FREE NEWSLETTER

Conforming vs. Not

A CONFORMING LOAN is one that meets the standards used by Freddie Mac and Fannie Mae, making them eligible for purchase by either institution. Result: A conforming loan often charges a somewhat lower interest rate, perhaps 0.25 percentage point less than a comparable nonconforming loan.

To qualify as a conforming loan, a mortgage has to meet a number of conditions, the most notable of which is size. According to the Federal Housing Finance Agency, for 2019, a conforming loan for a single-family home typically has to be $484,350 or less. In more expensive parts of the country, however, a single-family home loan can be as large as $726,525 and still qualify as conforming.

What if a loan is larger? It’s considered a jumbo loan. Such loans are more difficult for lenders to securitize, by packaging them into mortgage bonds and then selling these bonds to investors. Instead, lenders will often keep a jumbo mortgage on their own books, hence the higher cost and stricter scrutiny of borrowers.

Next: Closing Costs

Previous: Fixed vs. Adjustable

Have a question or comment? Add it here:

Free Newsletter

SHARE