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Conforming Loans

The term conforming loan may be something that you have heard about if you are currently in the market to buy a home, or even refinance your existing home. While the term seems to pop up here and there, you may still have some questions about what exactly a conforming loan is and how that it could work for you. The good news is that if you do qualify for a conforming loan, then you could be looking at some major savings!

What is a conforming loan?

Two government-backed companies, Fannie Mae and Freddie Mac, have specific guidelines that they have set forth in order to determine which loans they will purchase in the secondary market. A conforming loan is one that simply meets these guidelines.

These two companies are ran almost completely by the government and instead of actually loaning out the money for the purchase to the home buyer, they purchase the qualifying, or "conforming" loan from the lender. This is beneficial to the lenders because they can then clear themselves of the loan and make room for new loans. It is beneficial to Fannie Mae and Freddie Mac because they will now make a profit from the interest on the loans.

Limits and Restrictions

The amount of the loan is the most important factor when determining if your loan will qualify as a conforming loan. There is a specific amount that these two companies are allowed to purchase from lenders. This "loan limit" is different in different places, but typically it is around $417,000 but can be as much as $729,000 in some areas. These higher amounts are usually restricted to areas that are designated as "high cost housing markets" such as Los Angeles Mortgage, San Diego Mortgage, Miami Mortgage, parts of Atlanta and Chicago.

Loan amounts that exceed these loan limits are called "jumbo loans". There are even some that can be classified as "super-jumbo" if the amount of the loan is high enough. You will find that these higher loan amounts also come with a higher interest rate.

Benefits For You

These conforming loans will allow you to save money with a lower interest rate by making your monthly payments lower which can add up to a lot of savings over the typical 30 year loan.

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