Conforming loans have low interest rates because Fannie Mae or Freddie Mac almost always buys them. This means that more money is available for borrowers. But these businesses have rules, like "maximum loan," that limit how much you can borrow. If you don't meet their requirements, you will have to apply for a non-conventional loan with slightly higher interest rates.
Buyers of loans
Fannie Mae and Freddie Mac are companies that are owned by their stockholders. They buy mortgages, turn them into securities, and then sell those securities to investors. This means that banks and other lenders can lend to more people because their money isn't tied down in long-term loans.
Fannie Mae and Freddie Mac have strict rules about which loans they will buy. Basically, they want to lower their risk, so they put limits on loan amounts, credit scores, income levels, and down payments.
Typical Loan Amounts
Fannie Mae and Freddie Mac make new rules about loan amounts every year. In 2005, the most you can borrow on a single-family home is $359,650. The limits for homes with more than one family are much higher, about $100,000 more per family. Since property prices are higher in Alaska, Guam, Hawaii, and the Virgin Islands, the most you can borrow is 50% more.
The same is true for second mortgages. In 2005, the most you could borrow was $179,825, but the total of both loans' mortgages could not be more than $359,650. Second mortgages can be 50% higher in certain areas, just like first mortgages can be.
Non-standard loans
If you don't meet the requirements for a conforming loan, you can still get a loan. If you need to borrow more than the most you can get with a "conforming loan," you should apply for a "jumbo loan." Because these loans are handled on a smaller scale than a conforming loan, their rates are slightly higher.
If you have bad credit or don't have much money for a down payment, you can work with a subprime lender who specialises in B/C loans. With these lenders, you can expect to pay higher rates, but many of them have good terms. You should look into your lender to find the best deal and avoid scams. Compare the rates and terms of different loans until you find one that works for you.
