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Nonconforming Loans are given to home buyers who may not be good candidates for a conforming loan. A conforming loan is one that meets Freddie Mac and Fannie Mae guidelines. Nonconforming Loans usually have a higher rate of interest and might have more insurance and fee requirements. The professionals at Mortgage Options can walk you through the process of applying for one of the nonconforming loans that might be available to you. Nonconforming Loans exist in several different packages.
The most popular type loan in the nonconforming category is the Jumbo Loan. Jumbo Loans are too big to qualify as a conforming loan. Say you’re buying a house in an area with a conforming limit, set by Fannie Mae and Freddie Mac, at $417,000 and you plan to take out one mortgage for $600,000. In this case you will need to get a jumbo loan.
Sometimes home buyers cannot meet the conforming loan guideline, even when the loan size is not a concern. This typically happens for one of these causes:
•LTV Ratio (Loan to Value) – the LTV number is the amount of the house’s selling price that you buy with a home loan. In most cases you can take out a loan for as much as 90% LTV ratio and still get the conventional conforming. Any higher and you may need a nonconforming loan.
•Credit History and Credit Score – Lenders have become stricter about credit requirements. A credit score of 620 or more is usually needed for a conforming loan.
•Document Issues – Lenders now require strict documentation in order for buyer to qualify for the conforming loan. If the borrower cannot provide proper docs, they probably will have to get a nonconforming loan.
•DTI (Debt to Income) Ratio – If the borrower’s monthly bills are more than forty-five percent of total income they might not be able to get a conforming loan.
Nonconforming Loans are a good choice for borrowers who are unable to qualify for a conventional conforming mortgage.