As mentioned above, a conforming mortgage is a conventional loan that meets the financing criteria set by Fannie Mae and Freddie Mac, and FHFA loan limits. The latter means that loans cannot exceed a certain amount, which for single-family homes in 2022 is a base of $647,200 (and $970,800 in high-cost areas, as well as Alaska, Hawaii, Guam and US Virgin Islands). Compliant loan terms typically vary between 10 and 30 years.
A conforming mortgage is suitable for those who:
- You want to avoid high interest payments
- Can make larger down payments
- Buy a house that does not exceed the limits established by Fannie Mae and Freddie Mac
Nonconforming mortgages are loans that do not meet Fannie Mae or Freddie Mac’s purchase standards, either because they do not meet FHFA requirements or because the loan amount is too large. These include the three major government-backed mortgages – Federal Housing Administration (FHA), United States Department of Agriculture (USDA) and US Department of Veterans Affairs (VA) – as well as jumbo loans.
FHA, USDA and VA mortgages are government insured in the event of default, but are processed and serviced by licensed private mortgage lenders. These types of mortgages allow potential homeowners to buy a home with a down payment of 10% or less, lower minimum credit requirements, higher loan limits, and a higher debt-to-equity ratio.