Conforming and Non-Conforming Loan Differences

When deciding on a mortgage, you’ll come across conforming and non-conforming loans as part of your financing options. A conforming loan is a mortgage that adheres to the specific guidelines set by government-sponsored enterprises (GSEs) known as Fannie Mae and Freddie Mac. Non-conforming loans, on the other hand, do not adhere to these guidelines and tend to have more flexible requirements for loan applicants.

According to the 2023 Home Mortgage Disclosure Act (HMDA), the majority of mortgage borrowers used a conforming loan (96%) to purchase a primary home in the U.S. Out of those conforming loans, conventional loans were among the most common (67%).

While both mortgage options offer benefits for homebuyers, they each have significantly different effects on your buying power and the terms of your loan. Below, we’ll break down the differences, requirements, and pros and cons of conforming and non-conforming loans. Still have questions? Our loan officers here at Zillow Home Loans* are available to help. We offer both conforming and non-conforming loan options.

Difference between conforming and non-conforming loans

Conforming loans

Conforming loans adhere to the maximum loan limits set by the Federal Housing Finance Agency (FHFA) and meet the funding criteria of Fannie Mae and Freddie Mac. As of November 2024, the conforming loan limit for most of the U.S. is $806,500, though it can be higher in areas with more costly housing markets.

Apart from loan size, conforming loans have a minimum credit score of 620, maximum debt-to-income ratio (DTI) of 43% (or 50% with approval), and a minimum down payment amount of 3%. These requirements can make conforming loans more accessible to a broad range of homebuyers. 

Non-conforming loans

Non-conforming loans may exceed the loan limits established by the FHFA, making them ineligible for purchase by Fannie Mae or Freddie Mac. There are several different types of non-conforming loans, and some have less stringent requirements regarding credit score, down payment amounts and DTI.

Jumbo loans 

Jumbo loans are non-conforming, because they exceed the FHFA’s conforming loan limits. Loan limits are higher for multi-unit properties than single-family, but all limits will vary based on where the home is located. A loan would only be considered a jumbo loan if it is above the loan limit for that area.

Jumbo loans are for high-cost properties and are not backed by any government agency. Instead, they’re guaranteed by the lender, which makes them riskier compared to other non-conforming loans. You can expect stricter qualification requirements for jumbo loan approval. See how jumbo vs conventional loan requirements compare. 

FHA loans 

FHA loans are insured by the Federal Housing Administration (FHA), which protects the lender if you default on your mortgage. FHA loan limits vary by property type, and FHA lenders typically require lower credit scores than conventional loan lenders.

VA loans 

VA loans are backed by the US Department of Veterans Affairs. Therefore, they’re only available to active-duty service members, veterans, and their surviving spouses. VA loans are associated with lower-than-average interest rates and zero down payments, and the VA itself technically doesn’t have loan limits or require a minimum credit score.

However, many VA lenders require a minimum credit score of 620 and limit borrowing amounts based on various financial factors.

USDA loans 

USDA loans are backed by the US Department of Agriculture and designed for homebuyers looking to purchase property in rural areas. Since these non-conforming loans are geared towards low-to moderate-income individuals, they have lower minimum credit score requirements and don’t require a down payment.

Conforming and non-conforming loan requirements

When qualifying for a mortgage, you’ll need to meet the lender’s specific requirements in addition to the conforming and non-conforming loan requirements. Here’s a look at how requirements vary by loan type.

Credit score

Non-conforming loans, like FHA and VA loans, have lower credit score minimums than most conforming loans. Lenders generally require a higher credit score to qualify for non-conforming, jumbo loans. A credit score of 720 is ideal for most mortgages.

Debt-to-income ratio (DTI)

The maximum DTI ratio for most mortgages is 50%. Fannie Mae and Freddie mac limit DTI ratios to a max of 43% for conforming loans, but borrowers can qualify as high as 50% if the lender receives approval from Fannie or Freddie’s Automated Underwriting System. Non-conforming, jumbo loans also have a max DTI of 43%. 

Down payment

Conforming loan down payments can be as low as 3% for first-time home buyers, while non-conforming loan down payments can be as low as 0% for VA and USDA loans. Most conforming loans require at least a 5% down payment with private mortgage insurance (PMI). Non-conforming jumbo loans have some of the highest down payment requirements at a minimum of 10%.

Loan limit

Conforming loans have limits on how much you can borrow based on the property size and location. Non-conforming loans don’t have set government limits but lenders set borrowing limits based on creditworthiness, income and assets.

Conforming loan vs non-conforming loan: pros and cons

What are the pros of conforming loans?

• They typically come with lower interest rates, which means you’ll likely have lower monthly payments and spend less over the life of the loan
• They’re a popular mortgage product, which means you can find them through most lenders
• If you make a down payment of at least 20%, you can avoid paying private mortgage insurance
• If you do have to pay private mortgage insurance, you can request to remove it once you build up 20% equity in your home

What are the cons of conforming loans?

• They come with strict borrowing limits, which means you may have to opt for a jumbo loan if you’re home-shopping in a higher-priced area
• They require a higher credit score than non-conforming loans
• They have stricter DTI ratio limits, although some lenders offer breathing room if you can compensate with a high credit score or other financial factors

What are the pros of non-conforming loans?

• More DTI flexibility and lower down payment requirements
• Lower credit score requirements
• More housing options due to varying loan limits

What are the cons of conforming loans?

• Lenders often have stricter qualification requirements due to lending risk
• There are sometimes additional fees and higher interest rates, which can contribute to higher costs over the life of the loan

Should you choose a conforming or non-conforming loan?

Whether or not a conforming or non-conforming loan is best for you will depend on your unique financial situation. Your lender can provide you with a detailed look at what each option looks like for you and help you weigh the pros and cons of each based on your qualifications.

Why choose a conforming loan?

Generally, if you’re looking for a typically-priced home, have a good credit score, and are not seeking a government-backed program to buy a home, then you may want to ask your loan officer about whether a conforming conventional loan is right for you. Conventional loans are some of the most common.

Why choose a non-conforming loan?

If you’re looking to make a sizable home purchase or are working with a lower credit score, a lender may recommend that you consider a non-conforming mortgage loan.

Regardless if you choose a conforming or non-conforming loan, be sure to compare multiple lenders to find the right mortgage, rate and terms for you. You can request a loan estimate by getting pre-qualified for a mortgage* to see what you’re eligible to borrow.

*An equal housing lender. NMLS #10287