Conforming Loan

A conforming loan is a mortgage that meets the purchase standards set by the Federal Housing Finance Agency (FHFA) and can be purchased (or guaranteed) by Fannie Mae or Freddie Mac — the two government-sponsored enterprises (GSEs) that dominate the US secondary mortgage market. "Conforming" refers to the fact that the loan conforms to those guidelines. Key conforming criteria: (1) Loan amount at or below the FHFA conforming loan limit (set annually — $806,500 for single-family in 2025; higher in designated high-cost areas); (2) Property type: 1–4 unit residential or approved condo; (3) Credit score: typically 620+ (though lenders often require 680+ for the best rates); (4) DTI: typically 43–45% max; (5) Documentation: full income and asset verification required; (6) Property occupancy: primary, secondary, or investment (with varying terms). Because Fannie and Freddie provide liquidity to conforming lenders, conforming loans carry lower rates than jumbo or non-conforming alternatives. See the FHFA conforming loan limit announcement for the latest limits.

Conforming loan limits are set annually by the FHFA based on average US home price changes. The baseline limit for 2025 was $806,500 for a single-family unit in most of the US. High-cost area limits can be up to 150% of the baseline ($1,209,750 in 2025). Limits by units: single-family ($806,500 baseline); 2-unit ($1,032,650); 3-unit ($1,248,150); 4-unit ($1,551,250). Alaska, Hawaii, Guam, and the US Virgin Islands receive 150% limits automatically. For 2027, the FHFA will announce updated limits typically in November of the prior year based on the House Price Index. Year-over-year limit increases directly affect who needs a jumbo loan vs a conforming loan. See conforming loan limits 2027 for the current figures and the official FHFA conforming loan limit page.

A jumbo loan exceeds the FHFA conforming loan limit and therefore cannot be purchased by Fannie Mae or Freddie Mac. Key differences: (1) Rate: Jumbo loans typically carry 0.25–0.75% higher rates than conforming equivalents because lenders hold them on portfolio and cannot offload them to the GSEs; (2) Down payment: Conforming loans allow 3–5% down (with PMI); most jumbo lenders require 10–20% down; (3) Reserves: Jumbo lenders often require 12–24 months of payment reserves; conforming loans may require 0–6 months; (4) Credit score: Jumbo lenders typically require 700–740+; conforming loans accept 620+; (5) Liquidity: Conforming loan market is more liquid — easier to refinance or sell. See jumbo loan market 2027 for the current rate spread, and read how to qualify for a jumbo loan.

The GSE liquidity guarantee is the primary driver: Fannie Mae and Freddie Mac buy conforming loans from lenders, package them into mortgage-backed securities (MBS), and sell them to investors with an implicit government guarantee. This GSE guarantee: (1) removes default risk from lenders; (2) creates a deep, liquid secondary market for conforming MBS; (3) allows lenders to reprice conforming loans at lower rates — essentially passing the cost savings of the guarantee to borrowers. Jumbo loans have no GSE exit. Lenders must hold them on portfolio or sell to private investors who require a higher yield to compensate for the lack of guarantee and lower liquidity. The rate difference (conforming vs jumbo spread) narrows when private capital markets are strong and widens during credit stress. The spread was unusually inverted in 2023 due to GSE pricing adjustments — a temporary anomaly. See FHFA — Role of Fannie and Freddie and conforming loan limits 2027.

High-balance conforming loans (also called "super-conforming") exist in FHFA-designated high-cost areas where the conforming limit exceeds the national baseline. In 2025, high-cost areas allowed up to $1,209,750 for a single-family unit. These loans conform to Fannie/Freddie guidelines and can be purchased by the GSEs — but the eligible areas are geographically defined by the FHFA. High-balance conforming loans typically carry a slight rate premium (0.10–0.25%) over baseline conforming loans but remain cheaper than true jumbo loans. Major high-cost markets include San Francisco, Los Angeles, New York City metro, Seattle, Denver, and parts of Colorado and New Jersey. To check your county's limit, use the FHFA county lookup tool.

PMI is required on conforming loans with less than 20% down payment. Key PMI facts for conforming loans: (1) PMI cost: typically 0.2–1.5% annually on the loan balance; exact rate depends on LTV, credit score, and loan term; (2) Cancellation: PMI automatically terminates when the loan balance reaches 78% of the original home value (by scheduled amortization). Borrowers can request cancellation at 80% LTV with a good payment history; (3) Single-premium PMI: pay upfront at closing to avoid monthly premiums; (4) Lender-paid PMI: lender pays PMI in exchange for a slightly higher mortgage rate (no separate monthly PMI charge); (5) PMI is NOT the same as FHA mortgage insurance premium (MIP) — PMI can be cancelled; FHA MIP on loans with <10% down typically lasts the life of the loan. See what is PMI, how to avoid PMI, and the CFPB PMI guide.