What is a Conforming Loan?

A Conforming Loan is a mortgage that meets the loan limits and other criteria established by government-sponsored entities such as Fannie Mae and Freddie Mac. These loans "conform" to the guidelines set by these entities, making them eligible for purchase in the secondary mortgage market.

Features of a Conforming Loan:

• Loan limits: Conforming Loans adhere to specific loan limits set by Fannie Mae and Freddie Mac, which vary by location. These limits determine the maximum loan amount that can be considered a Conforming Loan. The current loan limits for 2023 start are $726,200 and can go as high as $1,089,300 if you are located in a high cost area.

• Fixed and adjustable-rate options: Conforming Loans offer both fixed-rate and adjustable-rate mortgage options. Fixed-rate mortgages provide stability and predictable payments, while adjustable-rate mortgages offer initial lower rates that may adjust over time. The most common fixed rate terms are 30 year, 20 year and 15 year and the most common adjustable rate terms are 3 years, 5 years, 7 years and 10 years. 

• Flexible down payment requirements: Conforming Loans typically have more flexible down payment options compared to other loan types. Depending on your financial situation, you may be able to put down as little as 3% of the home's purchase price.

• Competitive interest rates: Conforming Loans often come with competitive interest rates, making them an attractive option for borrowers. These rates can vary based on factors such as credit score, down payment, and overall market conditions.

• Mortgage insurance options: If your down payment is less than 20% of the home's purchase price, Conforming Loans allow for the inclusion of mortgage insurance. Mortgage insurance helps protect the lender in case of default and can be structured to suit your specific needs. The cost of the mortgage insurance is usually added to the borrower's monthly mortgage payment (BPMI) however, In some cases, the lender may pay for the mortgage insurance on behalf of the borrower  and charge a slightly higher interest rate to compensate for covering the cost of insurance (LPMI).

Benefits of a Conforming Loan:

• Access to affordable financing: Conforming Loans offer access to affordable mortgage financing, allowing you to purchase or refinance a home within the established loan limits.

• Wide availability: Since Conforming Loans adhere to established guidelines, they are widely available from a variety of lenders, including banks, credit unions, and mortgage companies.

• Streamlined loan processes: Conforming Loans often have streamlined processes, making the application, underwriting, and approval process more efficient and faster.

• Lower borrowing costs: With competitive interest rates, Conforming Loans can help you save on borrowing costs over the life of the loan compared to other loan options.

Before applying for a Conforming Loan, it's important to gather the necessary documentation, such as proof of income, employment verification, and credit history, as lenders will assess your qualifications based on these factors.

When it comes to financing a home within established loan limits, a Conforming Loan can provide you with a range of benefits. Contact us today to learn more and explore how a Conforming Loan can help you achieve your homeownership goals.