Non-conventional loans

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Updated: 3/24/2003 1:46 pm
When conventional mortgage lenders reject borrowers, it's often because of income requirements, blemished credit, unstable employment history, bankruptcy, or any combination of these factors. There are, however, several non-conventional loans available in the marketplace to help borrowers who have unusual financial circumstances or bad credit problems. These loans generally are characterized by easy payment terms and require small or no down payments. For example, FHA (F-H-A) loans, insured by the Federal Housing Administration, require as little as a 3 percent down payment. VA (V-A) loans, guaranteed by the Veterans Administration, provide mortgages with no down payment requirement, making them ideal for first-time borrowers or those who would normally be denied financing under conventional loan guidelines. Many major banks and private lenders are also starting to offer more options for lower-income borrowers and those with less-than-perfect credit. They're using more sophisticated computer programs to assess risk, and as a result have more information on which to base their decisions, which often means they're qualifying more people. Two traditional lenders that offer loans to lower-income and questionable credit borrowers are Fannie Mae and Freddie Mac. These organizations are the leading sources of non-conventional loans. According to industry figures, non-conventional loans now make up about 15 percent of the mortgage market, making the process of buying a home easier for more people. However, it's important to remember that although non-conventional loans are usually easier to qualify for, the interest rates for them can be significantly higher than conventional mortgages and limits tend to be placed on the amount you can borrow.

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