What are Conforming and non-Conforming loans?
When you’re shopping for a home, you’ll quickly discover just how many different mortgage loan options are out there, and they generally fall into a few main categories: government, Conforming and non-Conforming. As non-government loans, Conforming loans may offer lower interest rates and set borrowing limits, while non-Conforming loans may exceed those limits to provide more funding. They also have different uses and eligibility criteria. Let’s break down what financing option could be best for you.
What are Conforming loans?
A Conforming loan is a non-government loan that meets the Federal Housing Finance Agency (FHFA)’s requirements, as well as the funding criteria for Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). They are a very commonly used mortgage option, thanks to their accessibility and flexibility.
Conforming loan requirements
- Loan limits: The maximum amount you can borrow is capped by the county and state you’re purchasing a home in. In most places in the U.S., the 2025 limit is $806,500.
- Down payment: Prepare to pay at least three percent of the home’s price as down payment. For Conforming high-balance loans, which offer you more financing than the baseline loan limit, you may have to provide five percent down payment.
- Credit score: Scores of 620 and up are eligible.
- Debt-to-income (DTI) ratio: As a major indicator of your financial health and ability to pay debts, Freddie Mac and Fannie Mae allow DTI ratios of up to 50 percent—though you need a good credit score and may be subject to a higher interest rate. The lower your DTI, the better your chances of approval.
- Rate options: Adjustable-rate mortgages (ARMs) and fixed-rate mortgages are available. Like the names suggest, you’ll have an interest rate that changes with an ARM; meanwhile, you can expect the same interest rate with a fixed-rate mortgage.
Why choose a Conforming loan?
Conforming loans usually come with lower interest rates than non-Conforming loans. Lower interest rates could mean lower monthly payments. Many lenders also offer programs that help maximize how much you can borrow, depending on your situation.
What are non-Conforming loans?
On the other hand, non-Conforming loans aren’t backed by Fannie Mae and Freddie Mac; plus, they don’t meet the requirements set by the FHFA. Often, they exceed standard loan limits.
Non-Conforming loan requirements
- Loan limits: Different banks and lenders have their own maximum borrow limits. Jumbo loans, as they’re frequently called, help buyers afford homes that exceed Conforming loan limits.
- Down payment: While this also depends on your lender’s specific requirements, a 10–20 percent down payment is standard.
- Credit score: Because you’re borrowing more, they typically require stronger credit scores, such as 660 or higher.
- Debt-to-income (DTI) ratio: There isn’t a set standard; however, a DTI of 43 percent or less is favorable.
- Rate options: Like Conforming loans, ARMs and fixed-rate mortgages are available.
Why choose a non-Conforming loan?
Because non-Conforming loans do not abide by typical requirements, you may be able to borrow more. This means you can finance a home other loan options wouldn’t give you the opportunity to, allowing you to borrow larger loan amounts.
Jumbo loans at Guild
With Guild’s Jumbo loans, borrowers can get over three million dollars in home financing, exceeding most county limits. Applicants with strong financial backgrounds and excellent credit scores and history are eligible.
Conforming vs. non-Conforming loans
The best loan for you is one you can comfortably afford—not just now, but for the years to come. Below, compare the differences between Conforming and Non-Conforming loans.
| Feature | Conforming loan | Non-Conforming loan |
|---|---|---|
| Loan limit | National standard: $806,500; varies by county | Depends on lender; $3.5M at Guild |
| Down payment | 3%; 5% for high-balance loans | 10–20% |
| Credit score | 620+ | 660+ |
| DTI ratio limit | 50% | 43% |
| Rate options | ARM and fixed-rate | ARM and fixed-rate |
| Best used for | Lower interest rate | Expensive home financing |
What are my other loan options?
Aside from Conventional loans like Conforming and non-Conforming loans, which are grouped together as non-government loans, there are government-backed loans that accept borrowers with lower credit scores or down payments.
- FHA loans: Insured by the Federal Housing Administration (FHA), these loans are a great option for those with low to moderate income. You may even qualify for special programs to eliminate down payment or closing costs.
- USDA loans: Americans living in rural areas can achieve homeownership with USDA loans, insured by the U.S. Department of Agriculture. You may even be eligible for 100 percent financing.
- VA loans: Reserved for veterans, their spouses and beneficiaries, VA loans offer benefits like zero down payment options, lower interest rates and even more lenient credit and income requirements.
- Non-QM loans: Secure financing for borrowers with unique financial backgrounds or circumstances, qualifying them in cases where they wouldn’t be eligible for a Conforming loan.
Conforming and non-Conforming loans provide some of the easiest and most common avenues to homeownership. When it comes to deciding which one is better for you, consider your home goals and calculate how much you can afford to pay every month. Get in touch with one of our loan officers today to determine what’s best for your budget.
The above information is for educational purposes only. All information, loan programs & interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.