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Conforming Loan

Understanding Conforming Loan

Conforming Loan

Conforming Loan is a mortgage loan that can be purchased or guaranteed by Fannie Mae or Freddie Mac and which restricts the maximum loan amount to the conforming loan limits set by Federal Housing Finance Agency (FHFA).

There is a ready market for the conforming loans and they carry the lowest risk to the lender. As a result, interest rates on conforming loans are lower than the interest rates on non-conforming loans.

Source :www.MortgagesAnalyzed.com

Benefits to the Borrower

  1. Low Cost: The conforming loans offer the lowest origination points. This is due to both, the standardized nature of the loans, and the high competition among lenders in this market. Some borrowers take advantage of the low cost of loan by breaking their non-conforming loan into two liens. The first lien being a conforming loan for up to the conforming limit and having a low interest rate. The second lien is for the remaining amount.
  2. Low Origination Points/Fees: Conforming loans carry low origination points and fees.
  3. Faster Closing: The conforming loans usually close in a short time when compared to non-conforming loans.
Source :www.MortgagesAnalyzed.com

Considerations for the Lender

  1. Low Profitability: Conforming Loans have become a commodity in the market and offer the least margins in the secondary market. Lenders that offer these loans should be looking at generating a large volume of business and maintaining strict control over costs.
Source :www.MortgagesAnalyzed.com

Current Conforming Loan Limits

The conforming loan limit determines the maximum size of a mortgage loan than a Government Sponsored Entity (Fannie Mae or Freddie Mac) can purchase or guarantee. The current conforming loan limits are in the range of $417,000 to $801,950. See Conforming Loan Limit web page for details for conforming loan limits.

Updated: Jul 07, 2011

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