If you are searching for a mortgage you have probably heard the terms conforming, and non-conforming loans.
While they sound similar they have distinct differences.
Conventional loans can either be conforming or non-conforming depending on certain factors.
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Conforming Loans
Conforming loans are conventional loans that meet the criteria to be purchased by Freddie Mac or Fannie Mae.
When you get a mortgage loan, the lender that provides you the loan rarely keeps it. Often times after a mortgage loan is funded by a lender, it is sold shortly after to Fannie Mae or Freddie Mac. Fannie and Freddie are Government sponsored entities (GSEs) whose guidelines are set by the Federal Housing Finance Agency (FHFA).
A conforming loan is a mortgage that meets the specific guidelines allowing Freddie Mac or Fannie Mae to purchase the loan. The main differentiator is the loan amount. Freddie and Fannie will only purchase loans that do not exceed the maximum loan amount.
The maximum conforming loan limit in most areas of the country is $424,100. In certain high cost areas like Los Angeles and New York the max loan amount is $625,500.
Conforming Loan Requirements 2017
- 620-640 minimum credit score
- 5% – 20% Down Payment
- 3% down payment with 97 Conventional loan
- 41% Maximum DTI ratio
- PMI required with a down payment of less than 20%
Non-Conforming Loans
Non conforming loans are not able to be sold to Freddie Mac or Fannie Mae. If a loan is for an amount above the conforming loan limit, like a Jumbo loan, it is considered a non conforming mortgage loan. Just like how conforming loans are conventional loans, non-conforming loans are often referred to as unconventional loans.
Non conforming loans are funded by lenders or investors. Because they are not easily sold to Fannie or Freddie, they typically are more difficult to qualify for. Borrowers will need higher credit scores, DTI ratios, and/or higher down payment amounts. There are no non conforming loan limits, the maximum loan amount is determined by the lender providing the mortgage.
Non-Conforming Loan Requirements 2017
- Higher credit score requirements (680+)
- Large down payment (15% or higher)
- Low debt to income ratio (43% or less)
- Large cash reserves
Federal Housing Finance Agency (FHFA) announced new higher conforming loan limits for 2017
| Number of Units | Maximum base conforming loan limits for properties NOT in Alaska, Hawaii, Guam & U.S. Virgin Islands | Maximum base conforming loan limits for properties in Alaska, Hawaii, Guam & U.S. Virgin Islands | ||
| 2017 | 2016 | 2017 | 2016 | |
| 1 | $424,100 | $417,000 | $636,150 | $625,500 |
| 2 | $543,000 | $533,850 | $814,500 | $800,775 |
| 3 | $656,350 | $645,300 | $984,525 | $967,950 |
| 4 | $815,650 | $801,950 | $1,223,475 | $1,202,925 |
Super Conforming Loans
The Economic Stimulus Act of 2008 created a temporary loan category called a super conforming loan. This allowed mortgages in high costs areas to be purchased by Freddie Mac or Fannie Mae.
| Number of Units | Maximum base super conforming loan limits for properties NOT in Alaska, Hawaii, Guam & U.S. Virgin Islands | Maximum base super conforming loan limits for properties in Alaska, Hawaii, Guam & U.S. Virgin Islands | ||
| 2017 | 2016 | 2017 | 2016 | |
| 1 | $636,150 | $625,500 | $954,225 | $938,250 |
| 2 | $814,500 | $800,775 | $1,221,750 | $1,201,150 |
| 3 | $984,525 | $967,950 | $1,476,775 | $1,451,925 |
| 4 | $1,223,475 | $1,202,925 | $1,835,200 | $1,804,375 |
