What Is a Conforming Mortgage Loan?

How does a conforming loan work?

A conforming loan is a mortgage that meets specific guidelines set by government-backed programs like the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Federal Housing Administration (FHA). Their guidelines include a maximum loan amount and minimum borrower requirements.

The Federal Housing Finance Agency (FHFA) sets the maximum amount for conforming loans backed by Fannie Mae and Freddie Mac. FHFA conforming loan limits change annually, as do FHA loan limits.

“The federal government, via the FHFA, created and oversees Fannie Mae and Freddie Mac, which regulate a standard of guidelines, regulations and limitations, as well as [purchase] mortgage loans that other banks and lenders originate,” said Brian Kimball, a senior mortgage advisor at Waterstone Mortgage.

Conforming loans are required to meet minimum requirements to make them safe investments for individuals and institutions. Fannie Mae and Freddie Mac create mortgage-backed securities (MBSs) from conforming loans. Fannie Mae purchases conforming mortgages from larger commercial banks, while Freddie Mac purchases them from smaller regional banks and credit unions.

By purchasing mortgages, Fannie Mae and Freddie Mac offer mortgage lenders liquidity and allow them to continue lending money. The mortgages are packaged together as MBSs, with up to hundreds or even thousands of mortgages forming a single investment vehicle.

Conforming loan limits and criteria

Conforming loans follow strict limitations set by government-backed programs. For instance, the FHFA sets the maximum loan limits for Fannie Mae and Freddie Mac, while the programs themselves set the borrower requirements.

Maximum loan amount

For 2025, the FHFA conforming loan limit is $806,500 for most areas. Borrowers in certain areas with a high cost of living can borrow up to 150% of the conforming loan limit. For example, in San Francisco or New York City, loan limits range from about $1.2 million to $2.3 million for one- to four-unit properties.

Maximum conforming loan limits change annually and vary by location and number of units.

FHA loan limits also change annually. You can view current limits on the U.S. Department of Housing and Urban Development’s (HUD) FHA Mortgage Limits page.

Loan-to-value ratio

Conforming loans from Fannie Mae and Freddie Mac have a maximum loan-to-value (LTV) ratio of 97%. FHA loans have a maximum LTV of 90% to 96.5%.

Debt-to-income ratio

Conforming loans from Fannie Mae and Freddie Mac have a maximum borrower debt-to-income (DTI) ratio of 45% in most cases. For FHA loans, the requirements typically vary by lender, but many lenders will allow higher DTI ratios.

Credit score

Conforming loans from Fannie Mae and Freddie Mac typically require a minimum credit score of 620 for fixed-rate loans. For FHA loans, the minimum credit score is 500 for a maximum LTV of 90% and 580 for maximum financing.

Down payment

For FHA loans, borrowers are typically required to put down 3.5% to 10%. For conforming loans from Fannie Mae and Freddie Mac, borrowers can put down as little as 3%.

Property requirements

Conforming loans generally have specific property requirements, such as appraisal and safety requirements.

Pros and cons of conforming mortgages

A conforming mortgage is a common type of home mortgage for first-time homebuyers and buyers purchasing single-family homes. But these loans aren’t suitable for every situation. Here are the pros and cons of using a conforming mortgage compared to a conventional mortgage:

» MORE: What is a conventional mortgage?

What to look for in a conforming loan lender

When shopping for a conforming loan lender, it’s important to consider a few things.

Reputation

Good lenders should have a solid reputation. Research lenders and look at customer reviews online. If you find that a lender has numerous complaints in online reviews and poor responses to disputes, it may be best to avoid that lender.

Mortgage rates

While mortgage rates might be similar between most conforming mortgage lenders, it’s best to shop around. Even a small rate difference in your mortgage rate can save you thousands of dollars over the life of the loan.

Fees

There are many required fees with mortgages, but the amount lenders charge can vary significantly. Shop around to find a lender with reasonable fees.

Borrower requirements

While all conforming loans must meet minimum requirements set by the FHA, Fannie Mae and Freddie Mac, some lenders set their own requirements that are stricter than the minimum. Make sure you qualify for a lender’s requirements before applying for a loan.

Conforming loans vs. nonconforming loans

Conforming loans must meet the criteria set by government-backed programs. These loans have a maximum borrowing limit and set borrower criteria. Generally, conforming loans have lower down payment requirements, lower interest rates and fewer fees than other types of loans.

Nonconforming loans don’t have to meet this criteria, and they’re typically offered in larger loan amounts, also known as jumbo loans. They may require higher credit scores or down payments than conforming loans.

“A nonconforming mortgage is one that either does not comply with the standardized regulations, guidelines and requirements and/or exceeds the maximum loan limit,” Brian Kimball said. “A nonconforming mortgage could not be sold to Fannie Mae or Freddie Mac, and each nonconforming lender is required to create their own set of guidelines and limitations.”

If you need to borrow more than the maximum amount for a conforming loan, or if you need a non-traditional mortgage, getting a nonconforming loan may be your best option.

» MORE: Conforming vs. nonconforming loan: What’s the difference?

Bottom line

A conforming loan is a popular loan type for single-family homes. These loans typically offer lower interest rates and fewer fees than nonconforming loans. You might also qualify for a low down payment if you have a low income or if you’re a first-time homebuyer. However, conforming loans have maximum loan amounts, so they might not be the best option for especially large mortgages.