When you're in the market for a new home, you'll learn an entirely new vocabulary as you explore the many different types of mortgage loans and loan programs that are available. "Conforming loan programs" is among the new terms you'll learn that carries significant weight for people seeking federal housing financing through entities such as Fannie Mae or Freddie Mac.
Conforming loan programs are loan programs that meet the strict requirements these mortgage lenders have laid out for lenders to follow. For the most part, the loans must meet a specific spending limit. For most of the nation, that limit in 2020 is $510,400. What that means is that the maximum loan amount for conforming loans is $510,400. However, there are always exceptions.
When it comes to conforming loan programs, the exceptions occur in areas where housing prices are well above the average. Areas with higher than average conforming loan limits include:
- New York City
- Many cities in California
- Washington, D.C.
In these areas, the limits are relaxed to some degree. Some areas offer conforming loans for as much as $250,000 or more beyond "average" conforming loan limits.
Why Seek Conforming Loan Program Loans?
Many borrowers wonder: if the amount of money offered for a conforming loan program is so carefully monitored, why would consumers consider it? The truth is that the loan limits are adequate for affordable, safe homes in their designated areas. They are not overly restrictive and help to ensure that consumers are able to purchase desirable homes in their respective communities.
Of course, there are other benefits for using conforming loan programs as well, including:
- Relaxed qualifying standards.
- Lower mortgage interest rates (though credit scores do play a role).
- Reduced down payment requirements.
- May offer loans for people with lower credit scores.
For first time buyers who don't have large down payments or people with less than perfect credits, conforming loan programs can smooth over some of the flaws to help them get a mortgage they might not otherwise qualify for. The price you pay for that convenience is to choose a home below the maximum loan amount for a conforming mortgage loan.
If you're still wondering why conforming loan programs are so important to consumers, the answer is simple. Accessibility. These mortgage loans offer maximum loan amounts that are well above the average median home price within the U.S. of $320,000, making the dream of homeownership accessible to many more people.
For more information about conforming loan programs, contact a lender in your area.