The Difference Between Conforming and Non-Conforming Loans


If you are searching for a mortgage, you have probably heard the terms conforming and non-conforming loans.

While they sound similar, they have distinct differences.

Conventional loans can either be conforming or non-conforming, depending on certain factors.

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Conforming Loans

Conforming loans are conventional loans that meet the criteria to be purchased by Freddie Mac or Fannie Mae.

When you get a mortgage loan, the lender that provides you the loan rarely keeps it. Often after a mortgage loan is funded by a lender. It is sold shortly after to Fannie Mae or Freddie Mac. Fannie and Freddie are Government-sponsored entities (GSEs) whose guidelines are set by the Federal Housing Finance Agency (FHFA).

A conforming loan is a mortgage that meets the specific guidelines allowing Freddie Mac or Fannie Mae to purchase the loan. The main differentiator is the loan amount. Freddie and Fannie will only purchase loans that do not exceed the maximum loan amount.

Conforming Loan Requirements

Non-Conforming Loans

Nonconforming loans are not able to be sold to Freddie Mac or Fannie Mae. If a loan is for an amount above the conforming loan limit, like a Jumbo loan, it is considered a nonconforming mortgage loan. Just like how conforming loans are conventional loans, non-conforming loans are often referred to as unconventional loans.

Lenders or investors fund nonconforming loans. Because they are not easily sold to Fannie or Freddie, they typically are more difficult to qualify for. Borrowers will need higher credit scores, DTI ratios, and/or higher down payment amounts. There are no nonconforming loan limits. The maximum loan amount is determined by the lender providing the mortgage.

Non-Conforming Loan Requirements

  • Higher credit score requirements (680+)
  • Large down payment (15% or higher)
  • Low debt to income ratio (43% or less)
  • Large cash reserves

Conforming Loan Limits

2020 Conforming Loan Limits

# of units

Low-cost area limit

High-cost area limit

1-Unit

$510,400

$765,600

2-Unit

$653,550

$980,325

3-Unit

$789,950

$1,184,925

4-Unit

$981,700

$1,472,550

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