• 22 May 2024
Your guide to non-conforming home loans in Australia

What is a non-conforming home loan?

Non-conforming loans, also known as specialist or non-standard loans, are designed to provide financing options for individuals who may not meet the strict criteria of traditional Australian lending institutions. These loans cater to borrowers with unique circumstances, such as self-employed individuals, those with poor credit history, or individuals with irregular income, or overseas property investors such as Australian expatriates or foreign buyers.

Are there additional eligibility criteria for non-standard loans?

Eligibility criteria may vary among lenders, but generally, borrowers should be prepared to provide additional documentation and meet certain requirements. This may include providing bank statements, business financials (for self-employed individuals), proof of income, and evidence of a steady employment history. Lenders offering non-conforming loans consider the borrower’s overall financial situation, including income, assets, and liabilities, to assess repayment capacity.

Are there higher fees and rates for non-conforming home loans?

These types of loans typically come with higher interest rates compared to standard loans. Lenders offset the increased risk associated with lending to borrowers who don’t meet traditional criteria by charging higher rates. Borrowers may encounter higher fees, including application fees, valuation fees, and lender’s mortgage insurance (LMI) fees if the loan-to-value ratio (LVR) exceeds a certain threshold.

The loan-to-value ratio represents the proportion of the property’s value that the lender is willing to finance. Non-conforming loans may have a lower maximum LVR compared to traditional loans. Borrowers may need to provide a larger deposit or have a higher level of equity in the property they wish to purchase. Limited LVRs help mitigate the lender’s risk and provide a level of security.

Do non-conforming home loans have any benefits?

Non-conforming loans often offer flexible features to cater to the unique circumstances of borrowers. These features may include options for interest-only repayments, extended loan terms, and the ability to make additional repayments. Borrowers should carefully consider the loan features and assess whether they align with their financial goals and repayment capacity.

How do I secure a non-standard home loan?

A mortgage broker may be your best option when looking for non-conforming loans, as they have knowledge of lenders who may approve your finance and understand how they assess your mortgage application. Working with a mortgage broker can also help borrowers access a wide range of non-conforming loan options and help you assess each product offering along with the advantages and disadvantages of them.

Specialist Mortgage is here to help

Given the complexity and unique nature of non-conforming loans, seeking professional advice from mortgage brokers or financial advisors is highly recommended. They can provide guidance on the available options, assess eligibility, compare loan terms and interest rates, and assist in navigating the application process. Understanding the eligibility requirements, higher interest rates and fees, limited LVRs, flexible loan features, and the role of specialist lenders is crucial when considering a non-conforming loan. Seeking this expertise can help borrowers make informed decisions and secure the most suitable non-conforming loan for their individual circumstances.

For an obligation free chat about your circumstances contact us today.