Homebuyers

Understanding Conforming Loans vs. Non-Conforming Loans—And Why Homebuyers Should Care

There are a lot of mortgage loans to choose from. But mortgages are generally divided into two different camps: conforming loans vs. non-conforming loans.

What is the difference between conforming and non-conforming loans? Conforming loans are mortgages that meet lending standards set by Fannie Mae and Freddie Mac, government-sponsored enterprises that back most U.S. mortgages.

These include Conventional loans, which are the most popular type of mortgage, according to the National Association of Realtors.

Non-conforming loans, on the other hand, are basically any other loan that is not guaranteed by Fannie or Freddie.

These include government mortgages, such as those backed by the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) loans. 

Non-conforming loans can also be jumbo loans for more expensive properties or mortgages for self-employed homebuyers, such as non-qualified mortgages (non-QM loans.)

Understanding the different perks—and drawbacks—that each kind of loan offers may help homebuyers make the best choices for their financial situations.

What are conforming loans?

Conforming loans follow the borrower income, credit score, down payment, and loan limit guidelines set by Fannie Mae and Freddie Mac.

One of the biggest draws of conforming loans is that borrowers may be able to put down as little as 3% of the sale price of the home they purchase. That may make it easier for first-time buyers who are saving up to become homeowners.  

However, borrowers are typically expected to have a credit score of 620 or higher and limited debt with a debt-to-income ratio (DTI) below 45%. (DTI is how much you owe compared to how much you earn.)

Those who don’t make a down payment of at least 20% will likely be charged private mortgage insurance (PMI), which increases monthly mortgage payments.

Conforming loans are also subject to the borrowing limits set by the Federal Housing Finance Agency (FHFA) each year. The limit on single-family homes in most counties was $806,500 in 2025, although it is much higher in certain more expensive parts of the country.

“We’ve seen an increase each year after year because the prices of homes are going up,” said Armine Arutunian.  She is a loan consultant at New American Funding in Downey, Calif., outside of Los Angeles.

What are non-conforming loans?

Non-conforming loans have a slightly different set of guidelines, as they are regulated by different agencies. Here’s a look at several types of loans.

FHA loans: These mortgages may help buyers with lower credit scores and more debt qualify for a mortgage. They are generally popular with first-time buyers who may also have lower down payments. That’s because with an FHA loan buyers may be able to put down as little as 3.5% of the sale price of their homes. The loans are backed by the Federal Housing Administration.

VA loans: The U.S. Department of Veterans Affairs makes loans available to eligible service members, veterans, and their families. These loans often offer lower mortgage rates than other available loans. Buyers using these loans may not need to make a down payment or pay mortgage insurance on these loans.

USDA loans: These loans generally do not require a down payment—but they are only available outside of cities, often in more rural areas.

Conforming vs. non-conforming: other loan types to know

Buyers who may not have traditional employment with easily verifiable income or those purchasing pricier homes may need to take out a non-conforming loan.

This includes larger, jumbo mortgages, as well non-QM loans, which are often used by self-employed borrowers.

How to choose between conforming and non-conforming loans

First-time homebuyers: If you’re buying your first home and have good credit, a conforming loan may be your most cost-effective route. This is thanks to the loan’s lower rates and down payment options starting at 3%.

“Conforming loans can be a great option for first time buyers because they typically offer lower interest rates, as well as a lower down payment requirement,” said Jason Gelios, a real estate professional in Detroit, Mich.

But if your credit score is on the lower side or your savings are limited, an FHA loan—a type of non-conforming loan—can be appealing with its 3.5% down payment requirement and more flexible credit standards.

“A non-conforming loan typically benefits homebuyers with less than perfect credit and a higher debt to income ratio, or higher monthly debt,” added Gelios.

First-time buyers looking to choose the right mortgage should consider the differences between conforming and non-conforming loans. 

Veteran or active-duty service members: If you qualify for a VA loan (non-conforming), it’s often the best deal available: no down payment, no private mortgage insurance (PMI), and competitive mortgage interest rates.

Even if you have a high credit score and plenty of money saved for a down payment, VA benefits can beat the terms of most conforming loans.

High-income buyer or luxury property purchasers: If you’re purchasing a home above the FHFA loan limit, you’ll likely need a jumbo loan (non-conforming mortgage). Jumbo loans may come with stricter credit score and larger down payment requirements, often 10–20%. But they allow you to finance high-priced properties without splitting the loan.

Rural or suburban buyers with limited savings: For eligible buyers in rural or certain suburban areas, a USDA loan (non-conforming mortgage) can be an excellent option. You are not required to have a down payment, there are competitive mortgage interest rates, and flexible credit requirements.

Self-employed buyers: If you’re self-employed or have non-traditional income sources, you may find it harder to qualify for a conforming loan due to strict documentation requirements.

Non-QM (non-qualified mortgage) loans—a type of non-conforming loan—can be more flexible. Lenders often accept bank statements or alternative forms of income verification instead of standard W-2s.

Conforming vs. non-conforming loans: Key differences

When deciding which loan may be right for them, buyers should take into account the size of the mortgage they will need, their credit scores and income, and if a government loan might be the right fit. 

Here’s a side-by-side table comparing conforming and non-conforming loans:

“The best advice I can give is always lay out all options,” said Arutunian. “We want to make sure the [buyer] is in an affordable mortgage payment so they can enjoy life—but also have their mortgage paid.”

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