Mortgage terms and explanations

What is a conforming loan or conventional loan?

There are all sorts of mortgage loans but there were 3 major types

  1. Conventional loans (conforming loans)
  2. FHA Loans
  3. Sub-prime or non-conforming loans

The terms conventional or conforming loans are usually used to mean the same thing.  Simply put a conventional loan is a loan that you would get from your local bank if you walked into it.    Banks and lenders have set rules.  They have rules on

  • debt ratios… how much you make versus how much you owe in debt payments
  • employment history….. you usually need two years of recent continuous job history
  • housing history…. have you paid your past rent or past housing payments
  • credit score…..   there are 3 credit bureaus that have formulas that include factors such as account balances, account time lengths, payment history, types of account, and bad credit history such as bankruptcy, collections, judgements, and foreclosures
  • credit history……  They look at actual late payments or on time payments especially housing history

They “have a box of rules for mortgage loans”  So when you walk into a bank either you fit into the box of rules or you don’t.  You conform to the set of rules.  You are getting a “conforming loan”  because

  •  your income and debts conform or meet the standards of the banks rules.
  • you have good job history
  • you have a good credit score or good credit history

You meet their standards so you can get a conforming loan.  You can get a conventional loan.


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