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The world of mortgage lending has expanded in recent decades
with the creation of a number of types of mortgage loans.
Borrowers no longer need to accept only the traditional
type of mortgage lending, with its attendant interest rate.
Instead, borrowers can shop around based on their needs.
The conforming loan is one of the options available for
mortgage loans.
A conforming loan is made primarily through Freddie Mac
and Fannie Mae. These two lending companies are publicly
traded companies but undergo heavy government regulation.
These companies purchase mortgage packages from primary
lenders and then deal with the consumer indirectly. After
purchasing mortgages from primary lending institutions,
the secondary companies package the loans together and sell
the assets as securities. This system of financing allows
conforming loans to have lower interest rates than traditional
loans.
These loans also have stringent income and credit requirements.
If you have excellent credit, a conforming loan can give
you the best deal you will find. Different conforming companies
set their credit requirements, but most of them require
a credit score of at least 680 to qualify. The credit requirements
are in place because the secondary buyers need to feel confident
that the homeowners will not default on the mortgage loan.
The biggest drawback to the conforming loan is that the
lenders cannot go above the current conforming rate, which
is set at $417,000 for 2006. One option for dealing with
this drawback is to pay cash for the amount of the loan
you need above the conforming amount. Because of this restriction,
the people who get these loans typically live in lower-cost
housing markets.
A type of funding, called piggyback lending, is available
for some borrowers who cannot pay cash for the amount above
the conforming limit but who qualify credit-wise. This type
of financing puts the mortgage in two separate mortgages
and can work for homeowners who intend to stay in their
home at least 15 years.
Conforming loans are not available only for first mortgages.
There are refinancing loans that are conforming as well,
but the amount that one can refinance into a conforming
loan stays around $100,000 less than the amount permitted
for an original loan. This refinancing conforming loan is
a good goal for homeowners who will improve their credit
and decrease their mortgage over the first few years of
loan because of the substantial savings in interest over
time.
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