Conforming Loans explanation
What are they?
Loans come in two types - conforming and non-conforming. In order to fully understand the difference, you first must know a little bit about Fannie Mae and Freddie Mac.
Freddie Mac, also known as Federal Home Loan Mortgage Corporation, is a corporation chartered by the federal government. It purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Freddie Mac also has products designed for those who might have a bit of problem getting a conventional mortgage, such as police officers or teachers.
Fannie Mae, or Federal National Mortgage Association, is a corporation also created by the federal government that buys and sells conventional mortgages as well as VA and FHA loans. VA stands for Veterans Administration and provides affordable loans for veterans and members of the military. FHA stands for the Federal Housing Administration. Those with not the best credit scores or who only have a small down payment usually obtain FHA-insured mortgages. Fannie Mae is very active. It provides funds for one in seven mortgages. It works to make mortgages more available and more affordable.
Non-conforming loans are above the loan limit set by Fannie Mae and Freddie Mac. The disadvantage of a non-conforming loan is that is has a higher interest rate than a conforming loan since it is above that limit. These non-conforming loans are also known as jumbo loans.