Are you currently trying to get a mortgage for your home, but a bit confused about all of the different mortgage products out there? If so, you're likely wondering what the difference is between a non-conforming and a conforming loan. Here is what you should know to make a more informed decision.
When it comes to which loan is going to have the lowest upfront cost, you'll want a conforming loan. This includes your basic USDA, VA, and FHA loans that require very little for a down payment.
Conforming loans also offer a fixed interest rate, which can be very appealing to new homeowners. This means that the interest rate will never change for the life of the loan, and your monthly payment is going to remain fixed for the entire length of the loan. Even if you make additional payments towards the principal your monthly payment remains the same.
However, you'll end up paying more interest with a conforming loan over the lifespan of the entire home. This is very common as the term of the loan becomes longer, with those first few years of the loan being composed of more interest than principal.
You'll usually see your adjustable rate and variable rate mortgages with a non-conforming loan. One of the big appeals of this type of loan is that the interest that you pay over the first few years of the mortgage is lower than the current interest rate available. This is ideal for anyone looking to sell their home within that low interest rate period, since it allows you to stay in the home by paying the least amount of interest possible.
Be aware that a non-conforming loan typically requires a bigger upfront cost in the form of a larger down payment. If you do not have the cash on hand to provide that down payment then you will not be able to get the loan. Mortgage underwriters are also going to look at your savings account to see if you have cash reserves on hand to cover the higher interest rate after the introductory period.
Not sure which loan will work best for your situation? Work with a mortgage lender in your area for a consultation. They'll let you know which kinds of loans you qualify for and run you through all of your options. You may be surprised at once mortgage products will be available to you.