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What is a nonconforming mortgage loan?

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A nonconforming mortgage loan, also called a jumbo loan, refers to a mortgage option for homeowners that offers a loan payment in excess of the federal limit established by Fannie Mae and Freddie Mac. These loans offer homeowners some flexibility in financing with fixed rate and variable rate options, say experts at Wells Fargo Bank. Homeowners sometimes combine these loans with other types of mortgage payments, such as buydowns, to facilitate the mortgage payment.

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Jumbo mortgage loans work well for homeowners with higher property values who can afford higher mortgage payments, according to Wells Fargo. In the United States, jumbo mortgage loans exceed $417,000 for a single-family home, except for Alaska, where that number rises to $625,000.

These loans, like other mortgages, offer several benefits. They provide homeowners with several financing and loan repayment options, while letting them take out just one loan for the duration of their mortgage payments. This contrasts with traditional conforming loans, which require several monthly payments. People also use jumbo mortgage loans on a range of properties, including primary homes and vacation homes.

Despite providing some advantages, nonconforming loans leave several points for consideration. They often come with higher interest rates than standard loans and may necessitate higher down payments. Jumbo loans also have more rigid underwriting requirements and may slow equity accrual, as payments initially go primarily towards the cost of interest.

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