Vs compliant. Non-compliant loan: which one is right for you? | Personal finance

Non-compliant loan benefits

The main advantage of non-conforming loans is that you can afford a more expensive home if you go with a jumbo mortgage. Non-conforming loans can also come in handy if you are looking for one of the government backed loan programs including VA loans, USDA loans, or FHA loans.

If everyone were to limit themselves to applying for compliant loans, we wouldn’t see so many people buying more expensive homes – or, conversely, low-income, rural, or military homeowners either. Non-conforming loans are more applicable to people who are not part of the civilian middle class, whether they are low income, high income or military.

Disadvantages of non-conforming loans

Since lenders cannot sell non-conforming loans to Fannie Mae or Freddie Mac to free up their money, they are a bit riskier for the lender. This is especially true for jumbo loans, which are not backed by any government guarantees. If you default on a jumbo loan, it is a big blow to the lender.

So, lenders usually charge higher interest rates to compensate, and they may have even more demands. For example, lenders who give jumbo loans often require that you make a down payment of at least 20% and show that you have at least six months of cash in reserve, if not more.

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