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Conforming vs. Non-conforming Loans: Which Is Best for You?
When you’re evaluating home loan categories, it’s easy to get confused by the terms “conventional” and “conforming.” As similar as these two terms may sound, their definitions are different so it’s important to understand the distinctions. We’re here to clear the air. A conventional loan doesn’t have to be guaranteed or insured by the federal government, but it does adhere to Fannie Mae and Freddie Mac guidelines in most cases. A conforming loan, on the other hand, describes a certain set of characteristics, mainly loan amount, contained within a home loan. Within the mortgage industry, loans are repackaged and sold on the secondary market to mortgage investors, the biggest of which include the government-sponsored entities (GSEs), Fannie Mae and Freddie Mac. When a pool of loans adheres to the standards of Fannie Mae and Freddie Mac, the loans are considered “conforming.” When they do not, such as with jumbo loans, they are considered “non-conforming.” Let’s take a closer look at the differences of conforming and non-conforming loans, and how borrowers can assess which home loan will benefit them most. What Is a Conforming Loan? In order for a mortgage loan to be conforming, it must meet the specific criteria that allow Fannie Mae and Freddie Mac to purchase the loan. The most significant of these criteria is the loan limit, which refers to the maximum amount of the loan that Fannie Mae or Freddie Mac will purchase. The loan limit can change from year to year. The Federal Housing Finance Agency (FHFA) has increased the conforming loan limit for a single-family, one-unit property—to $726,200 (as of 2023). Certain areas of the country, such as Alaska and Hawaii, have a higher loan limit due to their higher-priced housing markets. Since Fannie Mae and Freddie Mac are managed by FHFA, they align with FHFA’s loan limits and will only purchase loans within those limits. What Are the Benefits of a Conforming Loan? The primary advantage of a conforming loan is that they typically offer a lower interest rate than a non-conforming loan, which means lower monthly mortgage payments and less money spent over the life of the loan. What Is a Non-Conforming Loan? Non-conforming loans are loans that cannot be purchased by Fannie Mae or Freddie Mac. These types of loans include jumbo loans. Jumbo loans exceed the conforming loan limits and have different underwriting guidelines. Due to the higher risk of jumbo loans, they generally have less-favorable terms and are more difficult to sell on the secondary market. What Are the Benefits of a Non-Conforming Loan? While riskier and less common than conforming loans, non-conforming loans allow individuals to borrow larger amounts than is possible with a conforming loan. You may have heard the term “jumbo loan” before. These include any loans above the conforming limit. In most U.S. counties, the conforming loan limit is $726,200. However, in areas with a high cost of housing, such as San Francisco, the conforming limits are much higher (in that case, $1,089,300). Jumbo loans are usually geared toward high-income earners who have good credit and plentiful assets. Due to the size of the loan, as well as the lack of government insurance, lenders assume greater risk with these mortgages. To reduce the risk, many lenders require borrowers to place a down payment of 20 percent (or higher) or require anywhere from six to 12 months of mortgage payments in an asset account as additional security. The risk to the lender is also offset through generally higher interest rates, greater upfront fees, and stricter underwriting requirements. Choosing the Home Loan Option That’s Best for You As described above, the loan amount, and your financial situation, along with a variety of other factors, dictate which loan type you qualify for. However, there are times when the borrower has a choice. In either case, it’s very important to follow all the same best practices: comparison-shop lenders to understand different programs, rates, fees, and, of course, to confirm the lenders’ quality. To find out more information about the current loan limits and loan programs, contact a Pennymac Loan Officer today.
FDIC buys more time to unload Silicon Valley Bank, plans breakup
Parties may submit separate bids for Silicon Valley Bridge Bank N.A. and its subsidiary Silicon Valley Private Bank, the FDIC says.Sundry Photography/Sundry Photography – stock.adobe WASHINGTON — The Federal Deposit Insurance Corp. says it will give potential suitors more time to bid for Silicon Valley Bank and will break up the bank, the latest steps … [Read more…]
How to Make Sense of Mortgage Rate Info These Days
Let’s start today’s rate coverage with a public service announcement on the best way to be a consumer of mortgage rate data online. It can be quite a chore to make sense of day-to-day mortgage rate movement recently. Even after doing as much as can possibly be done to ensure apples-to-apples comparisons, there can still be significant changes and discrepancies for one of any number of the following reasons: You’re looking at rate info that is more than a few hours old (even worse if you replace “hours” with “days”). You’re looking at rate info from one specific lender and comparing it to a broad average or a different lender You’re looking at a rate quote that relies on upfront points in order to secure a lower rate You’re looking at a rate quote for a scenario that involves LLPAs (loan-level price adjustments) imposed by regulators based on certain loan characteristics By the time we combine several of the bullet points above, it’s not uncommon to hear that rates are 1.5% higher or lower for what may seem to be the exact same scenario. In general, but especially at times like this, it makes sense to account for as many of those variables as possible. And although our rate index does a great job of that, you can take it to the next level with one simple strategy: Forget the rate itself and focus on the day to day movement. In other words, our top tier 30yr fixed index suggests that lenders are quoting 6.625% today on perfect loans with no price adjustments. Someone with a more average scenario could easily be seeing 7%+. Lenders who compete for web leads with “fine print” conditions could be more than a percent lower. But any scenario at any lender is infinitely more likely to MOVE like another scenario at another lender.
Opinion: Stop speaking mortgage to your clients
As mortgage professionals, I see us falling into these common traps. We speak a specific jargon. This jargon is what distinguishes us as professionals. However, our clients do not speak our language. And this is a good thing. If our clients spoke âmortgageâ they would need us less.
When Will Medicare Cover Medical Marijuana
From regulatory to more practical issues, here are the hurdles on the road to Medicare coverage of cannabis.
Tax savings: Home loan top up could be the cheapest loan available for you – The Economic Times
Tax savings: Home loan top up could be the cheapest loan available for you The Economic Times
50 Spring Home Decor Items We’re Loving RN – The Everygirl
50 Spring Home Decor Items We’re Loving RN The Everygirl
How to Get the Student Loan Interest Deduction
If youâre tackling school debt and looking for ways to maximize your tax refund, one avenue to consider is the student loan interest deduction. This benefit allows you to take a tax deduction for the interest you paid on student loans that you took out for yourself, your spouse, or your dependents. The deduction can […]
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