Demystifying Home Loans: The Scoop on Conventional and Non-Conforming Loans

Learn the difference between conforming and non-conforming loans in this easy-to-understand mini guide.
Apr 24, 2024

When it comes to buying a home, understanding your mortgage options can feel like learning a new language. Let's break down the essentials of "conventional" and "non-conforming" loans and see how they fit into your home-buying plan.

What's a Conventional Loan?

Imagine you're shopping for a mortgage not backed by the government. That's a conventional loan for you. These loans stick to rules set by Fannie Mae and Freddie Mac, two big names in the mortgage world. Most home loans out there are conventional and pretty straightforward to get.

Conforming vs. Non-Conforming Loans

Now, within conventional loans, you've got "conforming" and "non-conforming" types. A conforming loan is governed by Fannie Mae and Freddie Mac’s rules, especially regarding how much you can borrow. For 2024, you can borrow up to $766,550 in most places but more in pricey areas.

Perks of a Conforming Loan:

- Better Interest Rates: These loans are the go-to for most because they usually come with lower interest rates, meaning cheaper monthly payments.
- Choice of Terms: You can pick from various payment plans whether you want a predictable fixed rate or a flexible adjustable rate.

What's a Non-Conforming Loan?

Step into the world of non-conforming loans, which is just a fancy way of saying any loan that doesn't fit Fannie Mae or Freddie Mac’s criteria. These are typically your "jumbo" loans, which go beyond the borrowing limits of conforming loans and are perfect for buying high-priced homes.

What Makes Non-Conforming Loans Different:

- Higher Loan Amounts: They let you borrow more than the usual limits, which is essential in expensive neighborhoods.
- Tougher to Qualify: You'll need a stellar credit score and solid finances to get one of these.
- Higher Rates: With bigger loans come bigger risks, so expect higher interest rates.

Why Go for a Non-Conforming Loan?

- Big Purchases Possible: Ideal if you’re eyeing a luxury home or a big investment that a regular loan won't cover.
- Customized Options: These loans are tailor-made for high earners who need a bit more from their mortgage.

Picking the Right Home Loan

Choosing between these loans boils down to a few key things:

- How Much You Need: If your dream home costs more than the usual loan limits, you might need a non-conforming loan.
- Your Financial Health: Good credit and strong finances? A non-conforming loan could be in reach.
- Where You're Buying: High-cost area? Non-conforming loans can make those big-ticket purchases happen.

The better you understand these options, the easier it will be to pick the right one for your situation. Whether you go with a conventional conforming loan or step up to a non-conforming loan, getting a clear picture of each will help you navigate the path to your new home. Need help understanding which option works best for your property-buying goals? Contact us for personalized help.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.