4 Things You Need To Understand About A Conforming Loan
If you are in the market for a mortgage, it is important to be aware of all your mortgage options. One of your mortgage options is to get a conforming loan. Before you jump up to get a conforming loan, you need to understand what it is and how it works.
#1: Conforming Loans Meet Government-Sponsored Enterprise Requires
A conforming loan is a mortgage loan made by a lender designed to meet government-sponsored enterprise requirements (GSEs). The two GSEs that the requirements meet are those that Fannie Mae and Freddie Mac set.
Lenders who issue non-government-backed loans may still use guidelines set by the GSEs. They use these guidelines so that down the road, if they want, they can sell their loan to a GSE, thus giving the lender a good flow of money. Non-government lenders want loans that meet government requirements so they can sell the loans back to government lenders at some point.
When a loan meets GRS requirements, it is considered a conforming loan even when offered by a private lender.
#2: Low Lending Limit
Conventional loans that want to be transformed into conforming loans potentially have to meet lower loan amounts than a loan that starts out as a conforming loan. The limits for a conventional loan's loan amount to transform into a conforming loan vary based on the state where one lives, with some states having higher base limits than other states. Additionally, the amount can change each year.
If your loan is below the Federal Housing Administration limit, it meets one of the criteria to be considered a conforming loan.
#3: Buyer Profile
It is not just about the loan amount for a loan to be considered a conforming loan. You also need to have a credit score that is less than a specific number; if you have a near-perfect credit score, you are not going to quality for a conforming loan. You have to have a debt-to-income ratio below a set amount, and you have to put a certain amount of money as a down deposit on the home.
#4: Benefits Are Offered
With a conforming loan that meets the guidelines set by Fannie Mae and Freddie Mac, there are certain benefits to these types of loans. These types of loans offer lower interest rates, especially if you have a higher credit score. Many different lenders offer conforming loans, allowing you to find the lender who meets your needs. Additionally, there are guidelines in place that help protect you against poor lending practices that can be damaging for the consumer.
A conforming loan is a regular loan that meets GSE requirements and could be bought back by one of the two GSE organizations. The loan amount can't exceed a certain limit, and the borrow has to meet specific lending criteria for a loan to be considered a conforming loan.
To learn more, reach out to a provider of conforming loan programs.