The Difference Between Conforming and Non-conforming Mortgage Loans

As you shop for a mortgage, you’ll likely hear the terms conforming and non-conforming thrown around. It’s important that you understand these terms and figure out how you fit into them in order to determine which loan is right for you.

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If you hear the term Fannie Mae loan or Freddie Mac loan, those are conforming loans. Any loan considered ‘conforming’ falls under the Fannie Mae or Freddie Mac guidelines. Most notably, it means that the loan amount is no more than $453,100 as that’s the conforming limit this year. This limit does change from year to year, though.

It’s important to note that the conforming loan limits are higher in high-cost counties. The maximum loan amount in a high-cost county is $679,650. But you have to live in one of the predetermined high cost counties in order to secure a conforming loan at that amount.

Fannie Mae and Freddie Mac have fairly strict guidelines. Generally, you need a higher credit score, lower debt ratio, and a solid income/employment history in order to qualify for the loans. In exchange, lenders are able to sell the loans to the secondary market. This way lenders can free up their capital and make more loans.


Any loans that aren’t government-backed, such as FHA, VA, or USDA loans and don’t fall under the Fannie Mae or Freddie Mac guidelines are non-conforming loans.

This could mean several things. For instance, any loan amount above $453,100 in a standard cost county is non-conforming. Also, any loan that’s written by a portfolio lender or isn’t sold as a mortgage-backed security is non-conforming.

Non-conforming loans aren’t bad; they are just different. On the one hand, you might even consider them good since you can have a lower credit score and a higher debt ratio than Fannie Mae or Freddie Mac allow.

The flip side, however, is that you will likely have a higher interest rate and/or different mortgage term. It’s important that you shop around and find the right lender for you if you need a non-conforming loan. In fact, we suggest that you exhaust all options including FHA loans before you apply for a non-conforming loan.

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A non-conforming loan does have its benefits. Conforming loans tend to be stricter. As we discussed above, you need good credit scores and low debt ratios. You also have to meet the requirements of any secondary investors. There are a lot of hands in the pot, which could mean a lot of requirements.

Non-conforming loans, on the other hand, are often held by the individual bank. This means the bank can make their own lending decisions. In fact, many banks offer what’s called a niche product or a loan that helps many people in a specific situation, that conforming loans won’t allow.

For example, non-conforming loans don’t have a specific credit score requirement. You may find lenders that allow credit scores as low as 600. That same lender may also allow a higher debt ratio. In general, lenders try to keep debt ratios at a 43% max, but some lenders may allow them to be even as high as 50% in certain situations.


Compared to conforming loans, non-conforming loans often have higher interest rates. They also charge more fees.  Again, this is because they are less regulated. People in the position of needing a non-conforming loan are often willing to pay what it takes to get the loan. This doesn’t mean you should be taken advantage of, though. We encourage you to shop around to compare the offers provided by several lenders.

Whether you receive a conforming or non-conforming loan, the end result is the same – you get the home you wanted. You have to keep up with your mortgage payments too, or you risk foreclosure with either type of loan. The difference is in the name and what you need to qualify for the loans.

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