Which statement best describes conforming loans?

Which statement best describes conforming loans?

• A. They meet FNMA and FHLMC standards
• B. They are always insured by PMI
• C. They are never backed by the government
• D. They are only for government-backed loans

Answer: (A)

Conforming loans are conventional mortgages that meet the underwriting guidelines and size limits set by Fannie Mae and Freddie Mac. This compatibility with FNMA and FHLMC is what makes a loan conforming, because it allows lenders to sell the loan on the secondary market to these two entities. They aren’t limited to government-backed programs; FHA and VA are separate programs and not considered conforming conventional loans. Private mortgage insurance is common but not universal—many conforming loans require PMI if the down payment is less than 20%, while others may not require it depending on the borrower's credit and down payment. The defining idea is the loan meeting FNMA and FHLMC standards so it can be sold to them.

Conforming loans are conventional mortgages that meet the underwriting guidelines and size limits set by Fannie Mae and Freddie Mac. This compatibility with FNMA and FHLMC is what makes a loan conforming, because it allows lenders to sell the loan on the secondary market to these two entities. They aren’t limited to government-backed programs; FHA and VA are separate programs and not considered conforming conventional loans. Private mortgage insurance is common but not universal—many conforming loans require PMI if the down payment is less than 20%, while others may not require it depending on the borrower's credit and down payment. The defining idea is the loan meeting FNMA and FHLMC standards so it can be sold to them.