Conforming

Conforming Loans (or Agency Loans) have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. Conforming loans usually carry the best available interest rates, but these loans also have the most stringent qualifying guidelines. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit.  Each year these agencies set new limits for the highest amount of new conforming loans that these agencies can buy.

Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, down payment, borrower credit & income requirements, and suitable properties.  Lenders that make loans established to these guidelines may sell those loans to Fannie Mae or Freddie Mac.  These lenders may retain the servicing on these loans so that a borrower will continue to make payments to the original lender.  Conforming loans make up the majority of loans in the U.S.  What are conforming loan ratios? Lenders use three qualifying guidelines to determine the conforming loan limit.

• Debt ratios: the monthly cost including the mortgage payments, property taxes, insurance, should total no more than 28% of the monthly gross (before tax) of a household income.
• Credits: Any late payments should not extend past 30 days in the last 12 months.
• Down-payments: The down-payment and the closing cost must be verifiable assets that are 'seasoned' fund meaning that the borrower can show the assets for two months. The reserves above and beyond the down-payment and closing costs should be the equivalent to at least two months worth of Principal, Interest, Taxes and Insurance payments.

The Conforming Loan limit is reviewed every year by the Federal Government, and the limit is increased periodically.   This enables homebuyers to acquire loans without paying a premium for the jumbo rates. The increase in the single-family residence conforming loan limit will allow more borrowers to qualify for lower rates under these new conforming loan limits. These agencies also offer to homeowners and homebuyers advise on how to take advantage of the new conforming loans. It is important to choose the correct type of loan given the variety of different loan programs available. The right type of mortgage depends on the time horizon that the borrower plans to stay in the house and the amount of monthly payments that the borrower can afford.