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What's the Difference Between Conforming and Non-Conforming Loans

Conforming mortgage loans conform to the Federal Housing Finance Agency (FHFA) loan limits for mortgages that will be acquired by Fannie Mae and Freddie Mac.

Non-conforming mortgages don't meet Fannie Mae and Freddie Mac's guidelines. Examples of non-conforming loans are jumbo and government-backed loans, including FHA, VA, and USDA. These loans are good, reliable mortgage programs that have more flexible lending requirements, thus helping people with non-standard purchasing needs become homeowners.
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Read on to learn more about conforming vs. non-conforming mortgage loans.

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What are Conforming Loans?

A conforming loan mortgage conforms to the Federal Housing Finance Agency (FHFA) loan limits for mortgages that will be acquired by Fannie Mae and Freddie Mac.
Why is this important?
After a conforming mortgage closes, it is frequently bundled with other conforming mortgage loans and sold by your lender to Fannie Mae or Freddie Mac, which then package the loans into mortgage-backed securities that may be sold. Through this process Fannie Mae and Freddie Mac provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing. Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending.

Conforming Loan Limits for 2022

Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as the “conforming loan limit” value.  Loans above this amount are known as jumbo loans.
The Federal Housing Finance Agency (FHFA) sets the conforming loan limits (CLLs) for mortgages to be acquired by Fannie Mae and Freddie Mac. In most of the U.S., the 2022 conforming loan limit for one-unit properties is $647,200.

Conforming Loan Requirements

Conforming loans are also among the category of conventional loans. Most lenders have similar borrower eligibility criteria for these loans, as follows:
Loan-to-Value (LTV) Ratio. Lenders use the LTV ratio to compare the market value of the subject property for the mortgage, to the loan amount the borrower is seeking.
Down Payment. According to the FDIC (the primary regulator of banks), Fannie Mae offers 97 percent LTV financing to help homebuyers who would otherwise qualify for a mortgage but may not have the resources for a larger down payment. This means a borrower may qualify for a mortgage with just a 3% down payment.
Debt-to-Income (DTI) Ratio. DTI is your total monthly expenses divided by your total monthly income before taxes. Lenders will calculate this to determine if you’ll have the funds to repay the loan. Lenders typically require a DTI from 36% to 43%.
Credit Score. Most lenders will require borrowers to have a credit score of at least 620 to qualify for a conforming loan. Have bad credit? There are ways to build your credit score.

Pros and Cons of Conforming Loans

As with any mortgage product, you should always consider the general pros and cons and consider how these apply to your unique situation.


  • Lower Costs. Because conforming loans generally require that borrowers have a good credit score in order to qualify, the lender can offer lower interest rates, which means savings on monthly payments.
  • Standardized Underwriting. All mortgage loans travel through an underwriting process on the way to approval, and conforming loans tend to get processed and approved quicker and easier.
  • Loan Protections. Conforming loans must adhere to the Truth in Lending Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other lending guidelines that protect consumers from unethical lending practices.


  • Harder to Obtain. Because conforming loans must adhere to stricter requirements than non-conforming loans, it may be more difficult for some people to get approved if they have a lower credit score and/or lower income.
  • Lower Loan Limit. As mentioned previously, the 2022 conforming loan limit size or one-unit properties is $647,200. Homebuyers requiring a larger loan amount will need to apply for a jumbo loan, which is a non-conforming loan.

What are Non-Conforming Loans?

Non-conforming mortgage loans don't meet Fannie Mae and Freddie Mac guidelines. Examples of non-conforming loans are jumbo loans and government-backed loans, including FHA, VA, and USDA. Government backed loans have more flexible lending requirements and have helped millions of people become homeowners. Learn more about Non-Conforming Loans.

Types of Non-Conforming Loans:

Jumbo Loans. These loans are used to finance high mortgage amounts, often for luxury homes. A jumbo loan is a non-conforming loan, as it doesn’t conform to the requirements of Fannie Mae, Freddie Mac, and their regulator, the Federal Housing Finance Agency (FHFA).
Government Loans. As we mentioned, there are three categories of government-backed loans:
FHA Loans. Popular among first-time homebuyers, FHA loans require a minimum 580 FICO score. Borrowers with at least a 580 or higher may be eligible for an FHA loan with only a 3.5% down payment on a home purchase. Borrowers with a FICO score as low as 500, may qualify for an FHA loan if they can make a down payment of 10%.
VA Loans. Insured by the U.S. Department of Veterans Affairs, VA loans are available to qualifying U.S. Armed Forces Veterans, Active Duty Service Members, certain Reservists and National Guard members, and certain surviving spouses of deceased Veterans. VA loans often do not require a down payment. There is no minimum credit score requirement. Instead, VA requires a lender to review the entire loan profile. Learn more about VA loans.
USDA Loans. This government loan program helps low- and very-low-income applicants obtain housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.

Non-conforming loans are popular for several reasons:

  • Credit leniency. While conforming loans require a minimum 620 credit score, non-conforming loans will allow individuals with bad credit or lower credit scores to qualify.
  • Smaller down payment. Some non-conforming mortgage programs allow no money down or a low 3.5% down payment with no Private Mortgage Insurance (PMI) required on government-backed loans. Jumbo loans with less than 20% will typically require the borrower to pay PMI.
  • More property purchasing options. Due to non-conformity there are less limitations or no limitation on they type of property that can be purchased, such as a condo-co-op, and multi-unit properties, to name a few.
However, these advantages may come with higher interest rates than conforming mortgage rates.

Which Loan Type Is Right for Me?

Deciding on conforming vs. non-conforming mortgage loans is a big decision. When choosing a mortgage loan, first consider these factors: your income stream and job stability, how long you plan to stay in the home, how much you can afford in monthly mortgage payments, etc.
Credit Union of Southern California can help you evaluate the options so you choose the loan that works best for your unique needs.
Here are some tips for deciding how much house you can afford.

Where to get a Conforming or Non-Conforming Loan

There are several kinds of lenders that offer conforming and non-conforming mortgage loans, including credit unions, banks, and online lenders. However, credit unions, including Credit Union of Southern California, are often the preferred choice for several reasons, including low interest rates, low or no fees, and lower closing costs. Learn more about how to choose the right mortgage lender.

Why Savvy Consumers Choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

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