Non-Conforming Loan

The following article will cover all aspects of Non-conforming loan including: What is a Non-conforming loan, How do Non-conforming loan work, Types of Non-conforming loan and Non-conforming loan FAQs.

Non-conforming loan

What is the definition of Non-conforming loan?

A non-conforming loan is one that does not meet the purchase standards of Fannie Mae or Freddie Mac. The government-sponsored enterprises Fannie Mae and Freddie Mac invest in mortgage loans. The Federal Housing Finance Agency sets the guidelines for what types of mortgages Fannie Mae and Freddie Mac can purchase (FHFA). A loan may not conform for one of two reasons: it does not meet an FHFA requirement, or it is too large to be considered a conforming loan.

 

How does a Non-conforming loan Work?

In many cases, your only option will be to obtain a non-conforming loan. If you qualify for a VA loan (one of the top benefits of military service) or live in a rural area and qualify for a USDA loan, you can buy a home with no down payment. FHA loans are the best option for clients looking for a mortgage with low credit requirements. On the other end of the spectrum, if you want to buy a more expensive home, your lender will require you to take out a non-conforming jumbo loan.

Aside from that, non-conforming loans are best for people with bad credit who want to buy or refinance a home. Many lenders provide personalized solutions to people who are unable to obtain conforming loans due to bankruptcies or other negatives on their credit. If you don’t qualify for both a government-backed loan and a conforming conventional loan, a non-conforming loan may be right for you.

 

What Types of Non-conforming loan are there?

  • Government-Backed Loans: Government-backed loans are federal government-insured loans. In other words, the government foots the bill and contributes to any losses resulting from a loan default. For investors, government-backed loans are less risky. As a result, they are able to assist buyers who have lower down payments and credit scores. To qualify for a government-backed loan, you and your home must meet a set of criteria.
  • VA loans:VA loans are available to qualified members of the armed forces, veterans, and their spouses. You must have completed at least one year of service or be the surviving spouse of a service member who died in the line of duty or as a result of a service-connected disability. With a minimum credit score of 680, you can buy a home with no down payment and refinance 100 percent of its value with a VA loan. Although the VA does not specify minimum credit score requirements, lenders are free to do so. Rocket Mortgage requires a FICO® Score of 580 or higher as a minimum. The Department of Veterans Affairs insures VA loans.
  • FHA loans:FHA loans allow you to put down as little as 3.5 percent on a home. You must have at least a 580 median credit score and a qualifying debt-to-income ratio (DTI). If you have a FICO® Score of 620 or higher, you may be eligible for a slightly higher DTI. The Federal Housing Administration insures FHA loans.
  • USDA loans: USDA loans are available to buyers looking to buy a property in a rural or suburban setting. Your house must be located in an area that the USDA considers suitably rural. You can’t make more than 115 percent of the typical income in your county, and your home can’t be a working farm. You may purchase a home with no money down and a credit score as low as 640. The United States Department of Agriculture insures USDA loans. USDA loans are not presently available through Rocket Mortgage.

Other Non-Conforming Loan Types

There are a few other non-conforming loan kinds to consider based on your scenario, in addition to government-backed loans and jumbo loans.

  • Holding mortgage: A holding mortgage occurs when the seller acts as the buyer’s lender. The buyer pays the seller monthly, and the seller keeps the property title until the debt is completed in full.
  • Hard money loan: A hard money loan is a short-term loan made available by individuals or private companies in exchange for property or an asset as collateral.
  • Purchase money mortgage: A purchase money mortgage is commonly used by buyers who do not qualify for traditional bank financing. The purchase money mortgage, also known as owner/seller financing, is a loan made by the seller to the buyer.
  • Interest-only mortgage: When you have an interest-only mortgage, you only pay interest on the loan for a set period of time. The two types of interest-only mortgages are adjustable-rate and fixed-rate.

 

Why Non-conforming loan will be different from Jumbo Loan?

The non-conforming loan is a loan that does not meet the purchase standards of Fannie Mae or Freddie Mac as an example Jumbo Loans, which are larger than Fannie Mae or Freddie Mac’s maximum lending limits.  Jumbo loan requirements in Texas are more stringent qualification and they are not government-insured that are secured by large banks or private funds. Jumbo loans  have more stringent qualification requirements. To qualify for one, you’ll need a lower debt-to-income (DTI) ratio and a higher credit score. Individual lenders set their own qualifications and limits on how much you can borrow with a jumbo loan.

Please contact the Texas Mortgage Pros today to help you get the best rates and the best service.

The Texas Mortgage Pros

118 Vintage Park Blvd W443, Houston, TX 77070, United States

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