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How to's and money-saving tips from resident homeowner and mortgage professional, Cathy West

Buyers should consider a conforming loan.

A buyers’ guide to conforming loans

Any buyer looking to begin the mortgage process should be aware of the different types of loans available to them. One option worth looking into is the conforming loan.  

The conforming loan
The conforming loan is a loan that quite literally "conforms" with the annual guidelines set forth by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. A benchmark of the conforming loan is it must have a principal balance that is beneath a certain threshold. This year the baseline threshold sits at $453,100. This was an increase from the $424,100 threshold set forth last year.

If a borrower lives in a county the federal government deems to be high-cost, they can have a principle loan balance that is higher than the baseline threshold and still qualify for a conforming loan. The highest principal balance a borrower can have and still qualify for the loan is $679,650. Buyers can consult this map to see how much they can borrow and still possess the proper qualifications.

Mortgages involving more than one unit can have a principal balance greater than $679,650. The FHFA provides a report that details the maximum loan limits on multi-unit property mortgages.    

Fannie Mae, Freddie Mac, and lower interest rates
Fannie Mae and Freddie Mac are government-sponsored entities that purchase home loans from lenders in the secondary mortgage market. When a lender creates a conforming loan, Fannie Mae and Freddie Mac purchase it.

Lenders can be confident that one of these two institutions will purchase their loans since each institution is backed by the government. This confidence allows lenders to offer lower interest rates on conforming loans than they otherwise could on different loans. Currently, the interest rates for a 30-year fixed-rate conforming loan stands at 4.5 percent, while the interest rate for a 30-year fixed-rate jumbo is 4.625 percent.

Qualifying for a conforming loan
Buyers looking to pursue a conforming loan should be aware that conforming loans require good credit scores. If this will be a problem, FICO provides some tips for increasing credit scores on their website. Two strategies they recommend are setting up payment reminders and paying off old debts.

A conforming loan is just one type of mortgage available to buyers. There are many other loans available to buyers if they feel a conforming loan isn't the right fit. For more information about the different types of loans available to buyers, or any other questions regarding the mortgage process, please reach out to CapWest mortgage. We'd love to help.

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