Non-conforming mortgage loans are also known as jumbo mortgage loans. These loans are generally for those who, for whatever reason, are not eligible for a standard (conforming) loan. Non-conforming mortgage loans are set up to help these buyers purchase a home despite their lack of eligibility in some areas.
Agencies and secondary market investors such as FHA, VA, Fannie Mae, and Freddie Mac establish traditional guidelines for home mortgage loans. These guidelines include minimum credit and property requirements that prospective homebuyers are expected to meet in order to qualify for a loan.
Non-conforming mortgage loans help the potential homebuyer work with a lender to get a loan. Sometimes, non-conforming loans are considered bad credit mortgage loans. Using this type of loan, those who have struggled with bad credit, bankruptcy, or foreclosures can get mortgage loans with bad credit.
Despite this general assumption, there are other reasons for choosing a non-conforming loan. For example, those with high monthly debt obligations, such as graduates who are paying off college loans and/or cars, are also eligible for non conforming mortgage loans. Others may not be able to verify employment for the previous two years, because they are self-employed or have just graduated from college; thus, they may choose a non-conforming loan to buy their home.
Although having this loan can help persons in these circumstances purchase a home, there is a price: higher interest rates and a higher down payment. Potential homebuyers should consider these drawbacks early in the process as the higher costs can be a deal-breaker in the end.
