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Conforming Loans (Fannie Mae and Freddie Mac)

Conforming loans are those that conform to Fannie Mae and Freddie Mac guidelines.  Conforming loans are often referred to as conventional loans, however a conventional loan simply means a traditional 30 year fixed mortgage, which can be obtained with most mortgage products, not just conforming ones.  Someone might want to pursue a conforming loan if they have 5% or more equity in the home (or a 5% or more down payment), and if their middle credit score is above 620.

The biggest benefits of conforming loans are that they have reduced mortgage insurance requirements and reduced inspection requirements, which makes them cheaper and easier to originate.  For a purchase loan, if you have less than a 20% down payment, or on a refinance transaction, if you have less than 20% equity, mortgage insurance will be required. However, there are more mortgage insurance options available than with government loans and the premiums are often lower as well.  The mortgage insurance will also drop off over time once your property value increases and your balance decreases to the point of having 20% equity.  Rates for 30 year terms are typically slightly higher than their government loan counterparts, however the reduced mortgage insurance requirement will usually result in a lower monthly payment when compared to an FHA loan.  There are no requirements for an up-front fee, like there are with all government loans.  In regards to inspections, typically the only one required would be the appraisal.  

Generally, the minimum down payment or equity position required to qualify for a conforming loan would be 5%.  There are expanded guidelines that will allow for as little as 3% down, however pricing deteriorates significantly with this lower down payment range and in those cases, an FHA loan is often a better option.  The minimum credit score required to qualify would be 620, although 640+ is preferred.  Required wait periods after significant derogatory credit events are longer than required for government loans (7 years from foreclosure and 4 years from short sale or bankruptcy). 

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