Two Home Loans

When shopping for a new home, you might have heard the terms “conforming and nonconforming” loan. These terms refer to the two main types of mortgages available. The more you know about conforming and nonconforming loans, the better your chances are at selecting the right mortgage for you. 

The Big Difference

The main difference between conforming and nonconforming loans is that the former meets the guidelines to be sold to Freddie Mac and Fannie Mae. The latter, nonconforming, does not meet those guidelines. 

Conforming Loan

A conforming loan typically has lower interest rates than a nonconforming loan. That means your monthly payments will be lower and the total price of the mortgage will be too. A conforming loan also has stricter lending requirements and comes with certain protections that a nonconforming loan does not.

Nonconforming Loan

A nonconforming loan does not meet the set guidelines and therefore does not come with government protections. These loans are helpful for those seeking a high-priced property because they generally don’t have restrictions on how much you can borrow. Nonconforming loans typically are more expensive overall due to their higher interest rates.

How to Choose Your Loan

In most scenarios, a conforming loan is more optimal due to its protection and comes with a lower interest rate than a nonconforming loan.

Do One Thing: Before applying for any mortgage, make sure your credit score is as high as possible. The better your score, the better your mortgage offers will be.