What Is A Conforming Mortgage Loan?

What Is A Conforming Mortgage Loan (2)

In simple terms, it can be said to be a mortgage that is either equal to or less than the dollar amount set by the conforming loan limit. These guidelines have been established by Freddie Mac and Fannie Mae and in most of the United States, the current conforming loan is at $ 417,000. Though loans with higher price limits can be availed in countries where expenses of living are quite high.

Apart from the size limit, conforming loans must adhere to the guidelines regarding the borrower’s debt to income ratio. People prefer this loan as it comes with lower rates of interest.

Advantages of conforming loansWhat Is A Conforming Mortgage Loan (3)

There are a few advantages that borrowers can utilize, the most important being the stipulation of paying lower interest rates. This means you’ll have to make a lower mortgage payment monthly and spend considerably less amount of money over the lifetime of the loan. There are no prepayment penalties involved, should you choose to pay off the mortgage earlier than planned, which makes refinancing in the future even more of an attractive proposition. Conforming loans are often processed through an Automated Underwriting System, which is considered for its quicker turnaround time.

Conforming loan vs. non-conforming loan

There are a variety of loans that fail to meet the criteria of being a conforming loan. These type of loans have less than favorable terms and stringent policies. The risks involved are higher interest rates, greater upfront fees, and higher insurance requirement than their conforming counterparts. Also, these loans cannot be sold to Freddie Mac or Fannie Mae, meaning the more difficult it is to sell alone into the secondary market, the less funds will remain in the hands of the lender that you can use to raise more loans.

keyChoosing the right loan

Many factors come into play while choosing the right loan, such as your financial situation, loan amount, type of property, period of repayment, and other factors. If you happen to be in a position where you have the liberty to choose between different loans, go for a conforming loan following the path of best practices.

Consult various lending agencies to understand the intricacies of programs, rates of interest, fees involved, and of course the reputation of the lender. If you have taken on all the steps to ensure your loan security, then go ahead and make the deal in peace.