Conforming and Non Conforming Loans

The Government Sponsored Agencies (GSE's) namely Fannie Mae and Freddie Mac have specified a criteria for borrowers to meet in order to be eligible for certain type of loans. 

The requirements include criteria for minimum down payment, credit score, maximum amount of the loan, debt-to-income ratio and the type of property to be financed. The loans that meet the requirements of Fannie Mae and Freddie Mac are conforming loans. 

The loans that do not meet the specific underwriting guidelines of Fannie Mae and Freddie Mac are non-conforming loans. For example, in 2022, in vast majority of the Continental United States, Fannie/Freddie guidelines allow a maximum loan amount of 647,200. If you were to purchase a property worth 800,000, it would be above the maximum loan limit of a conforming loan and you would opt for a Jumbo Loan, an example of a non-conforming loan. 

The credit score criteria varies with different lenders and a Jumbo Loan may or may not require a higher or lower score compared to a conforming loan. In most cases, since the lender is lending a higher amount, and the loan lacks the backing by a government sponsored enterprise, the underwriting requirements typically are more stringent. 

About the Author: Ahsan Bashir is an experienced Tax Consultant based in Irving, Texas, with over 25 years of expertise spanning Taxation, Accounting, Business Lending and Mortgage, Risk Management, Business Insurance, and Business Consulting. Through his firm, Z-Tax & Accounting, he provides comprehensive financial services including Individual and Business Tax Preparation, Bookkeeping, Payroll Processing, and Business Consulting. As an Enrolled Agent authorized to practice before the Internal Revenue Service (IRS), and an IRS Certifying Acceptance Agent (CAA), Ahsan Bashir delivers trusted, professional solutions tailored to the unique needs of both individuals and businesses. 

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Related Topics:          What are Government Sponsored Enterprises (GSE's)            What is Fannie Mae           What is Freddie Mac                          Explain Down Payments              During Borrower analysis, what are Acceptable assets that may be used for a down payment?                8.13-How is the down payment amounts/percentages calculated?                What is a Credit Score             What is a Credit Check              Loan Limits on Types of Loans            What is Debt to Income Ratio and how is DTI calculated             What are Jumbo Loans?            Conventional Loans           FHA Loans             VA Loans             USDA Loans          An Adjustable Rate Mortgage             A Fixed Rate Mortgage            Construction Loans             Graduated Payment Loans          

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