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Are Non-Conforming Mortgages A Good Idea

Performance Property Real Estate Question

Q: Our daughter wants to buy a home but she does not qualify for a traditional mortgage. Do you think she should try to get a non-conforming mortgage? Veronica, Wayne, NJ

A: A “non-conforming” mortgage loan simply means the mortgage does not meet federal standards and cannot be sold to Fannie Mae or Freddie Mac. Non-conforming mortgage loans can be a great idea for property owners who need flexibility, but they carry higher risks, often come with higher interest rates and require larger down payments.

Whether it is a good idea to get a non-conforming mortgage depends entirely on your individual financial profile.

3 Examples When A Non-Conforming Loan Is a Good Idea:

  1. You need to borrow more than the conforming limit in high-cost areas for example (you will need a jumbo loan to finance anything beyond this limit)
  2. You are self-employed or have alternative income: If you write off a lot of business expenses or draw income from assets, government-backed or standard loans might be difficult to secure. Many non-conforming loans (like bank statement loans) look at your overall cash flow rather than just W-2s and tax returns.
  3. You have unique financial circumstances: For example, if your credit score took a temporary hit but you have substantial cash reserves or liquid investments, lenders can use these as compensating factors to approve the loan.

When is getting a non-conforming loan a bad idea? The answer is when you can easily qualify for a traditional conforming loan. If you have a standard W-2 job, a strong credit score, and a healthy down payment, conforming loans are usually the most cost-effective route to take for homeowners.

Since non-conforming loans do not have uniform standards, individual lenders set their own terms and interest rates so shop around, compare quotes from various banks, credit unions, and specialized mortgage brokers, as rates can vary drastically from one institution to another. Lastly, always read the fine print: be weary of unusual repayment schedules and balloon payments. Thanks for your question, Veronica.cision.

Thanks for your question, Marjorie.

For more real estate tips and information, visit my blog at geraldlucas.com.