What is a conforming loan?

A conforming loan is defined as a mortgage that meets the specific guidelines and standards established by Fannie Mae and Freddie Mac, two government-sponsored enterprises. These guidelines include limits on loan amounts, borrower creditworthiness, and other criteria that ensure the loan can be sold to these entities on the secondary mortgage market. Because conforming loans adhere to these standards, they typically offer lower interest rates and better terms compared to non-conforming loans.

The maximum loan limit for conforming loans is set by the Federal Housing Finance Agency (FHFA) and is adjusted periodically; this is significant in determining the type of loan borrowers may qualify for based on their financial situation and location. In contrast, options referring to loans with no maximum limit, those only for first-time homebuyers, or those backed solely by private lenders do not accurately reflect the parameters associated with conforming loans.