Are you interested in buying a house? If so, have you started looking for a mortgage yet? You will likely need a mortgage to make the purchase, as most people do, and you can choose from many loan types. One option is a conforming loan program. This loan type is an excellent option for many people, but it has pros and cons. Here is some information to help you understand what a conforming loan is and the pros and cons.
The Basics of a Conforming Loan
Conforming loans are the opposite of non-conforming loans. A conforming loan means that the loan guidelines meet those set forth by Fannie Mae and Freddie Mac. These two entities are organizations that create loan guidelines, and they are there to provide guidance to lenders. If you get a mortgage loan that meets the guidelines of these organizations, it is a conforming loan. If your loan does not meet these guidelines, it falls into the opposite category, making it a non-conforming loan.
The Pros of Conforming Loans
Choosing a conforming loan offers many benefits to people who want to buy homes. First, it provides safety. If you get a conforming loan from a lender, that lender feels safe about offering it because they have a way out. When a loan meets the guidelines needed to be a conforming loan, the lender can sell the loan. Lenders commonly sell loans when they need to free up cash. The second benefit for you is that conforming loans offer competitive terms. You can receive a competitive interest rate on your mortgage when it is a conforming loan. You might also receive other benefits with the terms of the loan.
The Cons of Conforming Loans
There are few downsides to conforming loans, but there is one. You might face more challenges trying to get approved for a conforming loan. To be eligible for one, you must meet the eligibility requirements. One of these is your credit score. If your score is less than 620, you probably will not qualify. Some lenders require higher scores than 620. You might also need more money for your down payment to qualify for a conforming loan, which might make it more challenging for you.
Now that you know what a conforming loan is, you might want to talk to your lender about getting one. If you have questions about conforming loan programs, talk to a lender of your choice today.