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.
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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