What are "conforming loans"?

Conforming loans are those that align with the established guidelines put forth by government-sponsored enterprises such as Fannie Mae and Freddie Mac. These guidelines pertain to various factors, including loan amount limits, creditworthiness of the borrower, debt-to-income ratios, and documentation requirements. By adhering to these standards, conforming loans typically allow for better interest rates and more favorable borrowing terms, which makes them accessible to a broader range of borrowers.

When loans meet these criteria, they are more likely to be sold in the secondary mortgage market, which helps maintain liquidity and stability in the housing finance system. This is especially important during periods of economic volatility, as it ensures that lenders can continue to offer loans without being overly exposed to risks.

The other options mentioned do not accurately describe conforming loans: they either relate to loans that are not linked to the essential criteria set by these federal entities or refer to conditions that fall outside the specific guidelines, such as loan amounts exceeding the established limits.