Understanding Loan Terms

Understanding Loan Terms

Should You Apply For A Conforming Loan Or A Non-Conforming Loan?

by Gregory Hall

If you would like to buy a house with a loan, one of the first steps you must take is applying for a mortgage loan. When you do this, you can talk to a mortgage lender to find out what type of mortgage you qualify for, and the lender might talk to you about the differences between conforming loans and non-conforming loans. As you learn the differences and talk to a lender about your situation, you will know which type is right for you.

Conforming loans have more requirements

One of the key differences in these two types of loans is the requirements with each. It is more difficult to qualify for a conforming loan, as these loan types have a lot more requirements. These requirements are set in place by Fannie Mae and Freddie Mac, and you cannot get a conforming loan unless you meet these requirements.

Some of the requirements you must meet in order to qualify for a conforming loan include the following:

  • The loan amount cannot be greater than a certain amount.
  • Your credit score must be high enough.
  • You must have enough of a down payment to use for the loan.
  • There are income guidelines to meet.
  • You must have a debt-to-income ratio that is under a certain rate.

When you can meet these requirements, you may qualify for a conforming loan. When this happens, you may end up with a lower interest rate and other benefits.

Non-Conforming loans work better for certain situations

When it comes to non-conforming loans, there are fewer requirements in most cases, and this loan type comes in many forms. For example, a jumbo loan is an example of a non-conforming loan. A jumbo loan is a really big loan that exceeds the guidelines of conforming loans. Another example of a non-conforming loan is an FHA loan, which is backed by the Federal Housing Administration. An FHA loan may have a higher interest rate, but it might be easier for you to get, as the guidelines are not as strict.

Every situation is different and the type of loan that is right for you might be different than the type that is right for other people. The best thing you can do when you need a mortgage loan is to talk to a lender. A lender can evaluate your situation to determine which type of mortgage loan you should apply for. Companies like Secure One Capital can help.


About Me

Understanding Loan Terms

When I started my own company, I knew that I needed a little business capital and fast. In an effort to raise money, I worked with various lenders to discuss loans, financing, and special terms. Unfortunately, I quickly discovered that not every loan was created equally. Some loans had almost predatory terms like high interest rates and penalties, while others were completely fair. Fortunately, a business consultant of mine taught me about loans and financing, so that I could make better choices in the future. The information on this blog saved my business, and I know that it can help yours too.