Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Home
  • Economics, Finance, & Analytics
  • Banking, Lending, and Credit Industry

Conforming Loan - Explained

What is a Conforming Loan?

Written by Jason Gordon

Updated at April 18th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Conforming?How Does a Conforming Loan Work?Conforming Loans vs. Nonconforming LoansSpecial Considerations for Conforming Loans

What is a Conforming?

In the United States, there are certain guidelines that loans are required to meet as stipulated by government agencies. If a loan meets the stated requirements, it is a conforming loan. A Conforming Loan must meet the dollar amount, otherwise known as the financing limit set by the Federal Housing Finance Agency (FHFA) and funding rules (underwriting guidelines) set by Fannie Mae and Freddie Mac. Any loan that doesn't meet the requirements is a non-conforming loan.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does a Conforming Loan Work?

While FHFA is a government-owned agency, Fannie Mae and Freddie Mac are government-sponsored agencies. The rules and guidelines set by these agencies must be conformed to by lenders in the US. The dollar amount (financing limit) of a loan is the most popular loan guideline that lenders and borrowers look out for. The Federal Housing Finance Agency (FHFA) sets loan limit in the U.S, in 2018, the loan limit set by FHFA was $453,100 while it increased to $484,350 in 2019. Aside from the loan limit, other requirements that a conforming loan must meet are documentation requirements, credit score, loan-to-value ratio, debt-to-income ratio, among others. How Do Lenders Use Conforming Loans? While Conforming loans offer low-interest rates to borrowers, it expands the capacity of a lender to make more loans to borrowers or home buyers. Conforming loans are easier to sell in the market and create from for additional financing for lenders. Lenders often ensure that their loans conform to the rules and guidelines stipulated by the regulatory agencies.

Conforming Loans vs. Nonconforming Loans

Non-conforming loans are the opposite of conforming loans. These loans do not meet rules and requirements set by FHFA, Fannie Mae and Freddie Mac. Non - conforming lenders give their terms and conditions to borrowers, different from the basic guidelines. There is often a low demand for non-conforming loans in the market, which is why most lenders deal in conforming loans.

Special Considerations for Conforming Loans

The FHFA in the United States sets conforming loan limits every year, this limit is set in a dollar amount. Mortgage lenders are also required to file reports showing how well they have complied to the conditions set by FHFA, alongside the guidelines of Fannie Mae and Freddie Mac.

conforming loan

Was this article helpful?

Yes
No

Related Articles

  • Federal Deposit Insurance Corporation (FDIC) - Explained
  • London Interbank Offer Rate (LIBOR) - Explained
  • Clearing Corporation - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand