Why Conforming Loans Should Matter to You
In the United States, mortgage loans are governed by a set of rules of compliance. This ensures that loans are fair to both the lender and the borrower. The required guidelines are set forth by the group of financial services corporations created by the United States Congress. These corporations are known as Government-Sponsored Enterprises, or GSEs.
Conforming loans are thus loans found to be in compliance with GSE guidelines. It follows that loans not meeting these set guidelines are known as non-conforming loans. There are also loans known as jumbo loans, simply because their amount is too high to meet GSE guideline limits.
Very little existed by way of guidelines when it came to residential mortgage loans prior to 1970. The United States government authorized Fannie Mae to purchase these types of loans as a lender in 1970. Universal documents pertaining to mortgages were developed in collaboration with Freddie Mac at that time. National standards for what is today known as the conforming loan were also created. This type of loan has much more liquidity than its non-conforming counterpart, since Fannie Mae and Freddie Mac are constantly looking to purchase conforming loans.
Only those loans that meet the criteria set by the Office of Federal Housing Enterprise Oversight are bought by Fannie Mae and Freddie Mac. Debt-to-income home buyer ratio limits and documents required before the loans can go through are examples of some criteria. The maximum loan amount is also considered a specific factor in that regard, based on the October-to-October changes in median home price. This makes demand for non-conforming loans quite drastically less as well, because Fannie Mae and Freddie Mac can only purchase, repackage and sell loans within the criteria set by the Office of Federal Housing Enterprise Oversight.
Also to note is that a temporary increase in the conforming loan limits for high-cost regions in the United States was incorporated into the 2008 economic stimulus package. While the bills were signed into law by President Bush on February 13, 2008, lenders were still choosing not to honor them as late as March 30, 2009. While it may not be something that directly affects potential home buyers, it is important to be aware of the underlying issues while considering to buy a house just the same.
Conforming loans are thus loans found to be in compliance with GSE guidelines. It follows that loans not meeting these set guidelines are known as non-conforming loans. There are also loans known as jumbo loans, simply because their amount is too high to meet GSE guideline limits.
Very little existed by way of guidelines when it came to residential mortgage loans prior to 1970. The United States government authorized Fannie Mae to purchase these types of loans as a lender in 1970. Universal documents pertaining to mortgages were developed in collaboration with Freddie Mac at that time. National standards for what is today known as the conforming loan were also created. This type of loan has much more liquidity than its non-conforming counterpart, since Fannie Mae and Freddie Mac are constantly looking to purchase conforming loans.
Only those loans that meet the criteria set by the Office of Federal Housing Enterprise Oversight are bought by Fannie Mae and Freddie Mac. Debt-to-income home buyer ratio limits and documents required before the loans can go through are examples of some criteria. The maximum loan amount is also considered a specific factor in that regard, based on the October-to-October changes in median home price. This makes demand for non-conforming loans quite drastically less as well, because Fannie Mae and Freddie Mac can only purchase, repackage and sell loans within the criteria set by the Office of Federal Housing Enterprise Oversight.
Also to note is that a temporary increase in the conforming loan limits for high-cost regions in the United States was incorporated into the 2008 economic stimulus package. While the bills were signed into law by President Bush on February 13, 2008, lenders were still choosing not to honor them as late as March 30, 2009. While it may not be something that directly affects potential home buyers, it is important to be aware of the underlying issues while considering to buy a house just the same.
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