Understanding Conforming Loans: Guidelines and Benefits

If you’ve been shopping around for mortgage lenders, you’ve probably come across conforming and non-conforming loans. While you can use either option to finance your home purchase, assuming you meet the lending criteria, one might be better for you than the other.

Conforming loans have their own guidelines, as determined by Fannie Mae and Freddie Mac. They also have certain benefits and limits. Learn more about what conforming loans are, how they work, how to qualify, and the key differences between them and non-conforming loans.

What is a conforming loan and how does it work?

A conforming loan is a home loan that meets the requirements set by Freddie Mac and Fannie Mae, two government-sponsored enterprises. These loans must also adhere to the Federal Housing Finance Agency’s (FHFA) maximum loan limits.

All conforming loans are also conventional loans. However, not all conventional loans are conforming. The ones that are conforming are those that meet the Fannie Mae or Freddie Mac guidelines.

The main types of conforming loans are:

• Conventional fixed-rate mortgage loans: These loans have a fixed interest rate. For borrowers, this means predictable monthly payments as the rate stays the same for the life of the loan. Only payments for property taxes and homeowners insurance may change.
• Conventional adjustable-rate mortgages: These loans have an adjustable interest rate that changes with the market. Adjustable-rate mortgages may initially have a lower interest rate than fixed-rate loans, but the rate can change over time. For borrowers, this means monthly payments are less predictable.
• Conforming jumbo loans: These loans have higher loan limits based on the county. They still adhere to Freddie Mac and Fannie Mae lending criteria. These loans aren’t available in all counties.

Freddie Mac and Fannie Mae have very specific guidelines lenders must meet before offering conforming loans. 

Once a lender — usually a bank, credit union, or private lender — has issued a loan, it can be sold to Freddie Mac, Fannie Mae, or another aggregator. The aggregator can then decide whether to repackage the loan or keep it to collect interest.

From the borrower’s perspective, not much changes when this happens. The original terms and conditions outlined in the loan agreement remain the same. You’ll typically continue making payments to your original servicer as well unless otherwise indicated.

Conforming loans typically have stricter requirements than non-conforming loans. However, they also tend to have lower interest rates. This makes them potentially more affordable for first-time homebuyers and low- and moderate-income borrowers with good credit.

Conforming loan limits: What you need to know

The FHFA changes the conforming loan limits each year, largely based on housing market changes. The new loan limits reflect changes to the average home price in the U.S. Limits vary based on where you live.

Conforming loan limits are set based on either of the following:

• National baseline limit: In 2024, the conforming loan limit was $766,550 throughout much of the country. However, housing prices increased by 5.21% from Q3 2023 to Q3 2024. Because of this, the FHFA increased the loan limit to $806,500 for 2025.
• High-cost area limit: Since houses are inherently more expensive in some parts of the U.S., the high-cost area limit reflects that. In 2025, the limit is $1,209,750, which is 150% of the national baseline.

Benefits of choosing a conforming loan

Conforming loans have several advantages over non-conforming loans that make them appealing to potential homebuyers.

“One of the benefits of conforming loans is that they may carry lower interest rates compared to non-conforming loans,” says Josh Jampedro, vice president of Home Loan Advisors.

In the case of conforming adjustable-rate mortgages, the interest rate can fluctuate over time. However, it’s often lower than fixed-rate mortgages at the beginning. This can be especially beneficial for borrowers who need lower monthly payments but anticipate a pay increase or more room in their budget later. It can also be helpful for those intending to sell their home before the lower-rate period ends.

Conforming loans also tend to have lower down payment requirements. Some conventional loans, for example, require as little as 3% down.

Last but not least, conforming loans have very straightforward criteria compared to non-conforming loans.

“The process is very well defined which allows for an easier understanding of what the guidelines that need to be met are,” Jampedro says.

Differences between conforming and non-conforming loans

Before choosing a conforming or non-conforming loan, it’s important to understand the key differences.

In short, conforming loans are those that meet the Fannie Mae or Freddie Mac guidelines. Non-conforming loans are any mortgages that don’t meet these guidelines.

“Non-conforming loans are there to fill in gaps where a client simply does not qualify based on conforming guidelines. Going outside the box, so to speak, carries risk for the lender, and these non-conforming loans are typically priced accordingly for that risk,” says Matt Schwartz, co-founder of VA Loan Network.

Conforming loans are more standardized than non-conforming loans and have maximum loan amounts. The qualifications, cost, and other features of non-conforming loans can vary from one lender to another.

The types of non-conforming loans are also different. They include:

• Specialty loans for borrowers with poor credit: These typically have higher interest rates, but don’t require as much income documentation. Options include interest-only loans and loans in which the balance can increase.
• Government-backed loans: These include FHA loans and VA loans, which don’t adhere to conforming loan limits.
• Other niche loan programs: These loans are geared toward homebuyers with unusual circumstances, like self-employed individuals or doctors who’ve recently graduated. Some programs allow for the purchase of non-standard properties, like larger lots (10 acres or more) or those that generate agricultural income.

“Conforming loans can be sold and have lower interest rates,” adds Andrea Viscuso, licensed real estate agent at Compass.

How to qualify for a conforming loan

Conforming loans typically have more stringent lending criteria than non-conforming loans.

“Conforming loans follow guidelines set by Fannie Mae and Freddie Mac. These guidelines are widely established and recognized and do not vary by much,” Jampedro says. “There may be slight differences between what Fannie Mae requires vs. Freddie Mac, such as Freddie Mac will allow for a lower payment on deferred student loans for qualifying. but for the most part those guidelines are relatively similar, although they do vary between each other.”

With that in mind, here are the steps you generally take to qualify:

1. Review your finances and credit: Look over your income, expenses, and debts to make sure you can afford to take on a mortgage. In addition, you need a credit score of 620 or higher to qualify for a conventional conforming loan, so make sure your credit is acceptable. You can get a copy of your credit report from the major credit bureaus from AnnualCreditReport.com.
2. Pay down debts: The maximum debt-to-income ratio (DTI) is 45% to 50%, depending on your credit score and other compensating factors. Paying down debt or increasing your income can boost your approval odds.
3. Save for a down payment: Down payment requirements are usually at least 3% of the property purchase price, though some lenders may require 5% or higher. The more you can pay upfront, the less you’ll have to pay in interest over the life of the loan.
4. Prepare for closing costs: As you budget your savings, don’t forget about closing costs. These are usually a percentage of the loan amount, typically 2% to 5%. In most cases, you must pay closing costs upfront.
5. Search for and compare lenders: Interest rates, loan terms, and requirements will vary across lenders, so shop around. You may want to use a free online comparison tool to make your search easier.
6. Get pre-approved: Pre-approval can give you a better idea of what you qualify for and the total cost of your loan. You’ll need certain documentation for this, including proof of income. A lender will typically also perform a hard credit inquiry to check your credit.
7. Narrow down your list and apply: Formally apply with the lender of your choosing and wait for approval. To help the application proceed smoothly, be prepared to provide additional information if requested.
8. Review everything and head to closing: You’ll receive a closing disclosure once the lender approves you for a loan. It will include the details of your loan, including important terms and your monthly payment amount. Review it carefully. If everything looks good, head to your scheduled closing date to go over and sign the final documents. Don’t forget to bring your ID.

“For those seeking a conforming loan, your qualification will be based on credit, income, and assets,” Schwartz says. “The stronger your income and assets are, the lower the credit score you can get away with. The same goes for credit, the stronger the scores are, the lower the income and the assets can be. Within guidelines of course.”