RE/MAX Shoreline

What Are Conforming Loans?

by Tim Cheney 09/28/2021

Image by InspiredImages from Pixabay

When you plan on getting a mortgage, you have some choices. There are conventional, FHA, VA and other options. One term you'll likely hear is a conforming or a non-conforming loan. If you aren't sure what that means, you could end up confused about the kind of loan you're actually getting for your property. To protect your investment and your finances, make sure you understand your loan type. Here's what you need to know about conforming loans.

What Are Conforming Loans?

Conforming loans are generally what most people think of as conventional or traditional loans. They're what most banks and other lenders offer to the majority of borrowers when those borrowers need a mortgage. The reason they're called conforming loans is that they meet federal guidelines for Fannie Mae and Freddie Mac. These are two agencies that buy the loans from the bank. Being able to sell the loan to one of these agencies is a benefit to the lender.

Who Can Receive a Conforming Loan?

Anyone who meets the qualifications -- and chooses a property that also qualifies -- can receive a conforming loan. Typically, to be conforming the loan has to be under a set dollar amount. For single-unit properties, for example, that limit was $484,350 as of 2019. If you want or need a mortgage bigger than that on a single-family home, you'd have to choose a nonconforming loan.

You'll also need a credit score of at least 620 (this may need to be higher based on your down payment and other factors), a debt-to-income ratio below 36 percent (or 45 percent for some loans) and private mortgage insurance if you don't have a 20 percent down payment. You'll also need to be 18 or older and have proof of income and identity.

Why Would You Choose This Loan Type?

Most people don't really choose this type of loan. It's just the one that's typically offered to them. It's the most common loan type, and it works very well for the majority of people. Lenders will often assume that this is the kind of loan you want, but there's no harm in asking them if another type of loan would be a better fit for your real estate needs.

How Can You Get This Kind of Loan?

As long as you meet the qualifications, you can get this type of loan. There aren't any special requirements, such as being a veteran or purchasing a property in a specific area of the country. Most people who apply for a conventional mortgage to buy a primary residence will have a conforming loan, because it's used most often and easier for banks to work with. Choosing this kind of loan is often easier for everyone involved.

About the Author
Author

Tim Cheney

After successfully negotiating his first contract during his first 45 days, Tim has never looked back, striving to constantly learn all he can to better serve his clients and hone his craft. He takes immense pride in providing world-class service and being an expert in the Seacoast real estate market so he worked diligently to earn the Pricing Strategy Advisor (PSA) and the Commitment to Excellence (C2EX) Certifications, which taught him how to better analyze market data to ensure his clients maximize their capital while providing the best possible service to buyers and sellers of all backgrounds.

Do you have any questions about the market or thinking of buying or selling? Tim would be honored to be involved in such an important part of your life journey and would love the opportunity to help!