What is a conforming loan?
A conforming loan is a mortgage that meets lending rules set by Fannie Mae and Freddie Mac and is within loan limits set by the Federal Housing Finance Agency (FHFA).
Conforming loans are the most common type of mortgage. If you have a credit score above 620 and a loan amount within $, there’s a good chance this is the type of home loan you’ll use.
If you’re considering this type of mortgage, here’s what you should know about conforming loan requirements, rates, and loan limits.
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About conforming loans
Conventional loans can be conforming — meaning they conform to Fannie Mae and Freddie Mac’s lending rules — or non-conforming (non-QM), meaning they don’t follow Fannie and Freddie’s guidance.
Most U.S. mortgages are conventional conforming loans. However, non-conforming loans can be useful in special circumstances. Examples of non-conforming mortgages include jumbo loans (which exceed the conforming loan limit) and bank statement loans (which don’t follow Fannie and Freddie’s guidelines for income documentation).
For home buyers with at least 5% down and a credit score above 620, a conforming loan is often the most affordable option. Those with a lower credit score or special circumstances (for example, veterans) might choose between a conforming loan and a government-backed loan.
Conforming loan requirements
To qualify for a conforming loan, you’ll need a:
- Credit score of 620 or better
- Debt-to-income ratio (DTI) lower than 45% in most cases
- Down payment of 3% or more
- Stable record of employment and income going back at least two years
As you can see, it’s not all that hard to qualify for a conforming loan. You don’t need 20% down or perfect credit. And lenders can often be flexible; if your finances are a little weaker in one area but stronger in another, that could help you get approved.
Keep in mind, though, that these are only baseline requirements set by Fannie Mae and Freddie Mac. The lenders that make conforming loans can set their own, stricter requirements if they choose.
Note that although Fannie Mae and Freddie Mac set the basic guidelines for conforming mortgages, these agencies are not mortgage lenders. The loans themselves are made by lenders, banks, and mortgage brokers; Fannie and Freddie’s role is in the background. You can apply for a conforming mortgage with just about any lender you choose.
Conforming loan programs
Fannie and Freddie have a wide range of conforming mortgage products tailored to meet individual needs.
Each product from Fannie tends to be very similar to its counterpart in Freddie’s portfolio. But sometimes there are small differences that are unimportant to most borrowers but critical to a few. So, if you have unusual needs, be sure to read up on the details of each loan or talk to a loan officer to make sure you’re choosing the right product for you.
Fannie Mae loan programs
Fannie lists its products for single-family homes in broad categories:
Low down payment conforming loans:
- HomeReady: 3% down, flexible income guidelines
- 97% LTV Options: 3% down, can help qualified first-time buyers and some refinances
- HFA Preferred: Best for low- and moderate-income borrowers who are working with their state or local housing finance agency
Conforming loans for home renovation, construction, and energy improvements:
- Homestyle Renovation: Finance home improvements and repairs as part of the purchase or refinance mortgage
- Construction products: Finance new-home construction projects
- Homestyle Energy: Finance upgrades to reduce utility costs and improve the comfort and safety of your next or existing home
Rural areas, underserved communities, and down payment assistance programs:
- Manufactured housing: Conforming loans for manufactured homes including MH Advantage
- Native American lending: Financing opportunities for Native American Communities both on and off tribal trust and restricted lands
- Down payment assistance: Can help with down payments and closing costs
- Shared equity programs: For those using Community Land Trusts or similar to get onto the homeownership ladder
Affordable conforming loan refinance programs:
- RefiNow: Expanded eligibility requirements for lower-income homeowners
- High LTV Refinance: You may be able to refinance your existing Fannie Mae loan, even if you have limited home equity (meaning your mortgage balance is close to your home’s value)
Freddie Mac loan programs
Freddie Mac has its own versions of most or all those conforming loans. But it calls them by different names. For example, Home Possible is its version of HomeReady. And CHOICERenovation is what it calls Homestyle.
Mostly, you’ll be hard pressed to tell Freddie and Fannie’s products apart. So work with your loan officer to pick which is better for you.
Conforming loan limits
Fannie and Freddie are both regulated by the Federal Housing Finance Agency (FHFA), which is why their loan products are so similar. And, each November, the FHA updates its loan limits for the following year.
These limits set the maximum amount you can borrow using a conforming loan. Most single-family homes in the U.S. are covered by the standard loan limit, which is $ in 2022.
However, if you’re buying a home in an area with above-average home prices, you may be able to borrow more: Anything between $ and $, depending on how high home prices are in your area.
Conforming loan limits for 2022
|Standard Loan Limit||High-Cost Area|
Conforming loan rates and PMI
Conforming loans are considered low-risk thanks to their backing from Fannie and Freddie. That means lenders can typically offer low rates on these mortgages.
However, be aware that conforming loan rates are heavily dependent on your personal finances; in particular, on your credit score and down payment. The better your score and the bigger your down payment, the lower your interest rate will be.
Another thing to note is that conventional loans with less than 20% down require private mortgage insurance (PMI). This additional monthly fee helps protect lenders because low-down-payment loans are considered riskier. On the bright side, conforming loan PMI can be removed later on, whereas FHA mortgage insurance is often permanent.
Conforming loan rates are often the most competitive on the market, aside from VA loan rates. But when this was written, mortgage rates were very volatile. And, when markets are disrupted, comparative rates across different mortgage types can temporarily fall out of alignment.
So check mortgage rates today and compare them across different loan types. Pay as much attention to the annual percentage rate (APR) as the raw mortgage rate. APRs can better show the true cost of any loan because they factor in loan costs.
Conforming loan FAQ
A conforming loan is a type of conventional loan. All conforming loans are conventional, meaning they’re not backed by the federal government. But not all conventional loans are conforming, because conforming loans must meet lending standards set by Fannie Mae, Freddie Mac, and the FHFA.
A conforming loan meets guidelines set by Fannie Mae and Freddie Mac, while a non-conforming loan generally does not. Non-conforming loans might help borrowers with large loan amounts, low credit, or non-traditional income who are outside the conforming loan guidelines. However, non-conforming loan rates are typically higher than conforming loan rates.
You can easily find out if you have a conforming loan by using the loan lookup tools on Fannie Mae and Freddie Mac’s websites. You’ll need to supply your name, street address, and the last four digits of your social security number. Be sure to visit both these sites, because either agency might own your mortgage.
An FHA loan is a government-backed loan so it’s neither conventional nor conforming. It has a lower credit score threshold (580) than conforming loans (620). And it needs a bigger down payment: 3.5 percent of the home’s value rather than Fannie and Freddie’s 3 percent. Another difference is that FHA mortgage insurance premiums (MIP) typically last the life of the loan whereas conventional PMI falls off once your loan hits 78 percent loan-to-value (LTV).
Conforming loans typically have the best interest rates for borrowers with good credit. The exception is for veterans and service members who can qualify for a VA loan. VA mortgage rates are often lower than conventional rates at any credit level.
A conforming loan is usually the best bet if you have great credit. Even with a low down payment, conforming loans are typically cheaper than FHA for borrowers with high FICO scores. The exception is for veteran borrowers who can get a VA loan and borrowers in rural areas who qualify for a zero-down USDA loan. Of course, every situation is unique, and you will work closely with your loan officer or mortgage broker to find the best loan product for you.