Conforming loan
A conforming loan is one that meets Fannie Mae and Freddie Mac guidelines and can therefore be sold to them. The most visible of those guidelines is the loan limit, but it is not the only one — credit, documentation, property type and debt ratios all have to fall inside agency parameters.
Conforming versus conventional#
These two words get used interchangeably and mean different things.
Conventional means not insured or guaranteed by a government agency. It is a statement about who stands behind the loan.
Conforming means meeting agency purchase guidelines including the size limit. It is a statement about whether the loan can be sold.
Every conforming loan is conventional. Plenty of conventional loans do not conform — because they are too large, or because something in the file falls outside the guidelines.
The limit#
The maximum conforming loan amount is set annually by the Federal Housing Finance Agency and moves with house prices.
Two details matter more than the headline figure. It varies by county, with substantially higher limits in designated high-cost areas. And it is higher for two-, three- and four-unit properties than for single-family homes, which occasionally makes a duplex financeable on conforming terms where a comparable single-family house would not be.
Because the number changes every year, quoting it here would guarantee this page is wrong within months. Look up the current figure for the specific county.
Why the distinction shows up in your rate#
Liquidity. A lender writing a conforming loan can sell it, recover its capital, and lend again. A lender writing a loan nobody will buy is committing its own balance sheet for thirty years.
That difference is priced, and it is why crossing the conforming limit by a small amount can move the rate noticeably. The loan did not become riskier. It became harder to sell.
The threshold effect#
Sitting just above the limit is an expensive place to be, and it is often avoidable.
A slightly larger down payment that brings the loan under the county limit can save more over the life of the loan than the extra cash costs. So can splitting the financing, though second-lien structures carry their own complications.
This is arithmetic worth running before an offer rather than after, because after the contract is signed the options narrow to whatever cash is available.
What non-conforming does not mean#
A non-conforming loan is not a bad loan or a last resort. Jumbo lending is a large, competitive market, and underwriting there is frequently stricter than agency guidelines rather than looser — more reserves, more documentation, higher credit expectations.
It is simply a different market, priced by different buyers.