The real estate website Redfin.com has a guide to conforming vs. non-conforming loans, which explains that conforming loans are attractive to borrowers because theyusually have lower interest rates. Non-conforming loans typically have higher interest rates, and may carry additional upfront fees and insurance requirements.
Borrowers who do not qualify for conforming loans may agree to non-conforming loan to qualify to buy a home.
But what exactly is a "conforming loan”?
For a mortgage loan to be conforming, it must meet criteria that allow Fannie Mae and Freddie Mac to purchase the loan. The most significant of these criteria is the loan limit (the maximum amount of the loan). Other criteria for conforming loans include standards for debt-to-income ratios and financial documentation that must be submitted by the borrower to support the loan.
Because conforming home loans adhere to underwriting rules set by Fannie and Freddie, they are considered lower risk to investors on the secondary market. As a result, mortgages with conforming loan amounts tend to carry lower mortgage rates than non-conforming loans. The most common type of non-conforming loan is a jumbo loan, which is a loan amount over the maximum conforming amount.
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