What Is a Conforming Loan and How Does It Work?
When you’re in the market to buy a home, you’ll typically come across various types of mortgages, including FHA, USDA, VA, and conventional/conforming loans. Among these, conforming loans are the most common, and for good reason. But what is a conforming loan?
Altitude Home Loans, one of the top-rated mortgage lenders in Tucson, AZ, delves deeper into conforming loans and how they work. Call (520) 500-1010 for more insights into Arizona mortgage laws and regulations.
Understanding Conforming Loans
A conforming loan is a type of conventional loan or mortgage that meets Freddie Mac or Fannie Mae guidelines. Conforming lenders underwrite and fund the loans and then sell them to investors like Freddie Mac and Fannie Mae.
Once Freddie Mac and Fannie Mae scrutinize the loans, they sell them to investors on the open markets. Because of their liquidity and government regulations, conforming loans typically feature lower interest rates than non-conforming loans.
Conforming loans have set limits and guidelines for mortgage qualification criteria, loan amounts, borrower credit profiles, down payments, and types of property. The Federal Housing Finance Agency reviews conforming loan limits every year to reflect housing market changes.
With conforming loans, you have the option of a fixed or adjustable rate. Terms lengths also vary, with 15- and 30-year terms being the most popular.
How Do Conforming Loans Work?
When trying to answer, “What is a conforming loan?” you may wonder what role Freddie Mac and Fannie Mae play in all this.
Both entities have similar guidelines and missions—to provide long-term stability and liquidity to the U.S. mortgage and housing markets. While Freddie Mac buys mortgages from small (private) banks and credit unions, Fannie Mae works with commercial (large banks).
You typically won’t have contact with either of them as they work behind the scenes.
After closing on your mortgage, the title company overnights the documents to the lender’s post-closing department. The experts there verify that you’ve signed all documents correctly and provided any requested information.
Should they find any issues, the lender will contact you to fix the errors. Once ready the lender will send the loan to Fannie Mae or Freddie Mac to purchase. The investor then checks on your loan documents and asks for any clarification they need before uploading the loan into the system and paying the lender.
This process plays a crucial role in providing lenders with more liquidity to keep writing more loans. Fannie Mae or Freddie Mac then bundles loans like yours and sells them to investors as securities.
Trust Altitude Home Loans for Your Mortgage Needs
Now that you can answer the question, “What is a conforming loan?” let our Trust Altitude Home Loans experts help you find the best mortgage options for your new home.
Whether you need to finance your new home using a Freddie Mac loan or learn more about loan-to-value ratio, trust us, your local mortgage lender, to guide you.
We have a talented team of experienced professionals committed to providing you and your family with the ultimate mortgage experience. Call Altitude Home Loans today at (520) 500-1010 to start your journey toward homeownership.