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Conforming Morgage Explained: Amounts + Limits
A Conforming Morgage ia a loan that conforms to the Underwriting Guidelines of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are the largest purchasers of morgages on the 'Secondary Market' so loans underwritten to their guidelines have a much greater chance of being purchased and resultantly have lower interest rates than Non-Conforming Morgages. So again, a Conforming Loan is simply one that meets the current underwriting guidelines of Fannie Mae or Freddie Mac.
It should be noted that these guidelines can (and often do) change on a yearly basis because each year Fannie Mae and Freddie Mac evaluate changes in mean home price; anything above that amount is considered Jumbo or Nonconforming (and is not eligible to be purchased by them on the Secondary Market).
The current conforming morgage limit is $417,000 with a few exceptions: Residents of Alaska Hawaii, Guam and the Virgin Islands have a loan limit that is fifty percent higher. As a side note, from 1984 on the limit for Second Morgages has been exactly fifty percent of whatever the current conforming morgage amount is...
Other Important Morgage Terms
Closing Costs -
Expenses incurred by the buyer and seller in a morgage transaction. There are two types of costs: recurring and non-recurring.
Non-recurring costs are one time transactional costs while recurring fees are costs associated with owning the property and recur month after month.
Closing Statement (Settlement Statement or HUD1) -
A detailed written summary of the financial settlement of a loan transaction, showing all charges and credits made, all cash received and paid.
Combined Loan-to-Value (CLTV) – The unpaid principal balances of all the morgages on a property divided by the property’s appraised value.
Community Property -
A form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Comps, Comparables -
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Construction Morgage -
A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.
Conventional Morgage -
Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming.
Convertibility Clause -
A clause in some ARMs which allows the buyer (borrower) to change to a fixed-rate morgage at a specified time.
Convertible Adjustable Rate Morgage (ARM) -
Some variable loans come with options to convert to a fixed loan based on a pre-determined formula, during a given time period.
Credit Report -
A report detailing a borrower's credit and payment history including: revolving and installment accounts; public records such as tax liens and judgments. This information is used to establish the risk involved with lending money.
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