Making the decision to buy a home can be stressful. There are many different things that you will need to consider to ensure you are investing in the right property, and financing is at the top of the list.
Most buyers use a mortgage loan to spread the cost of the home out over a number of years. The right loan will help you reduce the total cost of your home and give you the ability to make your monthly mortgage payments with ease.
It can be beneficial to consider a conforming loan as you shop around for mortgage products in preparation for a real estate purchase.
What Is a Conforming Loan?
In order to understand why a conforming loan might be your best option, you need to know what a conforming loan is. The simplest definition of a conforming loan is a mortgage that meets Freddie Mac and Fannie Mae criteria.
Freddie Mac and Fannie Mae are government-sponsored entities that purchase mortgages on the secondary market.
Although the mortgage that you sign for when purchasing your home will likely not be through Fannie Mae or Freddie Mac, it is common for these entities to buy mortgages in bulk on the secondary market . They will then take over the administration of your mortgage.
Why Is a Conforming Loan Beneficial?
You can enjoy a number of benefits if you choose to make sure you are investing in a conforming loan.
The first advantage is the ability to have your mortgage purchased by a government-sponsored entity. Both Freddie Mac and Fannie Mae offer competitive interest rates. The lower interest rate on a conforming loan can save you a significant amount of money over the life of the loan, which reduces the total cost of your home.
You will also find that the down payment percentage required for a conforming loan is much lower than the down payment required to secure a non-conforming loan.
Is a Conforming Loan Right for You?
You must take several factors into consideration when determining if a conforming loan is the right mortgage product for you.
In order to meet Freddie Mac and Fannie Mae criteria, your mortgage cannot exceed the maximum loan limit set by the Federal Housing Finance Agency. This means that you will need to make sure the purchase price of your home is under the maximum limit to take advantage of the benefits a conforming loan can offer.
You should also consider your financial situation. If you don't have a lot of money available for a down payment, then a conforming loan program is your best option.