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Conforming Loan
A mortgage that meets Fannie Mae or Freddie Mac guidelines for purchase on the secondary market.
Definition
A conforming loan meets the underwriting guidelines and loan limits established by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages from lenders. Conforming loans have maximum loan amounts (adjusted annually and varying by county), borrower DTI limits, credit score minimums, and specific property and documentation requirements. Because conforming loans can be sold to Fannie/Freddie, they typically offer the lowest interest rates available. However, conforming guidelines limit investors to 10 financed properties and require full income documentation, which becomes restrictive as a portfolio grows. This limitation is one of the primary reasons investors turn to DSCR lending.
How This Relates to DSCR Loans
DSCR loans fill the gap when investors exceed conventional conforming loan limits (10 financed properties) or cannot document income through traditional means.
Related Terms
Non-QM (Non-Qualified Mortgage)
A mortgage that doesn't meet the Consumer Financial Protection Bureau's qualified mortgage standards.
Debt-to-Income Ratio (DTI)
The percentage of gross monthly income used to pay debt obligations, a key metric in conventional lending.
Underwriting
The process by which a lender evaluates the risk of a loan application before approving it.
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
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