Conforming loans are more easily available to an average borrower than non-confirming loans. The terms of conforming loans are also better as it is easier for the lender to make these loans without any risks or costs involved. However, conforming loans are made only to the financially prudent. This should give you even more incentive to be financially prudent.
Sold To A State Agency: Though conforming loans are originated by banks, they are soon sold to state agencies, such as Freddie Mac and Fannie Mae. The bank then uses the cash it has received to fund even more loans. Thus, the bank has very little trouble in making money from these loans and provides the best deals on them.
The state has set some criteria which are as follows:
Good Credit: As a borrower you are required to have good credit. This means that you must not have any delinquent accounts in the past 12 months. This also means that your debt-to-income ratio is less than 38%. This is a ballpark figure and may vary depending on which agency is refinancing the loan.
Money In The Bank: A borrower is also required to have significant savings. This includes having money in the bank for making a big down payment to the tune of 20%. It also includes having enough money to pay the closing charges. Some agencies would also require you to have enough money to pay two months payments in advance.
Stable Job: A borrower is required to have a stable job. This means working two years with the same employer and drawing out a consistent salary.
No wonder these stipulations are difficult to meet. There is a market for non-conforming loans as well. However, it is considerably expensive especially after the 2021 sub-prime mortgage.