Homebuyers

Understanding Conforming Loans vs. Non-Conforming Loans—And Why Homebuyers Should Care

Navigating the homebuying process may be difficult at times. Homebuyers need to find the right property, beat out the competition, and secure a mortgage.

Shopping around for a mortgage may not be as glamorous as visiting open houses, but buyers shouldn’t take this last part of the equation lightly. There are a lot of loans to choose from, but they are generally divided into two different camps: conforming loans pr non-conforming loans.

Understanding the different perks—and drawbacks—that each kind of loan offers may help homebuyers make the best choices for their financial situations.

Conforming loans are mortgages that meet lending standards set by Fannie Mae and Freddie Mac, government-sponsored enterprises that back most of the mortgages issued in the country.

These include the conventional mortgages, which are the most popular type of loan, according to the National Association of Realtors.

Non-conforming loans, on the other hand, are basically any other loan that is not guaranteed by Fannie or Freddie.

These include Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) loans. 

Non-conforming loans can also be jumbo loans for more expensive properties or mortgages for self-employed homebuyers.

How to qualify for a conforming loan

Conforming loans follow the borrower income, credit score, down payment, and loan limit guidelines set by Fannie Mae and Freddie Mac.

One of the biggest draws of conforming loans is that borrowers may be able to put down as little as 3% of the sale price of the home they purchase. That may make it easier for first-time buyers who are saving up to become homeowners.  

However, borrowers are typically expected to have a credit score of 620 or higher and limited debt with a debt-to-income ratio below 45%.

Those who don’t make a down payment of at least 20% will likely be charged private mortgage insurance (PMI), which increases monthly mortgage payments.

Conforming loans are also subject to the borrowing limits set by the Federal Housing Finance Agency (FHFA) each year. The limit on single-family homes in most counties was $766,550 in 2024, although it is much higher in certain more expensive parts of the country.

“We’ve seen an increase each year after year because the prices of homes are going up,” said Armine Arutunian.  She is a loan consultant at New American Funding in Downey, Calif., outside of Los Angeles.

How to qualify for a non-conforming loan

These loans have a slightly different set of guidelines, as they are regulated by different agencies.

FHA loans: These mortgages may help buyers with lower credit scores and more debt qualify for a mortgage. They are generally popular with first-time buyers who may also have lower down payments. That’s because with an FHA loan buyers may be able to put down as little as 3.5% of the sale price of their homes. The loans are backed by the Federal Housing Administration.

VA: The U.S. Department of Veterans Affairs makes loans available to eligible service members, veterans, and their families. These loans often offer lower mortgage rates than other available loans.

USDA: These loans generally do not require a down payment—but they are only available outside of cities, often in rural areas.

Other non-conforming loans 

Buyers who may not have traditional employment with easily verifiable income or those purchasing pricier homes may need to take out a non-conforming loan. This includes larger, jumbo mortgages, as well non-QM loans, which are often used by self-employed borrowers.

What homebuyers should consider when choosing a mortgage 

When deciding which loan may be right for them, buyers should take into account the size of the mortgage they will need, their credit scores and income, and if a government loan might be right for them.

“The best advice I can give is always lay out all options,” said Arutunian. “We want to make sure the [buyer] is in an affordable mortgage payment so they can enjoy life—but also have their mortgage paid.”

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