A
mortgage loan that
Freddie Mac and
Fannie Mae are allowed to
buy. These organizations buy mortgages from the original
lenders so as to reduce
risk to the lenders and, thereby, maintain a smooth flow of mortgage
credit. Conforming loans must meet certain guidelines. Included among these guidelines are requirements, such as a maximum
debt-to-income ratio for the
property owner, but the most important rule states that neither organization may buy a loan worth more than a certain amount. This amount changes every year according to changes in the median home
price. See also:
Jumbo loan,
Mortgage-backed security.