Conforming loans: Definition, limits and how they work
Quick insights
- Conforming loans are mortgages that meet the guidelines set by Fannie Mae® and Freddie Mac®.
- The Federal Housing Finance Agency set the 2025 baseline conforming loan limit at $806,500. It goes up to $1,209,750 in high-cost areas.
- To qualify for a conforming loan, you’ll need to meet requirements related to down payment, debt-to-income ratio, credit score and property eligibility.
Conforming loans are the most popular type of mortgage in the U.S. But what does it mean if a loan is conforming?
What is a conforming loan?
Conforming loans are mortgages that are eligible for purchase by Fannie Mae® and Freddie Mac® and fall under the price threshold set by the Federal Housing Finance Agency (FHFA). Fannie Mae and Freddie Mac are government-sponsored enterprises (GSE) that purchase mortgages from lenders. Lenders sell the mortgages to these GSEs to free up more capital so they can issue more loans. The process provides liquidity to the housing market.
If a home loan doesn’t meet the conforming loan requirements, neither Fannie Mae nor Freddie Mac will purchase it. These loans are known as non-conforming loans.
Conforming loan requirements
There are a few different criteria lenders must comply with when issuing a conforming loan. Here are some key points for borrowers to be aware of.
Loan limits
The FHFA sets the conforming loan limit (CLL) values for mortgages that Fannie Mae and Freddie Mac can acquire. For 2025, the national baseline CLL is $806,500. But if you live in a high-cost area, that ceiling can be as high as $1,209,750. The annual limits for the next year are usually released in November.
If you need a loan for a greater amount, it will be a non-conforming loan, such as a jumbo loan. These come with different requirements, which individual lenders can set. The FHFA provides an interactive mapOpens overlay where you can see what the CLL is in your county.
Underwriting standards
If you apply for a conforming mortgage loan, your application will go through the underwriting process. For Fannie Mae, for example, some of the most critical factors the underwriter may review include:
- Down payment: You’ll need to put at least 3% down for a conforming loan.
- Credit score: The minimum credit score for conforming loans is usually 620.
- Debt-to-income (DTI) ratio: The preferred DTI ratio is 36% or lower, but lenders can go as high as 45% under specific circumstances.
Eligible property types
Conforming loans are only available for residential properties. Fannie Mae specifies that the property must be one to four units and be “residential in nature as defined by the characteristics of the property and surrounding area.”
Vacant land or land development projects aren’t eligible for conforming loans. Neither are properties that aren’t accessible by roads that meet local standards. Bed and breakfast properties are also ineligible for conforming loans.
How do conforming loans work?
Lenders follow the CLLs set by the FHFA. They also follow the guidelines set by the GSEs related to underwriting and property requirements. When a borrower applies for a conforming loan with a lender, the lender will put the application through the underwriting process to verify that issuing this loan will comply with conforming loan standards.
If the application is approved, usually the lender will issue the loan to the borrower, and they’ll use it to purchase the property. They will then be responsible for repaying the loan.
Lenders then have the option to keep the underlying mortgage or to sell it to Fannie Mae or Freddie Mac. Selling the loan to one of the GSEs reduces risk for the lender and provides them with more capital to issue additional loans.
Secondary mortgage market
Fannie Mae or Freddie Mac can purchase a mortgage from a lender and hold it as part of their portfolio. They also have the option to bundle multiple mortgages together into mortgage-backed securities (MBSs). When they package MBSs, the GSEs guarantee payment of principal and interest on the underlying mortgages that comprise the MBS. Ideally, this attracts investors, which expands the pool of funds available for housing.
Pros and cons of conforming mortgages
Conforming loans are popular, but that doesn’t mean they’re necessarily right for you. Before you decide, there are some upsides and potential risks worth considering.
Pros
- Lender choice: Conforming loans are the most popular mortgage in the U.S. That means you could shop around and should have no shortage of potential lenders to choose from, especially if you search online.
- Lower down payment: Conforming loans have lower down payment requirements than Federal Housing Administration (FHA) loans or jumbo loans.
- Lower interest rates: Conforming loans historically have lower interest rates than non-conforming jumbo loans.,
Cons
- Down payment requirement: You’ll be required to put at least 3% down. Other loan options, like U.S. Department of Agriculture (USDA) loans and U.S. Department of Veterans Affairs (VA) loans, have no down payment options. Chase does not offer USDA loans at this time.
- Higher credit score requirements: You can qualify for an FHA loan with a lower credit score than the 620 usually required for conforming mortgages.
- Private mortgage insurance: If you put less than 20% down on a conforming loan, you will need to pay private mortgage insurance (PMI). Generally, you can expect to pay $30–70 in PMI per month for every $100,000 borrowed.
Other considerations for borrowers
If you think a conforming loan might be a good option, here are some additional factors to consider when talking to lenders.
Conforming fixed loans vs. adjustable-rate
Conforming loans include fixed-rate loans or as adjustable-rate mortgages (ARMs). Fixed-rate loans are structured so your interest rate will stay the same over the loan term. ARMs have variable interest rates after the introductory period ends.
Closing costs
You’ll need to be able to afford closing costs to qualify for a conforming loan. This usually comes to 2–5% of the loan value. So if the loan is for $400,000, that would be $8,000–20,000.
Refinancing
Even if your original mortgage isn’t a conforming loan, it’s possible to refinance to a conforming loan. If you refinance after building up at least 20% equity in the property, you won’t owe PMI. It’s also possible to refinance from a conforming loan into a non-conforming jumbo loan, should you need to do so.
Keep in mind that, to refinance, you’ll need to meet lender requirements and will owe closing costs again.
Conforming loan FAQs
Is a conforming loan the same as a conventional loan?
No. All conforming loans are conventional loans, but not all conventional loans are conforming loans. If you’re having trouble distinguishing between the two, you can reach out to your lender.
Do conforming loans require private mortgage insurance?
Only if you put down less than 20% of the loan value. If you do pay PMI at first, you’ll be able to stop paying it once you’ve built up to that 20% equity threshold.
Are FHA loans conforming loans?
No, FHA loans aren’t conforming loans. FHA loans are insured by the U.S. Department of Housing and Urban Development (HUD) and come with their own specific requirements.
In summary
Conforming loans come with relatively low down payment requirements and competitive interest rates. However, they do have higher credit requirements than some mortgage products, and other options might end up being more affordable over the loan term. Talk to your lender to get a sense for which loans might be a good fit.
