Buying a home is one of the most exciting and emotional processes. From hosting open houses to making an offer to signing on the dotted line, signing an offer can be one of the most exhilarating hours of your life.
But financing a home isn’t always an easy process. There are many options available, and they don’t all align with your ultimate goals. It can be hard to pick from the numerous categories of mortgages.
Read to learn more about conforming loans.
How Conforming Loan Works
A conforming loan is a type of mortgage backed by the government and meets specific criteria set by the Federal Housing Finance Agency (FHFA). Conforming loans usually have lower rates and fees, which makes them a better deal for most borrowers.
The FHFA sets limits on the size, term, and amount of conforming loans, which helps keep interest rates more consistent across the board. Additionally, borrowers must have a good credit rating and meet specific qualification income requirements.
Borrowers should know that lenders may have additional eligibility criteria for conforming loans. These include credit score minimums, debt-to-income ratio limits, limits on how much cash can be received from their loan, and limits on the maximum loan size.
Lenders can also require borrowers to make specific payments, such as escrow for taxes and insurance. Borrowers will need to ensure that they meet all of the loan requirements before applying for a conforming loan. Best jumbo loans break the conforming limit of other loans.
Benefits of a Conforming Loan
Conforming loans are great for homebuyers wanting to get a mortgage. Conforming loans have benefits; these loans allow for lower down payments and often have lower interest rates than other loan types.
It tends to offer more flexible underwriting criteria, allowing borrowers with less-than-perfect credit scores to qualify with some lenders. It requires fewer documents from borrowers than other loans, allowing for less time and paperwork.
Credit Score and Down Payment Requirements
A minimum credit score of 620 is preferred to obtain a conventional loan and have a low debt-to-income ratio. With a more significant credit score, a lower down payment can be required.
A 5% down payment made in cash is required upon purchasing a home with a conforming loan, though many lenders will allow a 3% down payment with credit scores higher than 680.
A higher down payment of 10-20% can improve the terms of the loan and ease the lender’s process. It is important to understand the credit score and down payment requirements before seeking a conforming loan.
Understanding Conforming Loans
Conforming loans are great for those who need a lower interest rate. For more information and to determine if you qualify, speak to your local lender directly. Taking the time to research conforming loans and understanding the key criteria can help save money and time while shopping for a mortgage.
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