What is a conforming loan?

In this post, we’re going to review the three different categories that loan sizes are typically divided up into by mortgage lending banks.

Mortgage banks organize the size of home loans into three separate categories. The first loan size is frequently called a conforming loan and this refers to loans that are $417,000 and under for single family residences in most counties. Now the reason they call this loan size conforming, is because it conforms to the loan limits that have been set by Fannie Mae. Depending on the type of property and the county that you live in, this conforming loan amount might be a little bit lower or higher, but in most scenarios the conforming loan refers to loan amounts of $417,000 and under.

The next loan size category that is frequently used, is referred to as a conforming high balance loan. This refers to home loans that are between $417,000 and $625,500. One thing to note, is that once your home loan goes above that $417K threshold, there will typically be an “adjustment” upwards with regard to the interest rate, meaning that the interest rate will be slightly higher.

Now the final loan size category is the Jumbo Loan. A jumbo home loan generally refers to a loan size that is above $625,500. As you go up in loan size, it becomes progressively more difficult to get approved for the home loan and because the bank is giving you more money, they will scrutinize your income, credit, and equity more than they would for a conforming loan.

Oftentimes loan guidelines will get stricter as you go up in loan size. For example, the minimum down payment or equity requirement will usually be higher for larger loan amounts and the minimum credit score you’d need will also usually be higher than if you were applying for a conforming loan.

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