Conforming Loans

Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive

Conforming loans are typically what brokers refer to as A paper loans for A borrowers.

Conforming loan amount limits may change from year to year. As of 2006 the conforming loan amount limit is $417,000.00 anything over that amount is usually considered a jumbo loan.

Besides setting the Conforming Loan Limits, Fannie Mae (FNMA) and Freddie Mac (FHLMC) also limits the type of homes used as collaterals for Conforming Loans. For a loan to be Conforming (eligible for delivery to Fannie Mae and Freddie Mac), the property used to secure the mortgage has to be a Single Family Residence, 2 family, 3 family, 4 family residence, condominium, cooperative, or Planned Unit Development. Loans that are secured by Mixed-use (residential homes with a commercial unit) and properties with more than four units are considered Non-conforming.

Conforming loans are the lowest available interest rates for home financing.

Single-Family Mortgage Conforming Loan Limits effective January 1, 2006:
First mortgages
•One-family loans: $417,000
•Two-family loans: $533,850
•Three-family loans: $645,300
•Four-family loans: $801,950

One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the conforming limits for the rest of the country.

Conforming limits for second mortgages
•$208,500
•In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750

Loan amounts higher than conforming loan limits are considered jumbo loans.

Conforming loans are easier to sell to investors.

The $57,350 increase in conventional loan limits comes at an opportune time, as the interest rates have been creeping up since last August. A 30 year conforming loan at 6.25% versus a non-conforming (jumbo) loan at 6.75% would increase the monthly payment by $138.

These loans offer the best rates for borrowers. You do not need perfect credit to qualify and they also will take very high debt to income ratios, sometimes as high as 65%.

Another factor of conforming loans is a persons credit history. Government Sponsored Entities such as FNMA have credit history standards for credit depth, timely payments, trade line diversification, and risk scores.

With the use of automated underwriting, many loans that might not have been approved as a traditional conforming loan, can be approved as a conforming (A paper) loan with the assistance of compensating factors such as: low debt to income ratio's, low loan to value, low mortgage terms (10 year, 15 year, 20 year), and/or lots of verifiable liquid assets (checking, savings, mutual funds, 401k's, etc...). Any combination of these compensating factors may be what it takes to give your loan that little extra something to qualify you for that conforming rate you desire. An experienced mortgage broker will generally have the knowledge and resources to provide you with the best opportunities and automated underwriting engines available to qualify you for a conforming loan and get you the best mortgage rates available.

Mortgages of $650,000 or more are considered super jumbo mortgages. While jumbo mortgages are only slightly more difficult to obtain than conforming mortgages, there are very few lenders and sources of funding for super jumbo mortgages. Working with a company specialized in super jumbo mortgage financing ensures that your high value refinance or purchase mortgage transaction will have a positive outcome.

Conforming loans are less than $417,000. They generally have a lower rate than loans above that amount which are called non-conforming, or jumbo.

"Conforming mortgages" as they are called consists of all home mortgages that meet the underwriting requirements of the portfolio and government sponsored enterprises.

Conforming loans go can be approved through a process called automated underwriting. Typically these types of loans will require a credit score of 620+ but because there is a sophisticated formula used in the computation that takes into account compensating factors like assets and cash reserves, it is wise to have your broker try to approve it thorough automated underwriting even if your score is below 620.

The other possibility is an FHA loan. The credit limitations are less stringent and the rates are often better than even conforming loans.

Conforming loan size limits make these mortgages unavailable to many residents of higher cost states such as California, New York, New Jersey, Connecticut, Colorado, Arizona, Nevada, Florida, Maryland, Washington DC, and Washington. Borrowers in these states increasingly require non-conforming jumbo or super jumbo loans.

Conforming loans are generally for borrowers who qualify for a mortgage using Fannie Mae and Freddie Mac guidelines. Subprime loans are for borrowers that do not qualify for a conforming loan for any reason such as high DTI, bad credit, or recent bankruptcy/foreclosure.

» DISCLAIMER: The information contained in this article on 'Conforming Loans' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.