Non-Conforming Home Loans Explained

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Applying for a home loan can be confusing for borrowers unfamiliar with the process; however, borrowers armed with the right information beforehand will be able to navigate the transaction with ease. You should know what you will need to prove your identity, what types of questions banks will ask on the home loan application, what documents you will need to corroborate the statements on your application, and ways to improve your credit rating prior to applying. Understanding what lenders are looking for when approving a home loan will make the application process much smoother.

Proving Your Identity

First, you should be familiar with what you'll need to take to the bank. Lenders conduct what is known as a "100-point check" to confirm the borrower's identity. If you have no pre-existing relationship with the bank, you'll have to present multiple documents to confirm your identity. Documents are scored on a point system, and borrowers must present 100 "points" worth of documents. A driver's licence is worth 40 points, while a birth certificate is worth 70 points and a credit card is worth 25 points. Note that all documents must be original to qualify for points.

Application Considerations

Lenders will also ask many questions on the home application forms. In fact, some application forms are up to 10 pages long. Lenders are primarily concerned with four things:

  • The borrower's ability to repay the debt (income)
  • The borrower's available assets (does the borrower have possessions of value?)
  • Whether the borrower is a financial risk (credit rating and file)
  • The collateral the borrower will use to secure the loan (does the property have enough value to cover the money borrowed?)

Aside from these first four essential items, lenders will also want information regarding:

  • The length of time the borrower has lived at their current address
  • Whether the borrower has dependent children (and how many children)
  • Insurance on the borrower's home and the borrower's life insurance policy
  • The borrower's credit cards and other financial information

What to Bring

Documents required may vary from lender to lender; however, these documents are universally requested:

  • The borrower's two most recent pay stubs
  • Group certificates from the previous two years
  • An employment verification letter from the borrower's employer detailing their income for the previous two years and the borrower's total length of time on the job
  • Bank statements for all of the borrower's checking and savings accounts
  • Documents detailing any investments such as term deposits and managed funds
  • Personal loan, credit card, and charge cards statements from the previous six months
  • Life insurance policy documents
  • An asset worksheet detailing the value of the borrower's assets (furniture, jewelry, cars, etc.)

Self-employed borrowers will also need to bring the following documents:

  • Tax returns from the previous two years
  • Profit and loss statements
  • Tax liability statement

Tips to Improve Your Eligibility

Banks put heavy weight on a borrower's credit history when approving any type of home loan. If your credit history is less than perfect, banks will be hesitant to enter into a loan agreement. You can improve your eligibility for a home loan by following these simple tips:

  • Pay all of your loan and credit card payments on time, and make more than the minimum payment whenever possible
  • Avoid making late payments, which will damage your credit rating and cost you extra money in late payment fees
  • Keep receipts for any credit card settlements as evidence that the debt has been settled in full
  • Avoid writing cheques when you do not have sufficient funds in your account to cover the cost.
  • Submit proper documentation of any additional income such as rental income, bonuses, or other reimbursements
  • Close liabilities in your bank statement prior to applying

Knowledge of the loan application process and an understanding of what lenders are looking for when approving home loans will improve your odds of success in obtaining a home loan. Prior to applying for any loan, you should be familiar with what documentation you will need to provide, what kind of questions to expect on the application, and what papers you will need to provide to verify your identity. You should also be familiar with ways to improve your credit rating and eligibility before applying for the loan. If you are armed with knowledge and insight prior to applying, you will find the home loan application process to run much more smoothly.

What to do next

Finance Comparison lists a number of highly competitive home loans that you can apply for online. Simply compare rates, terms and apply online. Alternatively if you are looking for a bad credit home loan, visit to get a free quote on a non conforming mortgage.

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