There are two government-sponsored enterprises that issue the home loans: Fannie Mae and Freddie Mac. These entities provide a secondary market for home loans. Lenders can form them into investment packages sell them and lend again. Experts call such loans conforming.
The loan that you buy from other lenders (not Fannie Mae or Freddie Mac) is a non-conforming loan. People call these loans “jumbo” loans. The terms of the loan are usually less beneficial for the borrowers. The interest rates are higher.
The down payment for a non conventional loan must be 20% and higher.
Non conforming loans don’t meet the standard GSE requirements. So, the lenders can offer different requirements and interest rates. Thus, comparing the offers from different lending institutions is important when you apply for the non conforming loan.
In general, the requirements of non conforming loan lenders are stricter than the requirements of the traditional lenders.
You will more likely to get refusal if you:
- Have a problematic credit history or credit score of 620 and less. Get a credit report online to check what you can count on.
- If you haven’t got enough proofs of your employment history and assets.
- If your debt-to-income ratio exceeds 45%.
- If you went bankrupt in the last two years.
- If you have a large debt.
Unlike the conforming loans, non-conforming loans have no limits but they are harder to get.