Fannie Mae and Freddie Mac Conforming Loan Standards

Fannie Mae and Freddie Mac are Government Sponsored Enterprises (GSE) that set the lending standards used by banks. They set terms such as limits on the maximum loan amount, down payment requirements, credit score requirements, and more. When banks make loans that meet these standards, they are called “conforming loans.” Banks are always able to sell conforming loans to other lenders or to Fannie Mae / Freddie Mac. Lenders view these loans as safe because they all meet the same lending standards.

If you cannot meet the conforming lending standards (i.e. your needed loan exceeds the limit or you have a poor credit score), a bank may still be willing to give you a mortgage. Instead of using the standards set by the GSEs, the bank will use its own requirements. The bank will not be able to sell your non-conforming mortgage to Fannie Mae or Freddie Mac. It may also have a more difficult time selling the mortgage to other lenders. Because of the perceived risk of default and the difficulty of selling your loan on the secondary market, the bank will give you a higher interest rate. Read more…