There is indeed no place like home. Finding your dream house may not be hard, but owning one is never easy. Usually, the reason is not having enough savings to pay for a new house. This circumstance is probably the motivation on how mortgage was developed.
Say you already found a lender or a broker; the next step is to check what type of loan you will get. If conforming and non-conforming loans are vague knowledge to you, take time to learn their basics so that you will be rightfully led to the one you want to take advantage of.
Conforming loans are mortgages that meet the guidelines set by home loan market drivers, Fannie Mae and Freddie Mac. The most critical condition for a loan to be considered conforming is the size. The Federal Housing Finance Agency (FHFA) fixed the limit or the maximum size of a conforming loan at $417,000. Loans below that figure are conforming fixed and anything above that are considered non-conforming. In areas with greater demand for housing, limits may be higher.
If you are buying a luxury primary residence, you might need a jumbo loan or a non-conforming loan. This type of mortgage exceeds the set loan limit. But, borrowers who take out mortgages below the limit can still be disqualified from getting a conforming loan when other guidelines are not met such as:
Low credit score or poor credit history
Bankruptcy within the previous two years
High debt with respect to income
For Borrowers and Lenders
Conforming loans are appealing for most borrowers because they are paired with lower interest rates and fees. Furthermore, lenders find conforming loans attractive because they can put these types of mortgage on the secondary market, free up capital, and then provide more loans. On the contrary, jumbo loans are hard to sell. As less funds become available, fewer loans are offered too. Lending companies offset this financial risk by charging the borrowers higher interest rates and greater fees and insurance requirements.
Getting a mortgage is a sensible way of fulfilling your dream to own a new home. Both conforming and non-conforming loans may be decent, but choosing one that fits your needs is a surefire measure not to mess up with your dues until the entire loan is settled.