Conforming loans are mortgages that conform to the limits set by the Federal Housing Finance Agency (FHFA) and meet the funding criteria of Freddie Mac and Fannie Mae. They are beneficial loans for homebuyers because of the low risk posed to lenders. Borrowers with a conforming mortgage may enjoy a lower interest rate and a lower down payment than other loan types.
Characteristics of Conforming Mortgages
Not all mortgages are conforming mortgages. This term refers to a specific selection of mortgages that qualifies for insurance by Freddie Mac and Fannie Mae.
Every conforming mortgage must meet two main criteria. It must be:
- Equal to or less than the dollar amount established by the limit set by the Federal Housing Finance Agency (FHFA) and meet the funding criteria of Freddie Mac and Fannie Mae.
- A loan for the purchase of a one-unit, single-family property.
The FHFA adjusts the conforming loan limit annually to account for increases in housing prices nationally, as well as inflation. Check the current conforming loan limit on the FHFA website.
While a national FHFA limit exists, some areas are allowed a limit increase due to the high cost of housing. These include Alaska, Hawaii, Guam, and the U.S. Virgin Islands. The limit may also vary from county to county within every U.S. state and territory.
Conforming Mortgage Benefits
Both homebuyers and lenders may enjoy benefits from conforming mortgages that are not available for every mortgage type. Conforming mortgages tend to be viewed as lower risk mortgages.
For this reason, borrowers who get a conforming mortgage may have a lower interest rate and low down payment options not available with other mortgages. Plus, it is generally easier to qualify for a conforming mortgage than a non-conforming loan.
Finally, borrowers who get a conforming mortgage may have more options for a lender. Because conforming mortgages are eligible for purchase by government-backed agencies, the lender can more easily resell a conforming mortgage. This makes a conforming mortgage a better investment because they can quickly sell the loan as part of an investment package.
Conforming Vs. Other Mortgage Types
There are many different types of mortgages available to U.S. homebuyers. It’s important to understand the differences between some of the main types available, especially regarding their classification as conforming or non-conforming.
Nonconforming (Jumbo) Mortgages
Loans that surpass the upper limits set for conforming mortgages are known as non-conforming or jumbo mortgages. These loans are generally riskier, carrying higher interest rates and down payment requirements. Non-conforming loans cannot be bought in the secondary market by Freddie Mac or Fannie Mae, leaving lenders without a government-backed guarantee.
A conventional mortgage is any loan offered through a private lender, as opposed to a government agency. The size of the loan does not affect whether it is a conventional loan. However, only some conventional loans are conforming, based on whether they conform to the qualifying standards of the FHFA.
- All home loans by a private lender are conventional.
- Only some conventional loans are conforming.
Super Conforming Mortgages
Some areas in the U.S. have higher than average housing prices. In these areas, conforming mortgages’ upper limits are not sufficient to reflect the average housing prices for single-family homes. For these areas, Freddie Mac initiated super conforming mortgages.
Super conforming mortgages are essentially conforming mortgages with higher maximum amounts. They still have maximum limits, but these limits are higher than a regular conforming mortgage. Super conforming mortgages are only available in specific areas designated by Freddie Mac.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.