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conforming non-conforming mortgage loans

You’ll hear many new terms if you’re entering the mortgage and homebuying world for the first time, and one such term will be “conforming loan limit” and similar variations. There are a wide variety of mortgages out there, all of which either meet or don’t meet various standards that define a “conforming loan.”

At Primary Residential Mortgage in Fort Myers, we’re happy to help explain these and all other necessary terms to anyone looking to purchase a mortgage for their first time – or any of our experienced clients who just need a refresher or an introduction to a new area. Let’s go over what makes a loan conforming or non-conforming, and when considering a non-conforming loan is worth the small risks that may come with it.

Non-Conforming Loan Basics

In simple terms, a conforming loan is one that adheres to the standards of Fannie Mae and Freddie Mac, two large organizations that are together responsible for backing the majority of the mortgages in the US each year. These groups buy loans originated by lenders, or package them into mortgage-backed securities, and they’re vital entities in this space.

If your loan doesn’t meet their underwriting criteria, which can happen for several reasons we’ll get into below, the loan cannot be backed by these groups. This might make it tougher and more expensive to find financing, but it does not necessarily make it impossible or unwise to do so.

Conforming Loan Limit and Jumbo Loans

The most common reason for a mortgage to be deemed non-conforming is if it exceeds a certain amount threshold. Fannie Mae and Freddie Mac only accept loans up to what is called the conforming loan limit, which was set at $484,350 for the year 2019 for a one-unit property in the contiguous United States. This is an increase of just over $30,000 from 2018 – these kinds of yearly increases are common.

However, there are various limits depending on location and property type. Borrowers in some areas might have a far higher limit, and those in certain non-contiguous areas also have higher limits. On top of this, properties like duplexes, triplexes and even fourplexes come with far higher limits.

And if you don’t hit any of these categories, your move outside the conforming loan world will be to a jumbo loan. While not all non-conforming loans are jumbo loans – there are other, non-amount-related reasons why a loan might not conform (more on this below) – this is a common type for those that exceed the conforming loan limit. Jumbo loans can reach up to much larger amounts in many cases.

Other Criteria

There are a few other factors that might dictate a loan not conforming:

  • Credit score below 620
  • Poor loan-to-value ratio – generally a max LTV of 97 percent for one-unit purchases, which is very liberal
  • Poor debt-to-income ratio, generally 50 percent or higher
  • Recent borrower short sale or foreclosure
  • Other property-related issues, such as owning too many units in a complex or various HOA issues our experts can explain to you

For more on conforming and non-conforming loans, or to learn about any of our mortgage loan offerings, speak to the staff at Primary Residential Mortgage in Fort Myers today.

In addition, we’re proud to announce the opening of a new branch in Naples, Florida. We are very excited about our growth, and cannot wait to serve residents throughout Southwest Florida.

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