Posted by Christine Owens on August 31, 2017
Conforming Loan vs. Non-Conforming Loan
When you begin the home buying process, you will be bombarded with many different mortgage-related buzz words. Understanding what those words mean and how they impact your loan can be confusing and overwhelming. When you qualify for a mortgage loan, you will either be getting a conforming or a non-conforming mortgage loan. In order for a loan to be “conforming,” it must meet certain criteria. Neither one is good nor bad, per se, they just have some very important differences.
A conforming loan meets certain guidelines set by Fannie Mae and Freddie Mac. When your mortgage lender approves you for a mortgage loan and you close on your house what will often happen is that within a few days, your lender will sell your loan to Fannie Mae or Freddie Mac (this is known as the secondary mortgage market) which is why they determine if a loan is conforming or non-conforming. One of the primary differences between the two loan types is the loan amount limit. The limits vary depending on where you live but, generally, a conforming loan amount cannot exceed $424,100 for a single family home. This amount may be higher in certain areas where home prices are typically far greater than the national average.
If your loan amount exceeds the maximum, you will have to qualify for a non-conforming mortgage, often referred to as a “jumbo loan.” There are different and often more strict criteria that must be met to qualify for a non-conforming mortgage loan. It is also important to note that jumbo loans often have a higher interest rate and more fees than conforming loans. Essentially, a jumbo loan is still a good loan but because your mortgage lender will have a more difficult time selling your mortgage on the secondary mortgage market you will often end up paying a bit more. While with a conforming loan there may be some flexibility with down payment amount, with a jumbo loan you will be required to put down 20% or more. Additionally, it is likely that your credit will be examined more closely to ensure that you are an ideal candidate for a jumbo loan. And, your mortgage lender may want additional information on your job and income to ensure that you will be able to make a larger mortgage payment. Generally speaking, it is better to try to qualify for a conforming loan and if you cannot, look into an FHA loan before getting a non-conforming loan. To get more information about your individual circumstances and what loan best suits your needs; speak to a qualified mortgage lender such as Hallmark Home Mortgage.