| |
Conforming vs NonConforming Mortgage
By Tamara Schmitt
There are two general categories into which mortgages fall- conforming and non- conforming. Both are viable loan programs, depending on the borrower's needs and qualifications.
Conforming mortgages derive thier name because they "conform" to Fannie Mae (FNMA) or Freedie Mac (FHLMC) standards. Fannie Mae (FNMA) is a private, shareholder-owned company that works to make sure money is available for home loans. FNMA stands for Federal National Mortgage Association. Fannie Mae does not lean money directly to home buyers. Instead, they work with lenders to make sure they don't run out of mortgage funds, so more people can achieve their goal of homeownership.
Freddie Mac (FHLMC) is a stockholder-owned corporation chartered Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership. FHLMC stands for Federal Home Loan Mortgage Corporation. Both have guidelines that must be met to obtain funding.
Non-conforming mortgage loans are entirely different. You may qualify for a mortgage loan through the non-conforming world even if you do not conform to the above standards. With nonconforming loans, each lender sets their own criteria to determine eligibility. Lenders have different "niches" they try to serve. Some may be to provide riskier loans at higher interest rates for poor credit applicants. Others may be to offer access to more cash for those with better credit. Some specialize in providing loans to self employed borrowers. In any case, each lender makes their makes their own rules and they are not bound by any federal charter. This gives extreme flexibility in the loan products they are allowed to offer.
Apart from structural differences between the companies offering each type of loan, there are major differences in the features and benefits of the two loan categories as the chart below highlights.
Conforming
+Typically, only for customers with good credit
+ Rigid standards (e.g. max of 95% rate/term & 90% with cash out)
+ Fewer Programs:
- Mostly fixed rates
- A few ARMs and balloons
- Full doc only
+Strict restrictions for cash out
+Mortgage insurance for loans over 80% LTV
+No unusual Property types (no mobile homes)
+No prepayment penalties
+Automated underwriting
+Primarily rate-focused
Non-Conforming
+For customers with good or bad credit
+Much more flexible standards (e.g. 125% cash out)
+Many programs, e.g.:
- Fixed, ARMs, balloons
- 100% LTV
- Alternative income documentation
- Interest only
+Few restrictions for cash out
+No mortgage insurance (usually)
+Most property types (e.g. mobile homes)
+Prepayment penalty options to lower the rate
+Automated or manual underwriting
+Primarily benefit-focused
About the Author
Tamara Schmitt is currently a Loan Officer with 1st United Mortgage. Tamara is also the top loan officer at Get Loans Cheap, an internet business geared solely to educate and aid the consumer in assessing and obtaining the right loan for their specific needs, as well as, helping rate mortgage Professionals in all fields.
Article Source: http://www.simplysearch4it.com/article/40864.html
| If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/40864.html" as shown above and make it hyperlinked. |
| Some other articles by Tamara Schmitt | Benefits of Cash Out Refinancing for Debt Consolidation
No matter how good our intentions are, with the "Gotta Have It!" society we live in, even the most diligent of us sometimes over-do on debt, especially on credit ...
Categories of Mortgage Refinancing
Borrowers take out mortgage loans primarily for one of two reasons- either to purchase a home or to refinance an existing property.
In refinancing an existing property, three categories of property are possible, ...
Lease Option To Buy Explained
When a renter signs a lease with an option to purchase a property for a specific price within a certain time frame, that is called a lease ...
Should I Refinance my Mortgage
You should always weight the risk of refinancing
your mortgage . Best way to do this is to work with ...
Main Qualifying Factors for Refinancing
There are 3 main qualifying factors used to qualify a borrower for a mortgage loan : EQUITY, INCOME and CREDIT.
Everyone seems to be so concerned with the interest rate on their loan and ...
Preparing your Home for an Appraisal
An appraisal of your home by a licensed Appraiser will be a requirement from any lender before a mortgage loan will be approved. If you ...
|
|
| |
|
|
|
