What Are Conforming Vs. Nonconforming Home Loans?

Let’s face it, talking about loans and buying a new home seems all very grown-up, doesn’t it? There comes a time when we all want to gain our independence and own something which we can call our own, but navigating your way around the terminology can be confusing to say the least. Two of the terms you are likely to come across are conforming mortgages and nonconforming mortgage loans.

Our aim is to explain these terms (and others), clearly and concisely so that you can be well-informed when making your decisions about a loan which will be part of your life for a considerable length of time.

 

Conforming Loans

So what is the difference between conforming versus nonconforming loans?

Conforming home loans have to meet certain guidelines, set down by Fannie Mae and Freddie Mac and will generally offer both lower interest rates and fees. This is obviously a good thing when you are trying to work with a set budget.

Conforming loans also have to be below a certain amount which has been set by the Federal Housing Finance Agency; this is known as the “conforming loan limit” and can vary from state to state, depending on where in the USA you wish to buy a home.

For 2017, this limit is between $424,100 and $636,150, but can be even higher in some areas of California and Hawaii.

Benefits of conforming loans

  • Can be easier to qualify for
  • Often have a lower mortgage interest rate
  • It’s possible you may need a lower down-payment

 

Nonconforming Loans

Should you need a home loan which is bigger than the limits set out above, you can apply for a nonconforming home loan, otherwise known as a “jumbo loan.” The terms and conditions of these nonconforming mortgage loans often vary considerably from lender to lender, so you will need to do your homework.

Downsides of Nonconforming Loans

  • Usually a minimum down-payment of 20%, (sometimes more)
  • More stringent qualifying criteria, along with more analysis of both your credit profile and income
  • Mortgage interest rates for nonconforming loans are usually higher – make sure to factor that into your budget

Questions? We can help. Contact us today.