and documentation may be required by a lender.
Selecting a Non-Conforming Lender
Borrowers should select non-conforming lenders in the same careful way they would shop for any other loan. Look for good rates and especially a good customer service rating. Rates for non-conforming lenders are typically higher than those for banks, but terms are more flexible and loans more easily attainable. Many companies advertising non-conforming loans are brokers who refer the loans requests they field to lenders.Types of Non-Conforming Loans
Commercial non-conforming loans are also known as hard money loanHard money loan
A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued by private investors or companies...
s, and comprise a large portion of all non-conforming loans. They are used to fund industrial and retail projects like RV parks, theatre complexes, gas stations, medical centers and more. Many commercial non-conforming loans are bridge loan
Bridge loan
A bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing.-Description:A bridge loan is interim financing for an individual or business until...
s.
Residential non-conforming loans are strictly regulated, usually with much higher rates than banks. Some states have legal limits against non-conforming loans for residential real estate.
See also
- bridge loanBridge loanA bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing.-Description:A bridge loan is interim financing for an individual or business until...
- conforming loanConforming loanIn the United States, a conforming loan is a mortgage loan that conforms to GSE guidelines.In general, any loan which does not meet guidelines is a non-conforming loan...
- Asset-based loan A similar type of commercial loan based on real estate, indicating the loan will be based upon a percentage of the properties appraised value, as the key criteria.
- Bridge LoanBridge loanA bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing.-Description:A bridge loan is interim financing for an individual or business until...
A similar type of commercial loan based on real estate - Hard MoneyHard money loanA hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued by private investors or companies...
A similar type of commercial loan based on real estate - Commercial Loan Standard, broad types of loans based on commercial property value