Guide to Conforming Mortgage Loans

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Conforming Loans - Do They Conform to Your Ideas?

The world of home mortgage options can be confusing and frustrating. There are just so many terms! Conforming loans, non-conforming loans, what does it all mean? In this article, we will look at conforming mortgage loans in a little more detail, and try to make some sense out of the confusing world of home loans!

What Are Conforming Loans

Conforming mortgages are home mortgages that are for amounts that fall between set ranges established by Fannie Mae and Freddie Mac Associations. These loans are actually collected by the associations and sold on the secondary market. If the loan amount falls in the guidelines of the conforming loans, then the interest rate is usually lower, since the mortgage company is guaranteed that the associations will buy the loan.

How do Conforming Loans Work

Conforming loans work like any other home mortgage option. You will contact your mortgage lender and request a loan. The difference is that if you're your loan meets the conforming loans guidelines, you will qualify for a lower interest rate conforming mortgage.

Conforming Loan Limits

The 2006 conforming loans guidelines state that the limits for a single family house to qualify for conforming loans is $417,000. Two family homes, or duplexes, are $533,850. Three unit residential homes have a limit of $645,300. And finally, four unit properties have a limit of $801,950. Because the cost of living is substantially higher in Hawaii, Guam, and Alaska, the limits are higher in these locations.

Conforming Loan Requirements

In order to qualify for conforming mortgage loans, you must have more than just a loan amount that falls within the limits. Other conforming loans guidelines are as follows:

Good Credit Rating

One thing that must be in place in order to qualify for conforming loans is that the borrower must have an excellent credit rating. Before shopping for your home mortgage, make sure you know your credit rating. This will give you a good idea if you will qualify for lower-interest conforming loans.

Documentation

Income, employment, and personal assets must be fully documented when applying for conforming loans. This insures that the lender will get their money back. If you do not have adequate documentation you will not qualify for conforming loans.

Low Debt-to-Income Qualifications

Because there are other loan options out there, and those offering conforming loan programs are only looking for good risk investments, they impose dept-to-income ratio limits that tend to be quite low. Borrowers under conforming programs should only have about 33% of their income in housing debt.

Continue to: Who Qualifies for Conforming Loans?