Once you have found the right home for yourself, you need the right type of mortgage. There are two types of mortgages: conforming and non-conforming. Conforming mortgages conform to standard guidelines of banks. Mortgages that do not conform to standard loan criteria or that do not meet the guidelines of government-sponsored enterprises (GSEs), and therefore cannot be sold to them are called non-conforming mortgages. We would not call a non-conforming mortgage a bad one but a tougher one because these are difficult to sell and have higher interest rates.

A conforming mortgage usually ends up in the portfolios of GSEs, which in turn will buy this mortgage from banks and convert it into mortgage-backed securities, which the banks will further use to invest in new loans. Non-conforming mortgages, on the other hand, are riskier for banks and can only be sold in markets specializing in non-conforming loans.

Here are the factors that will make you eligible for a non-conforming loan:

Jumbo mortgage
A loan that exceeds the amount of a conventional and conforming loan is called a jumbo mortgage. However, if you require a loan that exceeds the traditional limit, you can avail of a “super conforming” loan.

Low down-payment
If you make a down-payment that is less than 20% of your home’s value, it will make you eligible for a non-conforming mortgage.

Debt-to-income ratio
When applying for a mortgage, banks will usually measure your ability to pay the loan back. To measure this, lenders will divide the amount of your monthly debt by your monthly income. This determines your debt-to-income ratio. You will get a non-conforming loan if your debt-to-income ratio is more than 42% with a credit score lower than 620.

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Non-warrantable property
Another factor that weighs in is the type of property you are looking at. A non-warrantable complex, such as a commercial complex or a property where the developer owns most of the units, is not eligible to be sold to the GSEs. Therefore, such a property can be bought using a non-conforming loan only.

Meeting guidelines
If you do not qualify under the lending guidelines of conforming mortgages, even if the size of the loan you need is below the traditional limit, you will be eligible for a non-conforming mortgage only. The guidelines require you to have documents of your employment history, your income, and your assets.

What makes non-conforming loans common in the industry is that if non-conforming mortgages did not exist, most people would not be able to buy a home at all.

If you are looking for other non-conventional loan options, you will find such loans insured by housing administrations such as FHA (The Federal Housing Administration) and VA (The Department of Veteran Affairs). The FHA works with applicants who have low credit scores, high debt-to-income ratios, and a limited amount of funds to qualify for a mortgage. The VA offers non-conventional mortgages only to military families. Both the government-backed mortgages have different sets of criteria compared to mortgage lenders.

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