The Rules for Conforming Mortgages

Conforming loan rules are set by secondary mortgage buyers Fannie Mae and Freddie Mac.
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Conforming mortgages are conventional home loans that meet Fannie Mae or Freddie Mac requirements for purchase in the secondary mortgage market. Most homebuyers have conforming mortgage loans, because the primary rule is that loans be for less than a set dollar amount. Although the specifics of conforming mortgages vary, the general rules remain the same.

Loan Amount

The most important distinction between a conforming loan and contrasting jumbo loans is the loan limit. For 2013, the maximum conforming loan amount in most housing markets was set at $417,000. The amount is limited because the secondary mortgage market is meant to give original loan processors access to more money to loan other homebuyers.

Some markets with higher home prices have higher conforming loan limits, with a maximum level of $729,750 in Los Angeles.

Down Payment

Conforming loans require a minimum down payment of 10 percent of the home purchase price. You do have to buy mortgage insurance on a conforming loan if your down payment is less than 20 percent, but you can get funding. Mortgage insurance protects the lender for the increased risk of financing a larger percentage of the home value.

Credit Requirements

To quality for a conforming loan, you need a credit score of 660 or higher if you pay at least 20 percent down. The minimum increases to 700 if your down payment is less than 20 percent.

Fannie Mae and Freddie Mac set rules to ensure that they are purchasing and supporting mortgage loans with a high potential for payoff. Prospective borrowers who don't meet basic credit requirements can look to government-backed programs such as the Federal Housing Administration's.

Debt-to-Income Requirements

Conventional lenders usually use a maximum debt-to-income guideline of 36 percent. This means your potential mortgage payment combined with other debt shouldn't exceed 36 percent of your monthly gross income.

Lenders have some flexibility if you have assets or an excellent credit score. However, under conforming loan rules, Fannie Mae sets a maximum debt-to-limit level of 45 percent.

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