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Conforming Loans

A "conforming" mortgage loan is a loan where the borrower must meet strict income, credit, and resource guidelines, and the collateral property must meet appraisal, condition, and other guidelines.

Once closed, the mortgage loans are usually grouped into large portfolios and sold on the financial markets. Because these portfolios are composed of mortgage loans that have met stringent criteria, they are considered to be safe investments. Hence, "conforming" real estate mortgage loans command attractive interest rates for qualified borrowers.VA and FHA-guaranteed loans, as well as traditional bank mortgage loans are primary examples of "conforming" lenders.

You will probably qualify for a "conforming" mortgage through a bank or mortgage company if you have a stable job history, meet down payment requirements, have paid your rent or mortgage on time each month for the last one to two years, and have made only one or two late payments total on other installment or revolving accounts during that same period. (Note: Any payment received by the creditor within 30 days after the due date will probably be considered "On-time")

Any outstanding judgments or collection activities against you will most likely need to be settled before any lender will give your application serious consideration. Most financial institutions offer borrower "pre-qualification" at no charge.

Pre-qualification gives the borrower a degree of confidence that he can obtain suitable financing through a particular financial institution. However, as the pre-qualification process relies heavily on unverified statements of income and creditworthiness by the potential borrower, and assumes that the property to be purchased will meet certain collateral guidelines, "pre-qualification" by no means represents a commitment by the financial institution.

Don't be discouraged if an institution turns you down. Just as different banks and mortgage companies offer different rates and closing costs, they also have different underwriting criteria and personnel who interpret situations differently. A reasoned explanation for past career or financial instability can positively influence lender decisions as well.