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What Are CONFORMING LOANS?

CONFORMING LOAN

A conforming loan is a mortgage that meets lending rules set by Fannie Mae and Freddie Mac and is within loan limits set by the Federal Housing Finance Agency (FHFA). Conforming loans are the most  frequently used type of mortgages. If your credit score is above 620 and a loan amount is within $647,200, there is a good chance this is the type of home loan you’ll use. If you are considering using this type of loan, here’s what you should know about the requirements, rates, and loan limits for a Conforming Mortgage Loan.

About conforming loans

Conforming loans are conventional loans. This simply means they are not funded by the federal government (unlike FHA, VA, and USDA loans).

Conventional loans can be conforming — meaning they conform to Fannie Mae and Freddie Mac’s lending rules — or non-conforming (non-QM), meaning they don’t follow Fannie and Freddie’s guidance.

Most of the mortgages in the U.S. are conventional conforming loans. However, non-conforming loans can be useful in special circumstances. Examples of non-conforming mortgages include jumbo loans (which exceed the conforming loan limit) and bank statement loans, no income verification loans, and DSCR mortgage loan (rental income based mortgage loans).

For a borrower with 5% down and a credit score above 620, a conforming loan is often the most affordable option. Those with a lower credit score or special circumstances (for example, veterans) might choose between a conforming loan and a government-backed loan.

Conforming loan requirements

To qualify for a conforming loan, you’ll need a:

  • Credit score of 620 or better
  • Debt-to-income ratio (DTI) lower than 45% in most cases
  • Down payment of 3% or more
  • Stable record of employment and income going back at least two years
It is not that hard to qualify for a conforming loan. You do not need 20% down or a perfect credit score.Lenders can often work with you; if your finances are a little weaker in one area but stronger in another, that could help you get approved.

One thing to remember is that these are only requirements set by Fannie Mae and Freddie Mac. The actual lenders that can  help you with conforming loans set their own requirements.

Although Fannie Mae and Freddie Mac are not mortgage lenders, their role is to simply be in the background.

CONFORMING LOAN LIMITS

Fannie and Freddie are both regulated by the Federal Housing Finance Agency (FHFA), which is why their loan products are so similar. And, each November, the FHA updates its loan limits for the following year.

These limits set the maximum amount you can borrow using a conforming loan. Most single-family homes in the U.S. are covered by the standard loan limit, which is $647,200 in 2022.

If you’re buying a home in an area with above-average home prices, you may be able to borrow more: Anything between $647,200 and $970,800, depending on how high home prices are in your area.

Conforming loan rates and PMI Conforming mortgages are considered low-risk thanks to Fannie and Freddie. That you can get a lower rate on these mortgages

However, one important thing to note is that conforming loans depend heavily on your personal finances; specifically, on your credit score and down payment. The better your score and the bigger your down payment, the lower your interest rate will be.

Something else that is important to understand is that conventional loans with less than 20% down require private mortgage insurance (PMI). This adds an additional monthly fee that  helps protect lenders because low-down-payment loans are considered riskier. On the bright side, conforming loan PMI can be removed later on, whereas FHA mortgage insurance is often permanent.

Conforming loan rates are often the most competitive on the market, aside from VA loan rates. But when this was written, mortgage rates were very volatile. And, when markets are disrupted, comparative rates across different mortgage types can temporarily fall out of alignment.

OUR CONFORMING LOAN DETAILS:

30 YEAR CONFORMING:

  • LTV up to 95% (MI applies fo LTV > 80%)
  • Minimum FICO 620
  • “Full Doc” with up to 50% DTI
  • W2 or Self Employed Borrowers
  • Purchase Loan, Rate and term, or Cash-Out refinance
  • Current conforming limit in CA for a single-family unit is $548,250. High Balance Conforming loan limits vary for each county
  • Restrictions apply. Rates are subject to change without notice

15 YEAR CONFORMING:

  • LTV up to 95% (MI applies for LTV > 80%)
  • Minimum FICO 620
  • “Full Doc” with up to 50% DTI
  • W2 or Self Employed Borrowers
  • Purchase Loan, Rate and term, or Cash-Out refinance
  • Current conforming limit in CA for a single-family unit is $548,250. High Balance Conforming loan limits vary for each county
  • Restrictions apply. Rates are subject to change without notice