Conforming loans are mortgages that fall within the limits of Fannie Mae and Freddie Mac’s purchasing limits. The mortgage that exceeds this maximum permissible amount is called jumbo conforming loans, jumbo loans or nonconforming loans.
As mentioned before, the limits set on Fannie Mae’s and Freddie Mac’s purchasing amount varies and has changed a couple of times in the recent figures. This has been done in order to accommodate the changing mortgage market environment and to stimulate the housing market.
True conforming loans
And true conforming loans mortgage amounts that come within the traditional limits of Fannie Mae and Freddie Mac’s limits. These kind of loans also have the lowest interest rate.
Jumbo conforming loans
This is a hybrid between a jumbo loan and the conforming loan and are also known as conforming jumbo’s, super conforming or jumbo light loads. Because the worsening limit on these loans is beyond the true conventional limit of Freddie Mae and Freddie Mac the interest rate may be up to a full 1% higher than true conforming loans.
True jumbo loans
True jumbo loans are once that well exceeded the limit set on Freddie Mac and Fannie Mae. The interest rate on these loans is even higher and can be up to 1% higher than the jumbo conforming loans.
Fannie Mae and Freddie Mac have both imposed certain guidelines on the loans that qualified. One of these guidelines could be that the home is supposed to be a single-family dwelling for personal purpose.
Whenever you choose to borrow a nonconforming loan, you should be prepared to pay a high price. Typically candidates will demand a higher down payment. Whereas 20% is usually the magic figure where you can avoid paying for insurance and private mortgage insurance, you may be required to pay up to 25% down payment for a high nonconforming loan amount. Interest on non-conforming fixed-rate mortgages can run up to .5% higher than conforming fixed-rate mortgages are. The difference between a conforming FRM and a jumbo loan is less when economy conditions are favorable and there is plenty of lending money. However, as lending becomes tighter, the interest rate on jumbo loans increase because the risk to the mortgage lender also increases.
If you find yourself in a situation where you are, above the prescribed limit of Freddie Mac or Fannie Mae you can avoid paying the higher cost by bringing your loan amount just below the conforming limit. You can do this buy increasing your down payment just enough so as to bring your loan amount under the limit.