What you should know about 'non-conforming' finance

Prospective borrowers need to carefully weigh up the pros and cons of this alternative avenue of finance.

In order to lend to such borrowers, lenders usually charge a higher interest rate in recognition of the greater risk. This may amount to thousands of dollars over the life of a loan.

Lenders usually also impose stricter repayment conditions or may require financial counselling for those with a poor credit history.

However, one or two years of on-time loan repayments under these arrangements helps demonstrate creditworthiness and establish a good credit record. Look for a non-conforming loan that rewards borrowers with interest rate reductions after one or two years.

Low doc borrowers should be especially careful in their income declaration to a non-conforming borrower. The tax office is auditing these lenders looking for self-employed borrowers who declare low income for tax and high income for purposes of the loan.

Borrowers previously failing to obtain funds using traditional forms of finance may use the alternative loan market to regain access to mainstream sources of credit.

Read our tips on Non-Conforming loans.