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What is a Conforming Mortgage Loan?
A mortgage loan is consider to be a conforming loan when it satisfies the particular underwriting criteria that allow Fannie Mae and Freddie Mac to purchase the loan. It must fall under the conforming loan limit for a single-family, one-unit property as set by the Federal Housing Finance Agency. Though this limit can change yearly based on the October-to-October changes in median home price, as of 2020, that amount is $510,400. Other guidelines include size of the down payment, borrower’s credit score, debt-to-income ratio, and more.
|Qualifying Requirements||-Minimum credit score of 620 to 700, depending on loan type and size of down payment|
-Debt-to-income ratio that doesn’t exceed 36% or 45%, depending on loan type and down payment
-Minimum reserves for certain loans
|Loan Fees||-Private mortgage insurance is typically required if you borrow more than 80% of the value of the home|
Benefits of a Conforming Loan
Conforming loans are beneficial as they tend to be easier to qualify for. Those with a high credit score often see lower interest rates and monthly payment. This results in a less money spent during the terms of the loan. As well, the standardized guidelines of a confirming loan are intended to protect the borrow and lender. At Pizarro Mortgage Banking, as your lender, we help you if there are ever any questions or payment issues.
Non-Conforming loans do not fall under the conforming loan limit and cannot be purchased by Fannie Mae or Freddie Mac. These are known as jumbo loans and have different underwriting guidelines. Jumbo loans tend to have less-favorable terms due to the higher risk. They’re often geared toward high-income earners with good credit and a lot of assets.
A non-confirming loan often has the following requirements:
- 20% minimum down payment
- Stricter criteria to qualify
- Higher interest rate on the mortgage
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