Conforming and Non-Conforming Loans

One way home loans are differentiated is by their GSE eligibility. If the loan meets requirements set forth by Fannie Mae and Freddie Mac, it is considered a conforming loan. If the loan doesn’t meet all the underwriting requirements set forth by the pair of GSEs, it is considered “non-conforming.”

One of the main guidelines that determines whether a mortgage is conforming or not is loan amount. Generally, a mortgage with a loan amount below $417,000 is considered conforming, whereas any loan amount above $417,000 is considered a “jumbo loan.” However, in Alaska and Hawaii the confirming limit is $625,500.Note that the conforming limit may change annually, and has risen quite a bit in the past few years as housing prices skyrocketed.

A jumbo loan may meet all of Fannie Mae and Freddie Mac’s loan underwriting guidelines, but if the loan amount exceeds the conforming limit, it will be considered non-conforming and carry a higher mortgage rate as a result.

If your loan amount is on the fringe of the conforming limit, sometimes simply dropping your loan amount a few thousand dollars can lower your mortgage rate tremendously, so keep this in mind anytime your loan amount is near the limit.

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