What in the world is a non-conforming loan?
ANSWER: Conforming loans are loans that conform to the underwriting guidelines of the Federal Housing Administration, of the Veteran’s Administration, or of Fannie Mae. If your loan conforms to those underwriting guidelines, it allows the bank or mortgage company to package your loan together with other loans into million-dollar blocks. Then those blocks are sold on the bond market as a security.
For example, five $200,000 conforming loans can be grouped together and sold on the bond market.
A non-conforming loan means they did not use FHA, VA or Fannie Mae guidelines. That may mean you’re just borrowing money at the local credit union and they’re going to keep the loan instead of blocking it with others and selling it. Sometimes a non-conforming loan comes from a rip-off finance company and you’re going to have an outrageous interest rate.
Just make sure you investigate. Non-conforming loans can give you lots of flexibility or they can be a scam.