Conforming Loan vs. Nonconforming Loan

Conforming loans are backed by Fannie Mae and Freddie Mac, and can’t exceed FHFA loan limits (typically $548,250). Nonconforming loans can be bigger but may cost more.
Barbara MarquandAug 13, 2021

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What is a conforming loan?

Conforming loans are mortgages that are under certain dollar amounts — known as conforming loan limits — which are set every year by the Federal Housing Finance Agency. Conforming loans also meet underwriting guidelines set by Fannie Mae and Freddie Mac, the government-sponsored entities that buy conforming loans. These behind-the-scenes companies provide a secondary market for mortgages, allowing lenders to package loans into investment bundles and sell them so they're able to lend again.

Both conforming and nonconforming loans are types of conventional mortgages. Conventional mortgages aren't backed by the federal government, unlike loans from the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture.

Conforming loan limits 2021

For 2021, the conforming loan limit for single-family homes is $548,250, but it can be higher in some expensive housing markets. For example, conforming loans can top out at $822,375 in Alaska and Hawaii; in Washington, D.C.; and in some counties, such as San Francisco.

To get a conforming loan, you’ll want to shop for homes in a price range that will allow you to stay under the conforming loan limit in your area. Use the tool below to find out what that limit is.

2021 conforming loan limits by county

Conforming loan benefits

Conforming loans have some advantages over nonconforming loans. Conforming loans:

  • Are often easier to qualify for.

  • Can have a lower mortgage interest rate.

  • May accept a lower down payment.

  • Can allow some wiggle room for the credit score needed to buy a home.

What is a nonconforming loan?

A nonconforming loan is a conventional mortgage that exceeds the FHFA conforming loan limits or is outside the Fannie Mae and Freddie Mac underwriting guidelines. The terms and conditions of nonconforming mortgages can vary widely from lender to lender, but the mortgage rates are typically higher because they carry greater risk for a lender.

Jumbo loans

Jumbo loans are one type of nonconforming loan. They're used for properties that cost too much for borrowers to stay under conforming loan limits. The criteria for getting a jumbo loan are stricter than the standards for a conforming loan.

Jumbo loans often have:

  • A minimum down payment requirement of 20% or more.

  • Tighter credit-qualifying criteria, with more scrutiny of your credit profile and income.

  • A higher mortgage interest rate.

Other nonconforming loans

Mortgage size is just one measure of nonconforming loans. Other factors can lead to the nonconforming loan label, including:

  • Credit history issues or a low credit score.

  • Too much debt in relation to how much you earn (your debt-to-income ratio).

  • A down payment of less than 20% of the home’s value, which affects your loan-to-value ratio.

One important note: A lower down payment doesn’t always result in a nonconforming loan. In fact, both Fannie Mae and Freddie Mac have 97% loan-to-value mortgage products. With these loans, you can make a 3% down payment and still get a conforming loan.

If you can’t qualify for a conforming mortgage, you might want to apply for an FHA loan. The Federal Housing Administration helps potential homeowners qualify for a mortgage by guaranteeing a portion of the loan. However, that backing will cost you additional fees.

Find conforming mortgage lenders

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