Conforming Loan

A conforming loan is a residential mortgage that is eligible for purchase by the Fannie Mae (FNMA) and Freddie Mac (FHLMC). A conforming loan must meet the necessary requirements established by the two quasi-government organizations. The two agencies set limits on the conforming loan size. This dollar value limit on the principal of the conforming loan is revised each year. Fluctuations of the conforming loan are typically tied to the changes in average sales prices of conventionally financed single family homes. Once the principle exceeds the imposed limit, the loan looses its resale eligibility and becomes a non-conforming loan, or jumbo loan. A conforming loan carries a lower interest rate and generally more favorable terms than a jumbo loan. However, the qualifying criteria of a conforming loan are usually very stringent. Thus, factors such as job or income instability may impede a borrower’s ability to qualify for a conforming loan.