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Key takeaways
- Conforming loans are mortgages that meet criteria set by the Federal Housing Finance Agency (FHFA). They’re eligible to be purchased by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
- Conforming loans abide by certain standards for borrower credit profiles, loan amounts, down payments and property types.
- The FHFA adjusts the conforming loan limits every November to account for changes in the housing market.
What is a conforming loan?
A conforming loan is a type of conventional mortgage that aligns with criteria set by the Federal Housing Finance Agency (FHFA). Loans that meet these standards are eligible for purchase by Fannie Mae and Freddie Mac. Selling mortgages reduces lenders’ risk and frees up more money to fund additional mortgages. Because of this, the majority of most lenders’ offerings are conforming loans.
Within conforming loans, borrowers still have options. Conforming loans can have fixed or adjustable rates and varying term lengths, with 15- and 30-year terms being the most popular.
Conforming loan limits and rules
These are some of the standards a loan and borrower must meet to be considered conforming and eligible for purchase by Fannie Mae and Freddie Mac:
- Loan limit: 2025’s limit for a single-family home in most markets is $806,500, but it can go up to $1,209,750 in higher-cost areas.
- Borrower credit score: You need a credit score of at least 620 to qualify for a conforming loan.
- Borrower debt ratios: Lenders prefer borrowers have debt-to-income (DTI) ratios of 36 percent or less, though they may allow up to 50 percent with specific compensating factors, such as a high credit score or lots of savings.
- Loan-to-value (LTV) ratio: Conforming loans require at least 3 percent down for a purchase or 5 percent equity for a refinance. However, if you put down less than 20 percent or have less than that in equity, you’ll need to pay private mortgage insurance (PMI) and will pay a higher interest rate.
The average cost of PMI is 0.46 percent to 1.5 percent of the loan amount per month, according to an analysis by the Urban Institute.
How the FHFA regulates conforming loans
The FHFA compares the increase or decrease in the average home price from October to October every year, as indicated by the Housing Price Index. It uses this percentage change as the basis to adjust loan limits. This method ensures that loan limits reflect the realities of the current real estate market and allows buyers continued access to conforming mortgages.
Pros and cons of conforming loans
Pros
- Low down payment: For conforming loans, the minimum down payment is 3 percent. This is much lower than the minimum down payment for a non-conforming jumbo loan, which is usually 10 percent at the very least.
- More readily available: Conforming loans’ popularity means you’ll have many different lenders to choose from. Plus, since the process is standardized, you may be able to close on your home more quickly and easily.
- You can avoid mortgage insurance: If you put at least 20 percent down on a conventional conforming loan, you won’t need to pay for private mortgage insurance. Even if you don’t put 20 percent down, you can have PMI removed once you reach 20 percent equity.
Cons
- Borrowing limits: The home you want to buy could exceed conforming loan limits, especially if you’re in an expensive market.
- Higher credit score needed: You need a credit score of 620 or higher for a conventional conforming loan, while some government-backed loans can be had for a score as low as 500.
- Limits on debts: The maximum DTI ratio allowed for a conforming loan is typically 36 percent. This might make it difficult for some borrowers to qualify.
Conforming vs. non-conforming loans
A non-conforming loan is one that doesn’t adhere to the FHFA’s standards. One example is a jumbo loan, which is a loan for an amount that exceeds an area’s conforming loan limit. Often non-conforming loan options are tailored to borrowers with credit challenges, little down payment savings or even a history of bankruptcy.
| Conforming loan | Non-conforming loan | |
| Eligible for purchase by Fannie Mae and Freddie Mac | Yes | No |
| Loan amounts can exceed FHFA limits | No | Yes |
| Includes government-insured loans | No | Yes |
Conforming vs. conventional loans
Both conforming loans and conventional loans refer to private (non-government) and commercial mortgage loans. A conforming loan meets specific criteria set by the FHFA, while a conventional loan is any loan that isn’t guaranteed or insured by the government.
In short: All conforming loans are conventional loans, but not all conventional loans are conforming loans.
| Conforming loan | Conventional loan | |
| Private, non-government-backed loans | Yes | Yes |
| VA, USDA and FHA loans | No | No |
| Jumbo loans | No | Yes |
How to get the best conforming loan for you
1. Check your credit report
As soon as you think you may want to buy a home, check your credit report and history at AnnualCreditReport.com. Look for out-of-date items and factual errors, and dispute any you spot. Even minor issues can result in a lower credit score.
2. Get your documents in order
Gather your paperwork for the mortgage application process. Lenders can now get a lot of information directly from banks and the IRS, but it’s still a good idea to have documents like payroll stubs, bank statements, retirement account statements, W-2 forms and tax returns handy.
3. Compare loan rates
Compare mortgage offers from at least three different lenders. Consider starting with your bank, assuming it offers mortgages, as well as a credit union or online lender. Review each lender’s rate, as well as its annual percentage rate, or APR, which includes the rate and some fees.
You can find conforming loan rates through Bankrate, which provides mortgage rates for both 30-year and 15-year loans daily. When comparing mortgage rates, consider the following:
- If you think interest rates will rise in the coming month or so, you might choose to lock your rate.
- Interest rates may differ depending on your credentials as a borrower. Beware of rates that seem low given your financial position; it could be that they also come with higher upfront costs.
- Remember that you can get either a fixed- or adjustable-rate mortgage. A fixed-rate mortgage generally ranges from 10 to 30 years, and the interest rate remains the same for the life of the loan. With an adjustable-rate mortgage, your interest rate stays fixed for an introductory period, usually for 3 to 10 years, and is typically lower than the rate for a comparable fixed-rate loan. After that period, the rate will fluctuate based on market factors.
You’ll be able to compare lenders’ rates and fees by getting preapproved. Preapproval can help expedite the financing process and uncover any issues related to your credit before they show up when you formally apply for a mortgage. Getting preapproved also helps demonstrate to a home seller that you’re a serious buyer.
4. Avoid excessive spending
Lenders will keep a close eye on your credit and spending right up until your mortgage closing date. Think of the time between your loan application and closing as a “quiet” period, when you spend as little as possible. Avoid applying for any new credit, such as a credit card or personal loan, and try not to make any large purchases.
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