Conforming Loans: What They Are, Loan Limits, and How They Work

When you’re shopping for a mortgage, you’ll often hear the term “Conforming Loan”. But what does it mean, and why is it important? Simply put, conforming loans are mortgages that meet the loan limits and guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that buy and guarantee most U.S. mortgages.

Because they follow strict standards, conforming loans often offer lower interest rates, easier approval, and more flexible terms compared to non-conforming or jumbo loans.

Let’s break down exactly what Conforming Loans are, how they work, and which programs might fit your situation.

What Are Conforming Loans?

Conforming Loans are mortgages that meet the guidelines established by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that buy and guarantee most home loans in the U.S.

To “conform,” a loan must:

Stay within FHFA (Federal Housing Finance Agency) loan limits
Follow Fannie/Freddie underwriting rules
Meet credit, income, and DTI (debt-to-income) standards
Be a Qualified Mortgage (QM) that satisfies Ability-to-Repay (ATR) requirements

Because lenders can sell these loans to Fannie or Freddie, they carry less risk — which means lower interest rates for borrowers.

2025 Conforming Loan Limits

The Federal Housing Finance Agency (FHFA) updates these limits annually to reflect rising home prices.

For 2025:

Standard limit (1-unit home): $806,500
High-cost area limit: $1,209,750 (e.g., San Francisco, NYC, DC, HI)

(Source: FHFA Conforming Loan Limits 2025)

Loans within these limits are conforming; those above are considered non-conforming (often called Jumbo Loans).

Benefits of Conforming Loans

Lower Interest Rates – Conforming loans typically have lower rates than jumbo or non-conforming loans.
Easier to Qualify – Backed by Fannie Mae/Freddie Mac guidelines, which are standardized across lenders.
Smaller Down Payment Options – As low as 3% down with some programs (e.g., Conventional 97, HomeReady®, Home Possible®).
Flexible Terms – 15-, 20-, or 30-year fixed-rate and adjustable-rate options available.
Loan Security – Because they’re purchased by GSEs, lenders face less risk and can pass savings to borrowers.

Main Types of Conforming Loans

Conforming Loans come in many forms, all backed by either Fannie Mae or Freddie Mac. Here are the most common:

1. Conventional 97 Loan

Down payment as low as 3%
For first-time homebuyers or those with moderate income
Requires credit score ≥ 620
Fixed-rate or adjustable options available

Example: Buying a $400,000 home → 3% down ($12,000), loan = $388,000 → qualifies as a Conforming Loan.

2. Fannie Mae HomeReady® Loan

Designed for low- to moderate-income borrowers
Allows co-borrowers who don’t live in the home (family support)
DTI ratios up to 50% with strong compensating factors
Down payment starting at 3%

(Source: Fannie Mae)

3. Freddie Mac Home Possible® Loan

Similar to HomeReady but from Freddie Mac
For borrowers with income ≤ 80% of Area Median Income (AMI)
Down payment as low as 3%
Reduced mortgage insurance (PMI) options

4. Conventional 95 Loan

Minimum 5% down payment
Not limited to first-time buyers
Accepts second homes and primary residences

5. Fannie Mae HomeStyle® Renovation Loan

Combines purchase + renovation into one mortgage
Funds home improvements or remodeling projects
Works for primary, secondary, or investment properties

(Source: Fannie Mae HomeStyle Renovation Overview)

6. Freddie Mac CHOICERenovation® Loan

Freddie’s version of HomeStyle®
Helps borrowers repair or improve homes after purchase
Can include disaster-related repairs or upgrades

(Source: CHOICERenovation® Program Details)

7. Conforming Refinance Programs

Rate-and-term refinance — lower your rate or change loan term
Cash-out refinance — tap home equity (up to 80% LTV)
High LTV refinance — for borrowers with limited equity but good payment history

Who Qualifies for Conforming Loans?

To qualify for a conforming loan, you typically need to:

Have a credit score of 620+ (higher scores get better rates)
Provide a down payment (as low as 3% for some programs)
Maintain a debt-to-income ratio (DTI) usually below 43–50%
Borrow within FHFA loan limits for your county
Use the loan for a primary residence, second home, or investment property

Conforming vs. Non-Conforming Loans

Feature	Conforming Loan	Non-Conforming Loan
Loan Limit (2025)	≤ $806,500	> $806,500
Backed By	Fannie Mae / Freddie Mac	Private or portfolio lenders
Credit Score	620+	680–700+
Down Payment	3–5%	10–30%
Documentation	W-2, paystubs, tax returns	Bank statements, assets, DSCR
Interest Rate	Lower	Slightly higher
Flexibility	Standardized	Custom underwriting
Examples	HomeReady, Home Possible, HomeStyle	Jumbo, Non-QM, DSCR, HomePort