Conforming vs. Non-conforming Loans

Real Estate

Conforming vs. Non-conforming Loans

Who decides what’s conforming and what’s non-conforming? Fannie Mae and Freddie Mac, the two stockholder-owned corporations that purchase mortgage loans from lending institutions. By doing so, a continuous flow of affordable funds for home financing results in the availability of mortgage credit for Americans.

Non-conforming loans, also known as jumbos, are for borrowers whose situations do not “conform” to strict Fannie Mae/Freddie Mac underwriting guidelines.

Non-conforming loans are much easier to qualify for than conforming loans. They also close faster, have reduced or no reserve requirements, allow expanded use of loan proceeds and provide higher levels of cash out for debt consolidation.

Circumstances that might prevent conforming financing include: self-employment; complicated tax returns; if you don't wish to disclose your income; high debt ratios; current or previous credit difficulties; if you want to repay federal tax liens; and if you want to recoup equity from your homestead.

The most important difference between conforming and non-conforming loans, however, is loan limits, which change each year. Ask your loan officer about these limits.