Conforming vs. Non-Conforming Loans

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Loans
Image: investopedia.com

Priority Mortgage Group, which does business as Priority Financial Group, operates under the leadership of company president David Gomez. Priority Mortgage Group relies on the industry knowledge of David Gomez and his team, who understand such concepts as the conforming or non-conforming loan.

A conforming loan is one that adheres to guidelines established by the organizations Freddie Mac and Fannie Mae. These organizations exist to purchase mortgages from banks, which receive their money back quickly and can then originate another loan. The two entities re sponsored by the government and can only purchase loans under a certain value, set by the Federal Housing Finance Agency (FHFA).

In 2017, the FHFA set the conforming loan limit at just over $424,000 for a single-unit property. Rates are higher for properties with more than one unit and for homes in Alaska, Hawaii, the US Virgin Islands, and Guam. If a mortgage falls above the specified limit for its type and location, it falls into the category of a jumbo loan, a common example of a non-conforming loan.

A jumbo loan poses a higher risk to the lender, as major investors tend to avoid them. As a result, lenders typically require a down payment of 20 percent or higher. Lenders may also require more extensive income documentation and may demand a lower debt-to-income ratio. In some cases, interest rates may be higher as well.

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