When you’re navigating the mortgage process, it’s easy to get overwhelmed by all the terminology. Two of the most commonly confused terms are conventional loans and conforming loans. While they sound similar, they aren’t the same. Here’s what you need to know to understand the difference—and how each one might apply to your home buying journey.
Quick Answer: They’re Not the Same
Although a loan can be both conventional and conforming, the terms refer to two different aspects of a mortgage:
- Conventional loans are not insured or guaranteed by the federal government.
- Conforming loans meet specific guidelines—most notably loan limits—set by government-sponsored entities Fannie Mae and Freddie Mac.
Understanding Conventional Loans
A conventional loan is a mortgage that’s issued by a private lender and is not backed by a federal agency such as the FHA, VA, or USDA.
These loans typically require:
- Higher credit scores
- Lower debt-to-income (DTI) ratios
- Larger down payments
However, they may come with lower overall borrowing costs and no upfront mortgage insurance premiums, making them an attractive option for well-qualified buyers.
In contrast, government-insured loans (like FHA, VA, and USDA loans) are designed to help borrowers with lower credit scores, smaller down payments, or unique eligibility requirements. These programs reduce lender risk by offering federal backing if a borrower defaults.
What Makes a Loan “Conforming”?
A conforming loan is any mortgage that meets the loan limit and other criteria set by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that buy mortgages from lenders on the secondary market.
Key criteria for conforming loans:
- Loan size must fall within the annual limits set by the Federal Housing Finance Agency (FHFA). As of 2024, the baseline limit is $766,550 in most areas but can be higher in high-cost markets.
- Must meet specific underwriting standards for credit, income, and documentation.
If a loan exceeds these limits, it’s considered a jumbo loan, which usually comes with stricter qualification requirements and higher interest rates due to added lender risk.
So, Can a Loan Be Both?
Yes—a conforming loan can also be a conventional loan if it meets Fannie Mae/Freddie Mac guidelines and is not backed by the government.
However, not all conventional loans are conforming. If a conventional loan exceeds the limit, it becomes a non-conforming or jumbo loan.
Final Thoughts
While the terms are related, understanding the difference between conforming and conventional loans can help you make better mortgage decisions. Whether you’re aiming for the stability of a conforming loan or exploring a jumbo option, knowing how each loan type works will help you plan more confidently.
Thinking of buying a new home?
Contact us today to discuss your loan options and find out which mortgage type is right for you.
