Purchasing a home is sometimes stressful enough without worrying about whether or not the bank is going to approve your loan. If your new on the job, are a little overextended on your credit or your credit score isn’t high enough, you might not qualify for the traditional non-conforming loan. But don’t walk away from your dream home yet. Sub-prime lenders have a market niche designed to help you have the home of your dreams.

Sub-prime lenders specialize in what the mortgage industry terms non-conforming loans. A non-conforming loan basically is any loan that doesn’t meet the loan guidelines set by the Federal National Mortgage Association also known as Fannie Mae.

The federal government established Fannie Mae in 1938. Their loan guidelines are pretty simple to understand.

Fannie Mae basically has three simply guidelines for mortgages. They place limits for debt-to-income ratios. They require a homeowner have verifiable employment for a minimum of two years and they set limits on the amount of the loans.

Here are the 2006 loan limits from FannieMae.Com:

“First mortgages One-family loans: $417,000

Two-family loans: $533,850

Three-family loans: $645,300

Four-family loans: $801,950

Note: One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country.

Second mortgages $208,500

In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750”

Sub-prime lenders step in when a homeowner doesn’t meet these guidelines. These non-conforming loans allow the homeowner to qualify for more with less, but expect to pay. The interest on most non-conforming loans are higher, sometimes in the 9-12% range.

How should you prepare if you know your situation is less than ideal? First look at your credit. Try to find a way to make yourself look as good as possible. Second, a down payment is always a good idea. If you don’t have a down payment, sub-prime lenders could help you with an 80-20 piggy back loan…one loan for the home, one loan for the down-payment. Third, try to find an Adjustable rate mortgage or ARM. Sometimes these are easier to qualify for and usually have lower interest rates at the beginning of the loan.