Purchase Loans

Conforming Loans:

Conforming loans follow guidelines from Fannie Mae and Freddie Mac, often offering lower interest rates but with specific requirements.

Key Characteristics​

1. Loan Limit: This limit is set by Federal Housing Finance Agency (FHFA) each year.  This is typically around $806,500 for most areas.

2. Private Mortgage Insurance (PMI): This is required if the down payment is less than 20%. Obtaining PMI allows the borrower to have a lower down payment, which is determined by the loan program they fit into.  Down payments can be as low as 3%. The dollar amount is based on the purchase price.  If the purchase price is $400,000 and you wish to make a 3% down payment, you would need $12,000 in your bank account.

3. Conforming loans offer a lower risk to lenders, which translates into potentially lower interest rates for borrowers

4. Interest rates can be fixed or adjustable, depending on your personal needs.

5. Conforming loans adhere to stricter underwriting rules:

• FICO can be as low as 620 (this changes with the general financial environment)
• Property must be a primary residence (you will occupy the home) or a second home, but can also be an investment property
• Loan amounts are determined by the FHFA established limits for the county the property resides in
• This loan type is eligible for purchases, rate/term refinances and cash-out refinances
• Loan-to-Value (LTV) can be as high as 97% on purchase and rate/term refinances
• Debt-to-income (DTI) can be as high as 49.9%
• 15, 20, or 30 year amortization

Non-Conforming Loans:

Primary Differences

• Loan amounts higher than the FHFA established limits (greater than $806,500 average)
• Credit requirements are stricter
• Underwriting criteria will be unique to the type of property involved
• Down payment will be higher
• Higher credit score will be required
• Debt-to-income (DTI) will be lower
• 15, 20, or 30 year amortization

These loans can be used by borrowers who have unique credit situations, non-traditional income, or need to finance a larger property than the conforming loan limits would allow.

Non-conforming loans offer flexibility for borrowers who may not qualify for traditional conforming loans, but they often come with higher interest rates and may require more stringent requirements in underwriting.