All types of mortgages are considered either conforming or non-conforming loans. Conforming versus non-conforming loans are determined by whether your lender keeps the loan and collects payments and interest on it or sells it to one of two real estate investment companies – Fannie Mae or Freddie Mac.
A conforming loan refers to a conventional mortgage that can be purchased by Fannie Mae or Freddie Mac. For one of these institutions to purchase the mortgage from your lender, the loan must meet basic qualifications set by the Federal Housing Finance Agency (FHFA). These loan requirements include the following:
- Below the maximum dollar limit : The maximum dollar limit in most parts of the contiguous United States is $647,200 in 2022. In Alaska, Hawaii and certain high-cost areas, the limit is $970,800. Higher limits also apply if you buy a multifamily unit. Your lender can’t sell your loan to Fannie or Freddie and you can’t get a conforming mortgage if your loan is more than the maximum amount, unless you qualify for a super conforming loan.
- Not a federally backed loan : The loan can’t already have backing from a federal government entity. Some government bodies (including the Department of Veterans Affairs and the Federal Housing Administration) offer insurance on home loans. If you have a government-backed loan, Fannie and Freddie may not buy your mortgage.
- Meets lender-specific criteria : Your loan must meet the lender’s specific criteria to qualify for a conforming mortgage. For example, you must have a credit score of at least 620 to qualify for a conforming loan. You may also need to take property guidelines and income limits into account when you apply for a conforming loan. A Home Loan Expert can help determine if you qualify based on your unique financial situation.
Conforming loans have well-defined guidelines and there’s less variation in who qualifies for a loan. Because the lender can sell the loan to Fannie or Freddie, conforming loans are also less risky. This means that you may be able to get a lower interest rate when you choose a conforming loan.