Non-Conforming Mortgage Basics and Common Needs

There are a number of different mortgage types and programs out there, and one that some people don’t fully understand is the non-conforming mortgage. While it’s true that there are many cases where this form of mortgage will be less desirable than its inverse, the conforming mortgage, there are also a few where it will be necessary for your needs — and as long as you navigate the waters properly, a non-conforming mortgage can be beneficial.

At Altius Mortgage and our partners with Mortgage Ogden, we’re here to offer a huge range of both mortgage originations and mortgage refinancing services, plus provide our clients with all the information they need about any loan program they’re considering. What is a non-conforming mortgage, and what are some of the situations where you might need to utilize one? Here’s a basic rundown.

Non-Conforming Mortgage Basics

In simple terms, a non-conforming loan is one that doesn’t meet bank or lender criteria for funding. This is in comparison to a conforming loan, which does meet these criteria.

Generally speaking, non-conforming mortgages are considered riskier than conforming loans because they’re not backed by Fannie Mae or Freddie Mac, the government-sponsored enterprises (GSEs) that drive prices and standards in the conventional mortgage world. This is why you’ll often see higher interest rates attached to non-conforming mortgages — to make up for the extra risk involved on the part of the lender.

In most cases, borrowers will tend to default toward more secured conforming loans. However, there are a few situations where you might need a conforming loan, which we’ll dive into in our subsequent sections.

Jumbo Loan

Jumbo loans refer to those where the price of the property is greater than the conforming loan limit, which currently stands at $510,400 in most parts of the country (this will vary in some states). In order to qualify for this type of mortgage, you’ll need a credit score of 700 or higher and a debt-to-income ratio no greater than 43 percent.

If you’re considering purchasing property in an expensive real estate market, then this is likely the loan you’ll be looking at. Unlike a conforming loan, where you’re able to put down as little as 3 percent, jumbo loans will generally require a 20 percent down payment in order to qualify.

Can’t Meet Conforming Requirements

If you have a low credit score, major debt or any other number of financial factors working against you, it’s possible that you won’t be able to qualify for a conforming loan — and in this case, you’ll need to look into alternative financing methods.

In these cases, subprime loans (mortgages with higher interest rates given to those with lower credit scores) may be your best bet. These will likely have stricter requirements in terms of both credit score and down payment, but if you can’t qualify for a conforming loan, they may be your only option.

Non-Warrantable Condo

Finally, in certain rarer situations where you’re looking to purchase a condo unit, you may find that the property doesn’t qualify for a conforming loan due to its status as a non-warrantable condo. These are generally newly built condos or ones with special assessment dues, and they can be more difficult to finance.

If you’re interested in purchasing a non-warrantable condo, you’ll need to put down a larger down payment (usually at least 30 percent) and may end up with a higher interest rate. You’ll also need to be extra careful in your choice of property, as these are generally considered more high-risk investments.

For more on non-conforming loans and why you might need one, or to learn about any of our mortgage rates or mortgage programs, speak to the team at Altius Mortgage today.