Compliant Loan Guide 2022 | Loan requirements and limits
What is a conforming loan?
A conforming loan is a mortgage that follows the lending rules set by Fannie Mae and Freddie Mac and meets the loan limits set by the Federal Housing Finance Agency (FHFA).
Conforming loans are the most common type of mortgage loan. If you have a credit score above 620 and a loan amount below $chances are this is the type of home loan you will use.
If you’re considering this type of mortgage, here’s what you need to know about compliance with loan requirements, rates and limits.
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About Conforming Loans
Conforming loans are a type of conventional loan. This means they are not federally backed (unlike FHA, VA, and USDA loans).
Conventional loans can be compliant – meaning they comply with Fannie Mae and Freddie Mac’s loan rules – or non-compliant (non-QM), meaning they don’t follow Fannie and Freddie’s advice. .
Most US mortgages are conventional conforming loans. However, non-conforming loans can be useful in special circumstances. Examples of non-conforming mortgages include jumbo loans (which exceed the conforming loan limit) and bank statement loans (which do not follow Fannie and Freddie’s guidelines for documenting income).
For homebuyers with at least 20% down payment and a credit score above 620, a conforming loan is often the most affordable option. Those with a lower credit score or special circumstances (eg, veterans) can choose between a conforming loan and a government guaranteed loan.
Compliance with loan requirements
To qualify for a conforming loan, you will need a:
- Credit score of 620 or better
- Debt to income ratio (DTI) less than 45% in most cases
- Down payment of 3% or more
- Stable record of employment and income going back at least two years
As you can see, it’s not that hard to qualify for a conforming loan. You don’t need a 20% down payment or perfect credit. And lenders can often be flexible; if your finances are a little weaker in one area but stronger in another, this could help you get approved.
Keep in mind, however, that these are just basic requirements set by Fannie Mae and Freddie Mac. Lenders making conforming loans can set their own stricter requirements if they wish.
Note that although Fannie Mae and Freddie Mac set the basic guidelines for conforming mortgages, these agencies are not mortgage lenders. The loans themselves are made by lenders, banks and mortgage brokers; The role of Fannie and Freddie is in the background. You can apply for a conforming mortgage with any lender of your choice.
Conforming Loan Programs
Fannie and Freddie have a wide range of compliant mortgage products tailored to meet individual needs.
Each Fannie product tends to be very similar to its counterpart in Freddie’s portfolio. But sometimes there are small differences that are unimportant to most borrowers, but essential to a few. So if you have any unusual needs, be sure to read the details of each loan or speak to a loan officer to make sure you’re choosing the right product for you.
Fannie Mae Loan Programs
Fannie’s Lists its products for single-family homes in broad categories:
Conforming Low Down Payment Loans:
- HomeReady: 3% down payment, flexible income guidelines
- 97% LTV options: 3% down payment, can help first-time qualified buyers and some refinances
- Favorite HFA: Ideal for low-to-moderate income borrowers who work with their national or local housing finance agency
Conforming loans for home renovation, construction and energy improvements:
- Home style renovation: Finance home improvements and repairs as part of mortgage purchase or refinance
- building products: Financing new home construction projects
- Home Style Energy: Finance upgrades to reduce utility costs and improve the comfort and safety of your next or existing home
Rural areas, underserved communities and down payment assistance programs:
- Prefab housing: Compliant Loans for Manufactured Homes including MH Advantage
- Native American Loan: Funding Opportunities for Native American Communities Both On and Off Tribal Trust and Restricted Lands
- Down payment assistance: Can help with down payments and closing costs
- Shared action programs: For those using community land trusts or similar to access the homeownership ladder
Compliant and Affordable Loan Refinance Programs:
- RefiNow: Expanded eligibility criteria for low-income homeowners
- High LTV refinance: You may be able to refinance your existing Fannie Mae loan, even if your home equity is limited (meaning your mortgage balance is close to the value of your home)
Freddie Mac loan programs
Freddie Mac has its own versions of most or all of these conforming loans. But he calls them by different names. For example, Home Possible is its version of HomeReady. And CHOICERenovation is what it calls Homestyle.
Most of the time, you will find it hard to tell Freddie and Fannie products apart. So work with your loan officer to choose what’s best for you.
Compliant Loan Limits
Both Fannie and Freddie are regulated by the Federal Housing Finance Agency (FHFA), which is why their loan products are so similar. And, each November, the FHA updates its loan limits for the following year.
These limits set the maximum amount you can borrow with a conforming loan. Most single-family homes in the United States are covered by the standard loan limit, which is $ in 2022.
However, if you are buying a home in an area where home prices are above average, you may be able to borrow more: anything between $ and $depending on the high house prices in your area.
Compliant loan limits for 2022
|Standard loan limit||High cost area|
You can find the limit that applies where you want to buy using a interactive map on the FHFA website. If you need to borrow more, you can turn to a jumbo loan.
Lending rate and PMI compliance
Conforming loans are considered low risk thanks to their support from Fannie and Freddie. This means that lenders can usually offer low rates on these mortgages.
However, be aware that conforming loan rates are highly dependent on your personal finances; in particular, on your credit score and your down payment. The higher your score and the larger your down payment, the lower your interest rate will be.
Another thing to note is that conventional loans with less than 20% down payment require private mortgage insurance (PMI). These additional monthly fees help protect lenders, as low down payment loans are considered riskier. On the bright side, the conforming loan PMI can be waived later, while FHA mortgage insurance is often permanent.
Compliant loan rates are often the most competitive on the market, aside from VA loan rates. But when this was written, mortgage rates were very volatile. And, when markets are disrupted, comparative rates for different types of mortgages can temporarily become misaligned.
So check mortgage rates today and compare them between different types of loans. Pay as much attention to the annual percentage rate (APR) as to the gross mortgage rate. APRs can better show the true cost of any loan because they take into account the costs of the loan.
Conforming Loan FAQs
A conforming loan is a type of conventional loan. All conforming loans are conventional, which means they are not guaranteed by the federal government. But not all conventional loans are compliant, as compliant loans must meet lending standards set by Fannie Mae, Freddie Mac, and the FHFA.
A conforming loan meets the guidelines set by Fannie Mae and Freddie Mac, while a non-conforming loan does not. Non-conforming loans can help borrowers with large loan amounts, low credit, or non-traditional incomes that do not meet conforming loan guidelines. However, non-conforming loan rates are generally higher than conforming loan rates.
You can easily find out if you have a conforming loan by using the loan finder tools on the Fannie Mae and Freddie Mac websites. You will need to provide your name, address and the last four digits of your social security number. Be sure to visit both these sites because either agency may own your mortgage.
An FHA loan is a government guaranteed loan, so it is neither conventional nor conforming. It has a lower credit score threshold (580) than conforming loans (620). And it takes a bigger down payment: 3.5% of the value of the house rather than Fannie and Freddie’s 3%. Another difference is that FHA Mortgage Insurance Premiums (MIPs) generally last for the life of the loan, while conventional PMI declines once your loan reaches 78% of loan-to-value (LTV).
Conforming loans generally have the best interest rates for borrowers with good credit. The exception is for veterans and military personnel who qualify for a VA loan. VA mortgage rates are often lower than conventional rates, regardless of credit level.
A conforming loan is usually the best bet if you have good credit. Even with a low down payment, conforming loans are generally less expensive than FHA for borrowers with high FICO scores. The exception is veteran borrowers who can get a VA loan and borrowers in rural areas who are eligible for a USDA zero loan. Of course, every situation is unique and you will work closely with your loan officer or mortgage broker to find the best loan product for you.
The information contained on The Mortgage Reports website is provided for informational purposes only and does not constitute advertising for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent company or affiliates.