Conforming loans provide low interest rates since they are almost guaranteed to be purchased by Fannie Mae or Freddie Mac, which allows more funds to be available for borrowers. However, these corporations have terms, such as maximum loan, that limit how much you can borrow. If you don’t meet their standards,You will need to apply for a non-conventional loan with slightly higher interest rates.
Fannie Mae and Freddie Mac are stockholder owned companies that purchase mortgages, package them into securities, and then resells them to investors. This allows banks and other financing companies to lend to more customers since their capital is not tied up in long-term loans.
Fannie Mae and Freddie Mac have strict requirements for purchasing loans. Basically, they want to lower their risk level so they put a cap on loan amounts, credit score, income level, and down payment.
Conforming Loan Amounts
each year Fannie Mae and Freddie Mac create new guidelines for loan amounts. In 2005, a mortgage limit for a single-family dwelling is $359,650. Limits for multiple family dwelling are extremely higher, roughly an additional $100,000 per family. Maximum loan amounts are also 50% higher in Alaska, Guam, Hawaii, and the Virgin Islands since property prices are higher.
Second mortgages also have their limit. In 2005 the limit was $179,825, but the total mortgaged amount of both loans could not exceed $359,650. As with first mortgages, second mortgages can also be 50% higher in designated areas.
There are other loan options if you don’t qualify for a conforming loan. If you need to borrow more than the maximum conforming loan amount, then you will want to apply for a huge loan. Because these types of loans are handled on a smaller scale, their rates are slightly higher than a conforming loan.
If you have poor credit or little down payment, you can use a subprime lender who specialized in lending to B/C type loans. You can expect to pay higher rates with these lenders, but many offer favorable terms. To find the best deal and to avoid scams, you must research your lender. Compare rates and terms until you find a perfect financing package.