For most potential homebuyers, obtaining a mortgage is easy. Show your pay stubs and W-2s to the bank, and start looking for your dream home. Other people have complicated financial situations, though, and don't qualify for the typical bank loan. Consider:

• The young entrepreneur with great credit and some assets, but with no way to verify income;
• The retiree living on a small pension plan and significant interest income from a lifetime of investments;
• The newly married couple at the start of their promising careers, moving into an expensive city;
• The basketball star who doesn't want to disclose his financial situation

All of these people will be able to meet their monthly mortgage payments easily, but none will qualify for a traditional mortgage. Happily, low interest rates and an explosion in the housing market have caused banks to compete for customers they would not have considered several years ago.

While nonconforming, or alternative, mortgage programs have always been available, there has never before been so much variety in the types of mortgages consumers can choose from. Even borrowers who find themselves in situations like the ones listed above will be able to find mortgages that meet their needs. They will have to pay more to borrow their money, however.

Risks and Benefits of Nonconforming Mortgage Programs

Conventional mortgages have always been popular with banks and consumers because they have very few risks. Banks know that their customers have the ability to repay their loans, and are able to offer low interest rates and predictable prerequisites.

Consumers should be aware that nonconforming mortgage programs are riskier than conventional mortgages, both for the bank and for the consumer. Some of the risks entailed include:

• Higher chance of foreclosure--Most people who seek alternative mortgages can afford the payment, but don't qualify for conventional mortgages because their financial stability is hard to prove on a traditional mortgage application. Other applicants, though, don't qualify for traditional mortgages because they don't earn enough to pay back the loan. Before applying for an alternative mortgage, consumers should carefully weigh their financial situations to ensure that they can pay.

• Higher required credit scores--Consumers who missed a few payments or got their cars repossessed won't be able to qualify for most alternative mortgage programs. Banks usually require credit scores in the high 600s for alternative loan programs.

• Higher interest rate--To help offset the additional risk of nonconforming mortgages, banks charge higher interest rates. Depending on the program, borrowers who qualify for conventional mortgages pay between .5 and 3 percent less than borrowers seeking alternative mortgages.

• Higher fees--In addition to higher interest rates, borrowers seeking alternative mortgages can expect to pay higher loan fees. Origination points and lender fees will typically be higher with nonconforming loan programs.

While there are risks associated with loans that do not conform to conventional standards, nonconforming loans also have some benefits. The benefits include:

• The ability to borrow money--Alternative mortgages were designed to give options to people who don't qualify for conforming loans. The biggest benefit of nonconforming loans is that they exist, and allow people who otherwise couldn't get mortgages to buy houses.

• Flexibility--Conventional mortgages are rigid. If your W-2s and credit reports don't show a certain debt to income ratio, or if the house you choose is too expensive, you don't get a loan. But nonconforming loans allow consumers to shop around for the program that suits them best.

• Lower monthly payments--Even with higher interest rates, nonconforming loans often have lower monthly payments than conventional loans. Banks require conforming borrowers who can't put down 20 percent to pay private mortgage insurance, which can cost $200 per month or more. Borrowers seeking alternative mortgages, though, typically do not have to pay this fee, even if they don't put any money down on their purchase.

Types of Nonconforming Mortgages

While endless variety exists in the types of alternative mortgages becoming available to consumers, they all fall into one of four categories:

• Jumbo loans--Fannie Mae and Freddie Mac, government groups who purchase securities on mortgages, set a conforming loan limit each year. In 2005, that limit is $359,650. Applicants who want to borrow more than that amount need to seek a jumbo mortgage, with interest rates that are higher than conforming loan rates, but are typically the least expensive nonconforming loans.

• Stated-income loans--People are self-employed or whose income comes from tips won't be able to prove their wages with W-2s or tax returns. Stated income mortgages allow them to prove their employment (or self-employment), debts, and assets, but don't require proof of income.

• No-ratio loans--People who live off of their assets or who are undergoing major changes such as divorce or career changes may want to consider no-ratio mortgages. People who have incredibly complex financial lives, such as the entrepreneur who own six or seven different businesses, may also find this type of loan to be more convenient than completing all of the necessary paperwork for a traditional mortgage. Applicants seeking no-ratio loans have to show assets, but don't have to prove their income or their debts, and income to debt ratios are not computed.

• No-doc loans--No documentation loans don't require the applicant to prove anything, except that they have an excellent credit score and a worthy property. No-doc mortgages are the most expensive loans, and are best for consumers who don't want to disclose anything about their financial lives. Shady businessmen and starlets are perfect candidates.

Where to Find Nonconforming Mortgages

There is such variety in the types and requirements of nonconforming mortgage programs that lender comparison is critical. One bank may require a 10 percent down payment or a large number of assets, while another may finance the entire cost of the home at a higher interest rate. Consumers have two major choices: they can compare banks' programs on their own, or they can have mortgage brokers do the comparisons for them.

Do it yourself?

Some consumers will find the best rates and the programs that suit them best by calling a number of banks on their own. These consumers are usually internet-savvy or have an insider's knowledge of the banking industry.

Many people who might be able to find their own mortgages are afraid to allow several different banks to look at their credit reports, because they know that multiple loan applications negatively impact credit scores. Credit inquiries for mortgage purposes are treated differently by credit reporting agencies, however. It takes thirty mortgage inquiries to equal the credit impact of one credit card application.

Do you need a mortgage broker?

Potential homebuyers who do not have the time or the inclination to call banks and inquire about their mortgage programs should consider using mortgage brokers. Banks, not applicants, pay brokers to market their programs, so there is no additional cost. The mortgage broker will look at all of the programs offered by all of the banks in his or her database, and will try to come up with a mortgage that suits the individual borrower.

If you choose to use a mortgage broker, research your broker carefully. Most are scrupulous businesspeople with their clients' best interests in mind. A few, though, will charge surprisingly high fees, or push clients to work with the banks that pay the highest commission to the brokers.

Conclusion

Whether you need a nonconforming mortgage because you are buying your dream house, can't prove that you can afford your payments, or don't want anybody to know how much you earn or spend, if your credit is good, you will be able to find a mortgage. You will probably even be able to find several, putting you in a position to be able to shop around for the best rates. You may have to pay a little more for your loan, but you'll write your mortgage checks from the privacy of a home that you own.