When shopping for a home loan, you’ll likely encounter two terms: “conforming loan” and “non-conforming loan.” Understanding the difference between the two is crucial for finding the right loan that fits your homebuying budget and property.
What is a Conforming Loan?
A conforming loan is a mortgage that meets the specific guidelines established by Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) responsible for buying and securitizing home loans. To qualify for backing from these organizations, the loan must meet certain criteria, including limits on the loan amount, credit score requirements, debt-to-income ratios, and documentation standards.
One key feature of a conforming loan is that it must fall within the loan limits set by the Federal Housing Finance Agency (FHFA). In 2025, the baseline conforming loan limit for a single-family home in most areas of the U.S. is $806,500. However, the limit can rise to as much as $1,209,750 in high-cost areas.
Conforming loans often come with lower interest rates compared to non-conforming loans, thanks to their standardized guidelines and eligibility for purchase by Fannie Mae or Freddie Mac. They’re typically easier to qualify for and offer more mortgage programs and refinancing options.
What is the Difference Between Conforming and Non-Conforming Loans?
A non-conforming loan is any mortgage that does not meet the guidelines established by Fannie Mae and Freddie Mac. These loans may have higher loan amounts, alternative borrower qualifications, or unique property types that make them ineligible for purchase by the GSEs.
Because conforming loans are packaged and sold as mortgage-backed securities, they must meet rigorous investor standards, increasing regulatory pressure. While non-conforming loans are commonplace in the mortgage market, keep in mind that they do not have to meet GSE criteria, giving lenders more flexibility in:
- Loan size (e.g., jumbo loans)
- Borrower qualifications
- Property types
These loans are usually held in the lender’s portfolio or sold privately, so fewer federal standardizations apply.
Here’s a more detailed look at conforming and non-conforming loan differences:
Conforming vs. Non-Conforming Loans
| Feature | Conforming Loan | Non-Conforming Loan |
|---|---|---|
| Loan Limit | Up to $806,500 (or $1.2M in high-cost areas) | Above conforming limit (e.g., jumbo loans) |
| Credit Requirements | Higher | More flexible (varies by loan type) |
| Backed By GSEs? | Yes (Fannie Mae/Freddie Mac) | No |
| Interest Rates | Typically lower | Typically higher |
| Best For | Standard home purchases | High-value homes or unique borrower needs |
Conforming Loan Types
Conforming loans come in a few different types, each designed to meet specific needs and preferences. One of the most common is the fixed-rate mortgage. With this type of loan, the interest rate remains the same for the entire life of the loan, making it easy to plan and budget since your monthly payments never change. Fixed-rate mortgages typically come in 15, 20, or 30-year terms, depending on what suits your financial goals.
Another option is the adjustable-rate mortgage (ARM). ARMs start with a lower interest rate for an initial period, usually 5, 7, or 10 years, before adjusting periodically. While the rate is fixed at first, it eventually fluctuates based on market conditions, which means your monthly payments could go up or down over time.
Finally, there are conventional loans, which are mortgages that meet the specific guidelines set by Fannie Mae and Freddie Mac. These loans must also fall within the conforming loan limits, making them eligible for backing by these government-sponsored enterprises. Conventional loans are popular for their simplicity and straightforward terms.
Non-Conforming Loan Types
If a loan doesn’t meet Fannie Mae or Freddie Mac’s standards—whether due to size, credit profile, or property type—it’s classified as non-conforming.
These loans offer more flexibility for buyers who need financing outside the standard limits, whether for a high-priced home, unique property, or special borrowing circumstances.
Jumbo Loans
A jumbo loan is a type of mortgage designed for homebuyers who need to borrow more than the conforming loan limit, which is set at $806,500 in most areas for 2025.
Because these loans exceed the limits established by the Federal Housing Finance Agency (FHFA), they are considered non-conforming, and Fannie Mae or Freddie Mac cannot back them. This means lenders take on more risk when offering jumbo loans, often resulting in stricter qualification requirements, such as higher credit scores, larger down payments, and lower debt-to-income ratios.
Jumbo loans are ideal for buyers purchasing high-priced homes, especially in competitive real estate markets where home prices exceed standard loan limits. While they provide the flexibility to finance luxury properties or homes in expensive areas, borrowers should be prepared for more stringent lending criteria and potentially higher interest rates compared to conforming loans.
Government-Backed Loans (FHA, VA, USDA Loans)
Government-backed loans provide valuable mortgage options for borrowers who may not qualify for conventional financing. These loans offer more lenient qualification requirements, making homeownership more accessible, especially for first-time buyers.
FHA Loans
- Insured by the Federal Housing Administration (FHA)
- Ideal for borrowers with lower credit scores
- Allow for smaller down payments (as low as 3.5%)
- Great for first-time homebuyers
VA Loans
- Guaranteed by the U.S. Department of Veterans Affairs (VA)
- Available to eligible veterans, active-duty military members, some surviving spouses
- Zero down payment required
- No private mortgage insurance (PMI)
- Often offer competitive interest rates
USDA Loans
- Backed by the U.S. Department of Agriculture (USDA)
- Designed for homebuyers in rural and qualifying suburban areas
- Best for those with low to moderate incomes
- Zero down payment required
- Location-based eligibility requirements
Home Equity Loans & HELOCs
Home equity loans and home equity lines of credit (HELOCs) offer homeowners valuable ways to access the equity they’ve built in their properties. A home equity loan provides a lump sum, making it an excellent choice for covering major expenses like home renovations, debt consolidation, or other significant purchases. With a fixed interest rate and a structured repayment term, this loan type offers predictability, which appeals to those who prefer consistent monthly payments.
A HELOC works differently, functioning more like a credit card. Instead of receiving a lump sum, homeowners can borrow funds as needed, up to a set credit limit. With a variable interest rate, the amount owed may fluctuate over time, providing flexibility for ongoing expenses, such as home improvements or unforeseen costs.
Because interest is only charged on the amount borrowed, HELOCs can be a cost-effective solution for those who don’t need all their funds at once. While both options can be powerful financial tools, homeowners should carefully assess their financial situation and repayment ability before leveraging their home’s equity.
Is a Conforming or Non-Conforming Loan Better?
A conforming loan is typically the best choice for borrowers with good to excellent credit, usually 620 or higher, who are purchasing a home within the conforming loan limits. These loans often have lower interest rates and predictable monthly payments, making them a stable and cost-effective option for many homebuyers.
Conversely, a non-conforming loan may be necessary for those buying a high-priced home that exceeds conforming loan limits and requires a jumbo loan. Borrowers with lower credit scores or unique financial situations might also turn to government-backed options like FHA or VA loans, which offer more flexible qualification requirements. Additionally, homeowners looking to tap into their home’s equity for renovations, debt consolidation, or other expenses may benefit from a home equity loan or HELOC.
When comparing a non-conforming loan vs. conventional loan, the key differences come down to eligibility requirements, loan limits, and interest rates. Conventional loans, which include both conforming and non-conforming options, follow Fannie Mae and Freddie Mac guidelines, whereas non-conforming loans do not.
If you qualify for a conforming loan, you may benefit from lower interest rates and easier approval. However, if you need a larger loan amount or have special circumstances, a non-conforming loan may be the better choice. Explore your options and speak with a lender to determine the best mortgage for your financial goals!
