Conforming vs. Non-Conforming Home Loans

There are two federally regulated companies which buy large blocks of pooled mortgages to add liquidity to mortgage banks commonly known as Fannie Mae and Freddie Mac.  Fannie Mae and Freddie Mac have established standardized guidelines for mortgage lenders.  Home loans which conform to these standards are also known as conforming loans.  These guidelines help to reduce risk for mortgage pool investors on the secondary markets, which in turn provides liquidity to the mortgage loan markets.

The 2008 stimulus package increased the conforming home loan limits.  Currently the maximum home loan amount for a conforming loan is $417,000, but that varies by State.  You can find the current conforming loan limits at eFannieMae – a website developed by Fannie Mae to help educate borrowers.

A home loan larger than the conforming limit, a borrower’s poor credit, or non-approved collateral backing the loan will not meet the guidelines for Fannie Mae or Freddie Mac.  These home loans are considered non-conforming loans.  A lender may charge higher fees, more points or a higher interest rate on non-conforming home loans because the home buyers represent a greater risk to the mortgage lender.   Due to the recent mortgage market meltdown and banking credit crisis, there are fewer lenders today willing to offer a non-conforming home loan.

Conforming loans are also referred to as conventional home loans, and the limit for a conforming home loan referred to as the conventional loan limit.  Conforming or conventional home loans will carry a lower interest rate saving you thousands in interest over the life of the loan.