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 2023, a conforming loan for a single-family home typically has to be $726,200 or less. In more expensive parts of the country, however, a single-family home loan can be as large as $1,089,300 and still qualify as conforming.
What if a loan is larger than these limits? 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.
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