The Pros and Cons of Non-conforming Mortgages

Non-conforming mortgages, also known as jumbo loans, turn dreams into reality.  Non-conforming loans provide the financing home-seekers need to snag their coveted home.  However, there are some potential downsides to non-conforming mortgages.  Here is a look at the pros and cons of taking out a non-conforming mortgage.

 

Pro: A Non-conforming Loan Makes Your Dream Home Possible

If non-conforming loans did not exist, countless people would not be able to score their dream home.  This form of financing helps those seeking comparably expensive homes enjoy their coveted living space in the near future rather than saving for years or decades until enough money is available to buy the home outright.

 

Pro: A Slightly Less Than Perfect Credit Score is not a Deal-breaker

As noted above, non-conforming loans are ideal for those who have good credit.  However, if your credit is not spectacular, you can still secure a non-conforming home loan.  If your credit score is lower than 660, you will have to put up much more than 5% of the home’s value in a down payment.  The door for a non-conforming loan remains open as long as you are willing to pay more cash up front.

 

Con: Non-conforming Loans can Backfire if the Property Value Drops

Non-conforming loans are not free money.  This is a loan that must be paid back.  Unfortunately, paying back a non-conforming mortgage has the potential to prove that much more difficult if the value of the home significantly decreases.  Non-conforming loans typically have a much higher interest rate than regular loans so be sure to establish a back-up plan to ensure you can cover the cost of the mortgage if you lose your job, become underemployed or have another setback.

 

Pro: You Don’t Have to Empty Your Savings Account to buy a House

The typical home-seeker ends up emptying his or her savings account to buy a house.  As long as your credit is good, you will not have to put every single penny you have saved toward your new home if you opt for a non-conforming mortgage.

 

Con: Non-conforming Loans are Difficult to Obtain 

Only those with good credit and/or significant income will qualify for a non-conforming loan.  This type of loan goes beyond Fannie Mae and Freddie Mac’s maximum borrowing limits so neither group will back or purchase such loans.  The bottom line is those seeking a jumbo loan will have to meet lofty criteria to qualify.  Most people need at least a minimum credit score of 660 to qualify for a non-conforming loan.  Furthermore, an excellent financial history along with a steady income will help you qualify for a non-conforming loan.

 

Pro: Choose From Many Loan Programs

Those who opt for a non-conforming loan are empowered to choose from an array of loan programs.  As an example, it is possible for non-conforming home loans to be taken out with an adjustable rate or a 30-year fixed rate.

 

Con: The lack of a Guarantee 

Non-conforming loans are not guaranteed by the Federal Housing Administration.  Nor does the Department of Veteran Affairs guarantee non-conforming loans.  However, if you make a substantial amount of money, you should not let the lack of a guarantee be a deal-breaker as your non-conforming loan provides you with the home you have been hoping for.

 

Con: A Higher Chance for Foreclosure

Non-conforming loan payments can be quite costly.  If you lose your job or cannot make a payment for another reason, it will be challenging to refinance.  You might lose significant equity in the home.  There is even the potential to end up in foreclosure if several monthly payments are missed.

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