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 Your Expert Guide To 

Non-Conforming Loan Programs

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What is a non-conforming loan program?

A non-conforming loan program is a type of mortgage that does not meet the standard guidelines set by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. These loans typically exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA) or have unique underwriting requirements that fall outside the conventional criteria. As a result, non-conforming loans, often referred to as jumbo loans, cater to borrowers who need larger loan amounts or who have special financial circumstances, such as self-employment income, recent credit issues, or the need to finance luxury properties. 

What we talk about in this guide:


Non-Conforming Programs

These programs are tailored to serve individuals looking to purchase real estate outside of the conforming loan limits for traditional loan programs. Click on each loan program to view additional details, requirements, and key benefits.

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ARM Programs - Non Conforming and Conforming Loan Limits

An Adjustable Rate Mortgage (ARM) is a type of home loan where the interest rate adjusts periodically based on a specific index, causing monthly payments to change over time. Initially, ARMs offer lower interest rates compared to fixed-rate mortgages, but these rates can increase or decrease at predetermined intervals.

Key Features:

  • Initial Fixed-Rate Period: ARMs typically start with a fixed interest rate for a set period (e.g., 5, 7, or 10 years), providing lower initial payments.
  • Adjustment Period: After the fixed-rate period, the interest rate adjusts periodically based on market conditions and a specified index.
  • Rate Caps: ARMs usually have caps that limit how much the interest rate and monthly payments can increase at each adjustment and over the life of the loan.

 

ARMs can be conforming loans, meaning they meet the standards set by Fannie Mae and Freddie Mac, including loan size limits. Conforming ARMs offer more favorable terms and are easier to qualify for.

ARMs can also be non-conforming loans, which exceed the conforming loan limits or do not meet other standards set by Fannie Mae and Freddie Mac. These are often referred to as jumbo loans and may come with higher interest rates and stricter qualification requirements.

Who Benefits Most:

  • Home Buyers Planning to Move or Refinance: Individuals who expect to move or refinance before the initial fixed-rate period ends can take advantage of the lower initial rates.
  • Borrowers Expecting Income Growth: Those anticipating higher future earnings may benefit from the initially lower payments of an ARM.
  • Risk-Tolerant Borrowers: Individuals comfortable with potential payment fluctuations due to interest rate changes may find ARMs advantageous.
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Delegated JUMBO (Underwritten In-House)

Some program features and investors are Delegated. This means that the loan can be underwritten in-house by a Churchill Mortgage Underwriter.

These delegated programs can also be non-conforming, also known as JUMBO loans, which exceed or do not meet the standards set by Freddie Mac and Fannie Mae.

Non-Conforming Delegated Loan Programs

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Non-Delegated Jumbo (Underwritten by Investor)

These program features and investors are Non-Delegated. This means that the loan must be underwritten by an investor Underwriter.

These delegated programs can also be non-conforming, also known as JUMBO loans, which exceed or do not meet the standards set by Freddie Mac and Fannie Mae.

Non-Conforming Non-Delegated Loan Programs


Pro's and Con's of Non-Conforming Programs

 Pros:  

  • Offer greater flexibility and higher borrowing limits

 Cons:  

  • Usually come with higher interest rates
  • Have stricter qualification requirements compared to conforming loans.

 

 (FAQ) 

Frequently Asked Questions about Non-Conforming Loan Programs

Navigating the world of mortgages and home loan programs can feel overwhelming, but understanding the basics can make the process much smoother. To help you on your journey to homeownership, we've compiled a list of frequently asked questions about mortgages and home loan programs.

Whether you're a first-time home buyer or looking to refinance, these questions and answers are designed to provide you with the knowledge and confidence to make informed decisions about your home financing options.

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What is a jumbo home loan and how does it differ from a conforming loan?

A jumbo home loan is a mortgage that exceeds the loan limits set by the Federal Housing Finance Agency (FHFA) for conforming loans, which are purchased by government-sponsored enterprises like Fannie Mae and Freddie Mac. These limits vary by region but are typically around $726,200 for most areas in 2024. Because jumbo loans are not eligible for purchase by these entities, they are considered riskier and usually come with higher interest rates and stricter credit requirements compared to conforming loans.

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What are the qualification requirements for a jumbo loan?

Qualifying for a jumbo loan typically requires a higher credit score. Lenders also expect a larger down payment, usually around 20% or more, though some programs may allow for lower down payments with strong financial profiles.

Additionally, borrowers need to demonstrate a low debt-to-income (DTI) ratio, usually below 43%, and provide proof of significant liquid assets to cover mortgage payments for several months, reflecting the higher risk associated with larger loan amounts.

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Are interest rates higher for jumbo loans compared to conforming loans?

Yes, interest rates for jumbo loans are generally higher than those for conforming loans. This is because jumbo loans are not backed by government-sponsored entities and thus carry more risk for lenders. The higher interest rates compensate for this increased risk. However, the exact rate depends on various factors, including the borrower’s credit profile, down payment size, loan amount, and current market conditions.


More Guides to Home Loan Programs

Explore more guides to other loan program types. If these programs don't fit your needs, look into our other guides to the other types of loan programs. To learn more about loan programs in general, you can view our Expert Guide to Home Loan Programs.                       


Disclaimers:

Other restrictions or limitations may apply. Not all applicants will qualify. Not a commitment to lend. Terms and conditions can change without notice.

We strive to provide comprehensive information about our home loan programs; however, it is important for users to understand that not all programs are available at all times or in all locations. Each loan program may have specific prerequisites or requirements that must be met in order to qualify or become eligible.

While we make every effort to ensure the accuracy and currency of the information on our website, we cannot guarantee that a particular loan program will be available when you apply. Additionally, meeting the listed criteria does not guarantee qualification for any program.

Please note that availability and eligibility for our home loan programs are subject to change without notice. We recommend contacting us directly to verify the current status and specific requirements of any program you are interested in before making any decisions based on the information provided on our website. Our team is here to help you navigate your options and find the best loan program to meet your needs.


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