What Is the Difference Between Conforming and Nonconforming Loans?

Conforming and Nonconforming Loans
Conforming and Nonconforming Loans

If borrowers have strong credit and a sizable amount of money to use for a down payment, they may choose to pursue what lenders call conventional loans. These types of loans differ from Federal Housing Authority (FHA) or Veterans Administration (VA) loans in that they aren’t insured by a government agency.

Two Categories for a Conventional Loan

Housing Loan Letters on Wood Table
Conventional loans can be categorized in two ways: Conforming and nonconforming.

Conventional loans can be categorized in two ways: Conforming and nonconforming. There is a rather simple distinction between the two. Conforming loans conform to the finance limits set by the Federal Housing Finance Agency (FHFA) and also meet Fannie Mae and Freddie Mac’s underwriting guidelines. Nonconforming loans do not.

Conforming Loan

For conforming loans, the limit for much of the country is $548,250. However, in high-demand markets such as Alaska, Hawaii, and parts of California and Colorado, the limit is higher. To qualify for a conforming loan, borrowers need to buy a home that would put them beneath the limit for the area where they are purchasing a home. Better Lending has the information you need so you know what your limit will be.

Nonconforming Loan

There are different types of nonconforming loans. Perhaps the most common is called a jumbo loan. These types of loans go above the conforming loan limit, and terms and conditions for jumbo loans can vary. With a nonconforming loan, borrowers should expect more stringent credit qualifications, a higher interest rate, and a requirement of a larger down payment (as much as 20 percent).

Other factors that would make a loan nonconforming are a low credit score, less than 20 percent for a down payment, and a poor debt-to-income ratio. However, not having 20 percent for a down payment doesn’t automatically mean a borrower will have a nonconforming loan. Borrowers can have as little as 3 percent for a down payment and still qualify for a conforming loan.

No matter what kind of loan you are exploring, Better Lending is ready to assist you. is ready to assist you. We are committed to guiding you through the process easily, efficiently, and professionally. Call us at 888-400-1373.

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