Conforming vs Non-Conforming Loans – What’s the Difference?

In your home financing search, you may have come across the terms ‘conforming’ and ‘non-conforming’ loans and wondered, what exactly is the difference between the two? In this post, we’ll explore conforming and non-conforming home loans and highlight their key differences.

Conforming Home Loans

You’ve most likely heard of government sponsored enterprises Fannie Mae and Freddie Mac. Well, these two GSEs sort of set the standards for home loans in the United States and most mortgages have to comply with those standards in order to be insured. In other words, Fannie and Freddie set certain rules that the majority of U.S. mortgages follow  – one of which is size limit.

Conforming loans refer to mortgages that fall within (or “conform” to) certain Fannie/Freddie guidelines, specifically the size of the loan. In most counties across the nation, the current maximum size of a conforming loan is $417,000. There are exceptions for counties that are considerd “high cost.” The conforming limit for those areas are higher.

In addition to the size limit, conforming loans must also meet Fannie Mae and Freddie Mac guidelines for the borrower’s debt-to-income ratio (DTI), and the loan must meet certain documentation requirements.

Due to their typically lower interest rates, conforming loans are very popular among the nation’s home buyers.

Non-Conforming Home Loans

Non-conforming home loans are mortgages that do not meet Fannie Mae or Freddie Mac guidelines. The most well-known non-conforming loan is the jumbo mortgage, though there are other non-conforming loan products that exist.

With a jumbo mortgage, the size of the loan exceeds the conforming limits (again, usually $417,000) for the area in which the home is being purchased. For example, if you live in a county where the conforming loan limit is $417,000 and you want to buy a $500,000 home, you will likely need a jumbo mortgage.

Because jumbo loans don’t conform to the Fannie/Freddie standards, they’re more difficult to sell on the secondary market, i.e. they’re a higher risk product for lenders. Lenders usually offset this financial risk by charging a higher interest rate on jumbo financing products.

Where Can I Learn More?

If you’d like to explore conforming or jumbo financing opportunities with us, please don’t hesitate to give us a call

We’d be happy to provide you with details on our jumbo loan offerings as well as a free, no-obligation jumbo mortgage rate quote.