Before you begin the process to buy a new house, you need to consider which type of mortgage you’re going to use to buy it. There are many to choose from that are designed to fit your unique situation, including, but not limited to:
- Bridge loans
- VA loans
- Conventional loans
- USDA loans
What if you need to purchase an expensive home? What mortgage do you use then? That’s where jumbo loans come in. But how are they different from conforming loans?
Jumbo Loans Exceed Conforming Loan Limits
Also known as a jumbo mortgage, a jumbo loan is a non-conforming loan that is higher than the conforming loan limits set by the Federal Housing Finance Agency. These loans are not guaranteed or insured and are obtained through a private lender. Because of the risk these loans pose, their qualification requirement is more strict.
Jumbo loans are most often used when purchasing a second home.
Conforming Loans Meet Funding Criteria
Simply put, a conforming loan is a mortgage that meets the funding criteria of Fannie Mae and Freddie Mac—also known as the conforming loan limit. This limit can change throughout the years, and in 2021, the limit is $548,250 for most parts of the United States. The appeal of conforming loans is their low-interest rates and down payments as low as 3.5%.
It should be remembered that conforming loans are not conventional loans, though they can overlap. A conventional loan is any loan offered through a private lender, as opposed to a government agency. Conventional loans can also be backed by Fannie Mae or Freddie Mac, where a lot of the confusion can happen.
When searching for a home, work closely with your lender and the expert realtors at Merchant of Homes. We will always work with you to guide you through the process of finding the best home for you and help you understand the market.