What are conforming loans and what do they mean to borrowers?

A conforming loan is a mortgage that meets the requirements set by Fannie Mae and Freddie Mac when it comes to things like loan amount, debt-to-income ratios, and credit score. These standardized rules mean that conforming loans are easier for lenders to sell to investors on the secondary market, which usually means that they cost less than non-conforming mortgages.

If you’re in the market to buy a home, we’ll break down what requirements you need to meet to get a conforming loan and how a conforming loan can benefit you.

What is a conforming loan?

A conforming loan is a mortgage that meets loan limits and other eligibility criteria set by the Federal Housing Finance Agency.

The FHFA works with Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that are tasked with helping the mortgage market in the United States. Fannie Mae and Freddie Mac can purchase conforming loans from banks on the secondary market, reducing the risks faced by lenders and increasing liquidity in the mortgage market.

Having a standard set of rules means that conforming mortgages are usually widely available, and there is significant competition between lenders. That can help keep the related costs low for most borrowers. Keep in mind, though, that conforming loans are not government loans. They’re usually conventional, non-government-sponsored loans, but they do meet requirements set by a government agency.

Guidelines for Fannie Mae

Fannie Mae and Freddie Mac each set their own requirements. For a loan to conform to Fannie’s guidelines, it must meet the following criteria.

Guidelines for Freddie Mac

Freddie Mac’s conforming loan guidelines are similar to those of Fannie Mae, but have slight differences.

What are conforming loan limits?

Fannie Mae and Freddie Mac have conforming loan limits that set the maximum amount you can borrow with this type of loan for properties with one to four units.

Each year, the Federal Housing Finance Agency sets a limit for most areas and a higher limit for high-cost areas, Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

2026 conforming loan limits

Each year, the FHFA announces new limits for conforming loans. There is a baseline limit that applies to most areas, though in regions with high costs of living and high real estate prices, the limit may be higher.

For 2026, the conforming loan limits are:

How do conforming loans work?

Conforming loans originate with private lenders like banks, credit unions, or online lenders. During underwriting, the lender ensures that the loan meets all the required conditions.

Once the loan closes, the lender can sell the loan to Fannie Mae or Freddie Mac, which packages conforming loans into mortgage-backed securities that can be sold to investors on the secondary market. Typically, Fannie Mae buys mortgages from large, commercial banks, and Freddie Mac works with smaller banks and credit unions.

Both Fannie and Freddie work behind the scenes. You won’t have any contact with them, nor will you know when your loan is sold to them until you get your investor letter. Nothing should change for you because the servicing of your loan isn’t affected even after the sale. You make your payment to the same entity.

Because conforming loans aren’t government-backed, they can be more challenging to qualify for. However, they pose less risk to the lender, which means they often come with lower interest rates and are usually cheaper overall than other types of loans.

The conforming loan process

The outline of the conforming loan process looks like this:

1. You close on your loan, finalizing your mortgage, and buy your new home.

2. Your lender takes your loan and sells it to Fannie or Freddie.

a. You will not be personally involved in this step. Selling your loan offers liquidity for lenders, letting them originate loans for more people.

3. Fannie and Freddie package your loan into a mortgage-backed security, which is then sold to investors on the secondary market.

4. Your loan servicing may change, meaning a new company will become responsible for taking your loan payments.

a. If this happens, you’ll get an investor letter detailing how you should make payments going forward.

Conforming loans vs. nonconforming loans: Which is right for you?

A nonconforming loan can be an option for borrowers who don’t qualify for a conforming loan, but these loans don’t have the same protections. Plus, nonconforming loans tend to be more expensive. Let’s look at the pros and cons of conforming vs. nonconforming loans.

Pros of conforming loans

• Conforming loans can come with some considerable benefits if you meet the eligibility requirements. Some of the advantages of conforming loans:
• Because conforming loans can be sold to Fannie Mae or Freddie Mac, they pose less risk to the lender, allowing them to charge lower interest rates.
• Conforming loans tend to cost less overall than government-backed loans.
• Fannie Mae and Freddie Mac’s eligibility requirements are designed to offer more protection for borrowers and safer loan terms.
• You can get a conforming loan for a down payment as low as 3%. FHA loans require a minimum down payment of 3.5%, and jumbo loans require a down payment of at least 10%.
• When Fannie Mae and Freddie Mac purchase conforming loans, they provide the financing that enables lenders to make more loans.

Cons of conforming loans

• Conforming loans can also come with certain downsides, such as:
• You can’t borrow more than the conforming loan limit set by the FHFA for your area.
• Stricter eligibility requirements than government-backed loans mean you may have trouble getting a conforming loan if your credit score is less than 620.
• If your down payment is less than 20%, you’ll need to purchase private mortgage insurance, also known as PMI.

Pros of nonconforming loans

• Some of the perks of nonconforming loans include:
• They’re an option for borrowers who are ineligible for a conforming loan.
• You can borrow more than the conforming loan limit.
• More accessible for borrowers with non-traditional income sources.

Cons of nonconforming loans 

• It’s important to be aware of the potential risks and downsides of nonconforming loans, which can include:
• Higher interest rates because lenders take on more risk.
• Fewer consumer protections.
• Higher costs for borrowers.
• Potentially risky loan features.

A brief history of conforming loans

To understand why conforming loan rules are structured this way, it helps to look back. Here’s a quick recap of the history of conforming loans:

• Fannie Mae is founded. Congress created Fannie Mae in 1938 as part of the New Deal to provide federal funds to banks to encourage more home loans.
• Freddie Mac is founded. In 1970, the government founded Freddie Mac as a competitor to Fannie Mae, which was now authorized to buy conventional loans from private lenders.
• The 2008 recession. The 2008 recession was triggered in part by a wave of mortgage defaults and foreclosures. Fannie and Freddie were taken over by the federal government. The Consumer Financial Protection Bureau was formed in 2010 and created rules to protect consumers, including the TILA-RESPA Integrated Disclosures.
• The Federal Housing Financing Agency mandates new rules. The FHFA was created to stabilize the housing market. It makes rules requiring conforming loans to meet specific guidelines, which reduces the risk of default and helps protect borrowers, lenders, the housing market, and the economy.

The bottom line: Conforming loans offer consumer protections and perhaps lower interest rates

Conforming loans are those that meet a set of standardized rules set by the Federal Housing Finance Agency. This standardization makes it easier to sell conforming loans on the secondary market, which improves liquidity for lenders, making these loans widely available and competitively priced.

If you can meet the requirements for a conforming loan, you may find that you get a better interest rate or overall lower cost of borrowing by using one rather than a government loan or non-conforming loan.

If you think a conforming loan might be the right choice, you can reach out to Rocket Mortgage² for more information. 

¹ The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

² Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.